Motley Fool: Renting for solid returns
United Rentals (NYSE: URI) stock was recently down more than 20% from its all-time high while sporting a price-to-earnings (P/E) ratio near 13 – reflecting a good valuation at which to buy United Rentals stock for the long term.
United Rentals – “the largest equipment rental company in the world” – claims a 17% market share in North America, renting out everything from warehouse forklifts and excavators to portable offices and restrooms. With its equipment fleet valued near $20 billion, it would be hard for a would-be competitor to build what United Rentals has. Scale like this takes time.
United Rentals’ management is opportunistic with its fleet management. When rental demand is high, it tends to keep equipment in use, servicing as needed. When demand is lower or items reach the end of their usefulness for rental, management sells them. The company profits either way.
The company initiated a dividend in 2023 that recently yielded 1.6%. It’s also rewarding shareholders by repurchasing stock. Share repurchases are a big reason the stock has been a long-term winner – it’s averaged annual gains of nearly 22% over the past decade.
United Rentals isn’t a complicated story. Its services are routinely in demand because they’re important for infrastructure. These services generate substantial profits, and management returns profits to shareholders. This lucrative formula is likely to continue in 2023 and beyond.
Ask the Fool
Q. Penny stocks are so cheap – how can I not get rich when I can buy thousands of shares for just $100 or less? – H.S., Lake City, Florida
A. Penny stocks – those trading for about $5 per share or less – have caused many investors to lose lots of money.
The stocks are usually tied to small, unproven and often unprofitable companies. Since they have relatively few shares trading, they can be easily manipulated. In a classic “pump-and-dump” scheme, a scammer buys shares of a penny stock and hypes it online so that people buy and the price goes up; then the scammer sells in a rush, sending shares plummeting and wiping out the gullible investors.
Remember that a stock’s price alone tells you little about its value. Sure, you can buy gobs of shares of a $0.10 stock, but there’s a decent chance it will become a $0.05 or $0.001 stock instead of soaring and making you money. Meanwhile, even a $200 stock can be undervalued and on its way to doubling, tripling or more.
Both kinds of stocks can rise or fall by the same percentage over a day or year: A 10% increase will turn a $0.10 stock into a $0.11 one, and a $200 stock into a $220 one. If the $200 stock belongs to a growing, established and profitable business, it’s likely a much better buy.
Q. What’s “EPS”? – N.D., St. Joseph, Michigan
A. It stands for earnings per share. If you take a company’s net income (net profit) over a period such as a quarter and divide that by its number of shares outstanding, you’ll arrive at its EPS.
My smartest investment
My smartest investment move was increasing my 401(k) contribution rate from 12% of my salary to 14%. (Plus, I get a 6% match from my employer.) I also opened a Roth IRA and filled it with shares of companies such as Walt Disney, Microsoft and Waste Management. – L., online
The Fool responds: Those are a lot of smart moves!
A 401(k) account, whether of the traditional or Roth variety, can be a powerful investing tool for retirement. Many employers will automatically enroll workers in one, but at relatively low contribution levels, so it’s good that you increased yours to an aggressive rate that will let you sock away a lot of money for your future.
Many 401(k) plans offer at least one broad-market index fund in their menu, and that’s generally a solid choice for long-term dollars. (Make sure the fees are low; index funds generally charge very low fees, often below 0.2% annually.)
IRAs are also very effective. They have lower annual contribution limits than 401(k)s, but allow you to invest in just about any stock or mutual fund.
You did well selecting some dependable blue-chip stocks. Each has a solid track record of growing over decades while rewarding shareholders. Using a Roth IRA is also smart, because if you follow its rules, you get to withdraw money from the account in retirement tax-free!