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Buy this stock to outperform the market (UVV)

Frank Curzio
0 Comments|August 29, 2014

In January, I told you about the little-known stocks that would outperform the market this year – and in the years ahead.
 
I call these stocks elite small-cap dividend-payers. They have great brand names... are cheaper than many large-cap companies... and are growing their earnings much faster than large-cap companies.
 
More important, these stocks offer high yields... And many of these names have been raising their annual dividends longer than giant companies like McDonald's and Johnson & Johnson.
 
That's why I said money would pour into these companies this year – and in the years ahead.
 
We've seen this with two of the little-known, elite small-cap dividend-payers I told you about last year – ATM supplier Diebold Inc. (NYSE: DBD, Stock Forum) and chemical manufacturer RPM International (NYSE: RPM, Stock Forum).
 
These names are up an average of 13.5% so far this year. Meanwhile, the S&P 500 is up around just 8%.
 
In short, if you're looking for safe, high-yielding stocks that will outperform the market in the years ahead, you should turn to elite small-cap dividend-payers.
 
And today, we have the chance to buy another one of my favorite names in this space at a dirt-cheap price...
 
Like Diebold and RPM, most people have never heard of Universal Corp. (NYSE: UVV, Stock Forum). The company is off the radars of most investors. In fact, no institutional analysts provide research on the stock. But Universal is a leader in its field.
 
The $1 billion market cap company grows and sources tobacco through a network of suppliers, farmers, and traders. In short, Universal supplies the world's top cigarette and tobacco companies like Philip Morris, British American Tobacco, and China Tobacco International with their main product, tobacco.
 
These giants turn to Universal for one basic reason... The company has spent nearly a century doing business with thousands of tobacco farms across the world. And Universal dominates its corner of the tobacco market... It handles between 20% and 45% of all the tobacco grown in North America, Africa, and Brazil. Its operations reach across 30 countries on five continents.
 
Importantly for investors, Universal has raised its dividend payment every year for 43 years. It also pays a large 3.9% yield. That's more than double the S&P 500. And it has huge growth potential.
 
Yes, smoking trends are declining in most developed nations. But remember – Universal is not a cigarette company. It's a tobacco company. And it's entering big new markets. For example, studies are now showing that tobacco can be used to fight certain cancers and many other diseases. You see, the leaves and flowers of tobacco plants contain molecules that fight off fungi and bacteria. These molecules can also be used to create antibodies to identify and destroy cancer.
 
This has the potential to be a huge market. Cancer treatment as a whole is a $100 billion-a-year industry in America – and it will clip $130 billion in the next few years. And as a leader in supplying tobacco to companies, Universal stands to be one of the biggest beneficiaries.
 
Despite this, expectations for 2015 are low for the company because volumes this year are down from last year. This news is reflected in the stock price, with shares trading close to their 52-week low.
 
But you want to buy companies like Universal when they're out of favor. It's the same sort of situation we saw with Diebold and RPM last year.
 
And I don't expect the selloff to continue for much longer. Universal is a stable business that has been around for nearly a century. It generates a strong cash flow... it has increased its dividend every year for 43 years... And with big growth catalysts, it is expected to grow earnings faster than large-cap stocks like McDonald's and Coke in the years ahead. That's why I expect money to pour into Universal and small-cap companies like it over the next few years as interest rates remain near historic lows.
 
And because of the recent fall in shares, Universal is cheap – trading at less than 10 times earnings. For comparison, the average S&P 500 company trades at 17 times earnings.
 
If you're looking for a safe place to make money right now, I recommend buying Universal today. It's likely to outperform the market in the years ahead.

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