5 Family-Owned Stocks to Buy

Source: Shutterstock

Historically, family-owned stocks have outperformed the market. And it makes some sense why that’s the case — and why those controlled companies might be stocks to buy.

Family-owned companies generally have direct board oversight from family members. They’re less likely to take unwise risks, and by definition they’re more likely to have skin in the game. If an independent CEO is being compensated for share price gains, a major merger might seem a worthy gamble. If three of the board members are risking their family’s legacy on that deal, however, it might look very different.

As Credit Suisse (NYSE:CS) pointed out last year, family-owned companies outperform the market by a whopping 400 bps annually. The outperformance comes across sectors and company sizes. These 5 companies, too, represent a cross-section of the market. But all 5 look like stocks to buy.

Brown-Forman (BF.A) (BF.B)

Distiller Brown-Forman (NYSE:BF.A,BF.B) is best known for its Jack Daniel’s whiskey. But like other liquor plays like Diageo (NYSE:DEO), BF stock has been an attractive investment for some time now. The company has raised its dividend for 34 consecutive years. And after a few years of relatively stagnant growth, Brown-Forman has shown much stronger performance of late.

New offerings like Jack Daniel’s Tennessee Honey are driving sales. A move to premium whiskey — including Gentleman Jack and Woodford Reserve — has been a winner as well. Revenue growth has accelerated to 6% in fiscal 2018 (on a constant-currency basis) and should rise 4%+ this year, with the company projecting 11-18% EPS growth.

Meanwhile, BF.A stock has become much cheaper in the market selloff of late, currently trading at a 10-month low. There are some near-term concerns about tariffs, which led FY19 EPS guidance to be pulled down. But those concerns should fade, and long-term investors should ride out any volatility by picking up Brown-Forman on the dip.

Adams Resources & Energy (AE)

self-driving truck

Source: Wikipedia

Adams Resources & Energy (NYSE:AE) admittedly is a bit of a weird stock. The company’s primary Marketing business moves crude oil from the wellhead to end users, while a smaller transportation business trucks petrochemicals and other products through Texas and beyond.

The controlling Adams family has a bigger asset: the NFL’s Tennessee Titans (formerly the Houston Oilers). And it’s looked at times like Adams Resources has been forgotten. AE has a rising amount of cash — nearly $30 per share, against a current price of $41. Yet the dividend has been held steady, leaving that cash relatively dormant.

Still, there’s an intriguing bull case here, one reason I own the stock. Both the cash and a book value of $36 provide significant downside protection. A rebound in shale oil production and concerns about pipeline capacity could open new business for Adams. The company did acquire a trucking operation recently, perhaps signaling more aggressive capital allocation going forward. And a sale could be in the works at some point to a larger company. AE will require patience — but I still believe at some point that patience will pay off.

Nordstrom (JWN)

Source: Shutterstock

Even as a retail bear, I’m intrigued by Nordstrom (NYSE:JWN). The high-end retailer seems to have the most differentiated model in the department store space. It’s a brand notably different from that of a JCPenney (NYSE:JCP) or even a Macy’s (NYSE:M). As InvestorPlace’s Dana Blankenhorn pointed out in August, the company is aggressively reinventing itself as customers dress down — and succeeding in the process.

JWN is more expensive than those peers, but the premium is deserved. And the founding Nordstrom family remains on top of the story. It even tried to take JWN private at $50 — an offer the board refused.

With the stock now at $60, any weakness could see the family make another move, perhaps protecting the downside. In the meantime, investors own a well-run high-end business with a 2.4% dividend yield. That’s an attractive combination — particularly for retail bulls.

John B. Sanfilippo & Son (JBSS)

There are few, if any, public companies with tighter family control than nut processor and manufacturer John B. Sanfilippo & Sons (NASDAQ:JBSS). The founding family owns 89% of the non-traded Class A shares, giving it firm control from a voting standpoint. Members of the Sanfilippo family — including in-laws — comprise the majority of the board and upper management.

It might seem like there’s a risk that nepotism simply goes wild, but it’s actually been a hugely successful strategy for JBSS shareholders. The stock has moved from the single-digits as recently as the beginning of 2012 to a current price just under $70. Consistent special dividends mean that many long-time shareholders now own the stock for free — or even at a negative cost basis.

