Sarah Travers
Investing in stocks doesn’t always require complex strategies or chasing the latest tech innovation. Sometimes, the best investments are found in well-established companies that are demonstrating their strength year after year. In this article, we’ll highlight three no-brainer stocks that are worth considering for your portfolio: McDonald’s, Electronic Arts, and Ulta Beauty.
McDonald’s Strengthens Its Dominance
McDonald’s (MCD -0.93%) has been a stalwart in the fast-food industry, and its recent performance reflects its enduring appeal. In the third quarter, comparable-store sales surged by an impressive 9%, almost double the growth rate of its competitor, Chipotle. Notably, these two giants are increasingly competing as Chipotle expands into the drive-thru channel. Nevertheless, McDonald’s continues to fortify its market dominance.
What makes McDonald’s even more enticing is its financial performance. The company’s profit margin is steadily approaching a record 45% of sales, a figure that outshines its peers in the fast-food industry. A significant portion of McDonald’s earnings comes from high-margin sources like royalties, rent, and franchise fees.
Electronic Arts – A Leader in the Gaming Industry
Electronic Arts (EA 0.06%) is another compelling stock option, especially if you’re looking to invest in the video game sector. While EA may have underperformed the market last year and trailed Take-Two Interactive by a margin, it remains a leader in the industry.
Despite Wall Street’s greater enthusiasm for Take-Two’s potential sales boost, EA still has a clear path to reaching approximately $8 billion in revenue for the fiscal year. Importantly, it does so without the uncertainties associated with launching multiple new franchises. EA is not only profitable but also cash-flow-positive, a feat that its competitor Take-Two can’t claim at the moment. Furthermore, EA’s stock is reasonably priced at just 5 times annual sales.
Ulta Beauty’s Attractive Prospects
Ulta Beauty (ULTA 0.19%) may appear to be facing short-term growth challenges, which have led to an attractive valuation. The stock currently trades at just 2 times annual sales, down from its pandemic-high valuation of 3 times sales. While its stock returns have been negative over the past year, the S&P 500 soared by 22%.
Despite industry-wide challenges that have prompted price cuts by competitors to move inventory, Ulta continues to enjoy robust customer traffic, ample cash flow, and profitability well above its pre-pandemic levels. In late November, Ulta’s executives revised their 2023 growth outlook, now anticipating comparable-store sales to increase by as much as 6%.
Investors should exercise caution and monitor Ulta Beauty’s upcoming earnings report for confirmation that the company is on track to boost sales in 2024. Effective inventory management will be crucial in maintaining Ulta’s approximately 15% operating profit margin.
A Solid Foundation for Investment
For investors seeking stable and promising opportunities, these three no-brainer stocks present compelling options. McDonald’s dominance in the fast-food industry, Electronic Arts’ leadership in gaming, and Ulta Beauty’s growth potential in cosmetics and fragrances make them worthy considerations for a diversified portfolio. While investing always carries some level of risk, these companies’ demonstrated strengths suggest they are well-positioned for long-term success.
