For all of the focus on saving for retirement, most Americans have too little saved to actually retire comfortably. The average American has only saved about $87,000 in IRA and 401(k) accounts. Unfortunately, this falls far short of what most experts consider adequate savings to retire on. For instance, Fidelity's guidelines call for retirees to save the equivalent of 10 times their annual salary by age 67.
Given this situation, some affected investors might be looking for stocks that could increase their savings. At the same time, the closer these investors are to retirement, the less they want to take chances on stocks that could reduce an already too-small nest egg. They will want to avoid high-risk stocks.
Fortunately, there are stocks out there that offer growth and safety. Three options to consider are Apple (NASDAQ: AAPL), T-Mobile (NASDAQ: TMUS), and Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG). Let's find out a bit more about these relatively safe growth stocks.
1. Apple
Apple is one of the world's most recognized brands, but you have to look deeper to get insight into why investors trust the stock to build retirement savings.
The hardware and software giant has the attention of investors because its loyal customers love its easy-to-use and innovative products. Apple pioneered the smartphone industry with the launch of its iPhone, a product line that still accounts for the majority of the company's revenue.
It's also a player in the artificial intelligence (AI) arena. Its products and services incorporate AI, including its Siri voice-activated personal assistant and its Face ID technology on the iPhone.
Admittedly, Apple's revenue growth and profitability have lagged in recent quarters amid a sluggish economy. Nonetheless, Apple claims about $162 billion in net liquidity. Such resources not only make the company and stock stable, but they also give Apple a high level of optionality for creating (or buying) new business lines that can keep the growth going.
These strengths likely contributed to the stock price rising by around 45% over the last year. And though its P/E ratio of 30 is up from the previous decade, it closely approximates post-pandemic averages. With its globally recognized brand and leadership position in numerous consumer electronics niches, Apple can still help prospective retirees build wealth.
2. T-Mobile
Americans seeking a nationwide 5G mobile provider have three main choices, but T-Mobile is likely the one best positioned to serve investors. It has an advantage in that it is relatively free from the legacy costs that currently weigh down AT&T's and Verizon Communications' financials. Not having to deal with those costs has allowed T-Mobile to gain market share in the 5G wireless space through cost cuts and acquisitions. After acquiring Sprint, it made considerable market share gains and now accounts for 24% of the wireless market in the U.S.
Image sources: Strategy Analytics, FierceWireless, Statista, Sprint, AT&T, Verizon, T-Mobile US, and US Cellular.
These efforts helped T-Mobile succeed as a stock while the other two big players struggled. Consequently, it was the only wireless carrier to outperform the S&P 500 over the last five years, and that's despite rising only 13% over the previous year. T-Mobile spent more than $8 billion on its network in the first nine months of 2023 but it was still able to generate almost $5.5 billion in free cash flow during that period.
That gave it sufficient funding to start paying a dividend. At $2.60 per share annually, the 1.6% dividend yield closely approximates the S&P 500. Although T-Mobile's peers offer a considerably higher yield on their dividends, T-Mobile's superior stock performance should more than compensate for the lower cash return.
Furthermore, its 25 P/E ratio is near five-year lows, and as it leverages its growth position in the 5G market, it will likely remain the best-performing U.S. telecom stock.
3. Alphabet
One company that can balance safety and growth well is Alphabet. Investors know it best for its Google search engine, YouTube, and the Android operating system. It also stands out because it declared itself an "AI-first" company in 2016 and has since integrated that technology into all of its products and services.
Admittedly, some investors were underwhelmed with Alphabet around the time of the introduction of OpenAI's ChatGPT because it created a perception that the Google parent had lost its AI edge. It responded with its own generative AI tool called Gemini, which Alphabet claims outperforms ChatGPT in 30 of 32 benchmarks.
Moreover, Alphabet benefited this past year from a recovery in the ad market, which still makes up the majority of its revenue. It is also the No. 3-ranked company by market share in the lucrative cloud computing industry (behind Amazon and Microsoft).
Cloud Infrastructure Market Share, By Company - Q2 2023
Additionally, Alphabet owns countless businesses and holds $120 billion in liquidity. This gives Alphabet the incentives and resources to stay at the top of its game in AI. Investors' knowledge of all these facts likely helped the stock price jump nearly 60% over the last year.
At a P/E ratio of 26, Alphabet stock trades at a reasonable valuation compared to the six other "Magnificent Seven" stocks. Between its businesses, AI technology, and financial resources, Alphabet should continue to outperform the S&P 500.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, and Microsoft. The Motley Fool recommends T-Mobile US and Verizon Communications. The Motley Fool has a disclosure policy.