And returns should continue. The big gains have been driven by a shift toward manufacturing (the company owns the Fisher brand) instead of simply being a middleman in an industry with volatile pricing. That shift still has to play out. Newer brands like Orchard Valley Harvest capitalize on the “good for you” trend. JBSS trades at a discount to most snack companies — but its growth is better. A 14% pullback from August highs sets up a nice entry point as well.

Clearly, this is a management team worth betting on. When it comes to family-owned stocks, few have done it better than the Sanfilippos over the past few years.

Family-Owned Stocks to Buy: Estee Lauder (EL)

Source: Shutterstock

Estee Lauder (NYSE:EL) is one of the premier brands in the world. And like BF.A and BF.B, the market sell-off has moved it to an attractive, if still seemingly expensive, price.

EL briefly touched a 2018 low during this week’s market volatility, and still sits 19% below June highs. At 24x+ forward earnings, the valuation still looks high. But this is a company still steadily growing earnings double-digits, with room for expansion in developing markets (notably Asia) and market share gains in the U.S. and the U.K.

As a result, EL stock — like Estee Lauder cosmetics — is a classic case of paying up for quality. It’s not likely to be a decision that investors regret.

As of this writing, Vince Martin is long shares of Adams Resources & Energy. He has no positions in any other securities mentioned.

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Market Preview: Market Bounces in Relief Rally, Earnings Next Week from BofA, Netflix and P&G

Markets took investors for a wild ride Friday bouncing hard after two days of intense selling, turning lower midday, and then closing strong into the close. An attack on the Fed by President Trump seemed to exacerbate market volatility Thursday, originally brought on by fears the Fed would proceed willy nilly into a rate raising plan regardless of economic impact. By the close Friday, markets seemed to have stabilized, at least for the moment, with the tech heavy Nasdaq leading the way up over 2%. One stabilizing factor may have been news the lines of communication may be about to open between the U.S. and China on the issue of tariffs. Chinese President Xi Jinping and President Trump plan to meet at the G20 summit next month in Buenos Aires.

Bank earnings continue Monday with Bank of America (BAC) reporting in the morning and First Defiance Financial Corp. (FDEF) reporting Monday afternoon. As with the other big banks, investors will be focused on what BAC perceives the impact of rising rates will be going into Q4 and 2019. The bank reported good trading numbers in the first half of 2018, but that is unlikely to persist. BAC stock broke through support levels around $28 on Friday before rallying to close just above those levels. Much smaller than BAC, First Defiance has not been spared by the market selloff. The stock is down over 13% this quarter headed into earnings.

Most investors will be holding their breath on Monday, to see if the market turns its focus away from interest rate concerns back to economic numbers. Manufacturing numbers have been good, and we’ll get the New York manufacturing survey Monday morning. The survey numbers have been rising steadily throughout 2018. Also on tap for Monday are retail sales numbers and business inventories. Excluding autos, retail sales are expected to be up .3% month-over-month. Tuesday we’ll get Redbook retail numbers, industrial production, and the housing market index. The index, which measures the demand for housing, has been in a steady decline all year. Wednesday investors will look through housing starts numbers and then spend the afternoon parsing through the Fed minutes from their last meeting. Jobless claims and the Philly Fed Business Outlook will be released Thursday, followed by existing homes sales numbers Friday.

Earnings kick into high gear on Tuesday, when Johnson and Johnson (JNJ), UnitedHealth (UNH) and Netflix (NFLX) report. Netflix, one of the FAANG stocks, is down close to 20% for the quarter, but is still up over 60% on the year. Wednesday Abbott Labs (ABT), U.S. Bancorp (USB) and Kinder Morgan (KMI) are slated to release. Investors will be looking to Kinder Morgan for guidance on the oil market, which declined along with the overall market this week. SAP (SAP), Paypal (PAY) and high flying Intuitive Surgical (ISRG) headline the earnings releases Thursday. Even after a dip in October, ISRG stock is up almost 40% in 2018. Finally, investors will close out the week on Friday with a smorgasbord of earnings from consumer staples giant Procter & Gamble (PG), Honeywell (HON) and Schlumberger (SLB), among many others.

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