3 large conglomerate stocks for your IRA
For most people, one of the best ways to invest in a tax-efficient way is to use an Individual Retirement Account (IRA). There are several types, but the problem with all of them is that you cannot withdraw funds from them without incurring a penalty until your age reaches 59 and a half. This shouldn’t really be a problem when you’re investing for the long term.
If you are looking for suitable investments that you can hold in an IRA for decades, three major conglomerates to consider are Constellation Software (TSX: CSU), InterActiveCorp (NASDAQ: IAC), and Boston Omaha (NASDAQ: BOMN). Let’s find out a little more about these companies and why they make good IRA investments.
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1. Constellation software
Founded in 1995 by former venture capitalist Mark Leonard, Constellation Software has been one of the top performing stocks of the past 15 years. Since its IPO in 2006, its share price has risen by more than 14,000%, crushing the market at large. Why has Constellation been so successful and what makes it such a solid investment? The company is a conglomerate of hundreds of vertical market software (VMS) companies of all sizes and in all kinds of industries.
VMS products are designed to meet the specific needs of businesses in narrow niches, unlike horizontal market software products like Microsoft Excel, which meet more general needs. Since its inception, Constellation has been steadily acquiring other VMS companies and using the excess cash they generate to buy more. Its disciplined underwriting process has allowed it to grow its free cash flow at a high rate for many years.
During the past 12 months, Constellation’s consolidated free cash flow was $ 1.3 billion. At its current market cap of $ 32.7 billion, that gives it a Price to Free Cash Flow (P / FCF) ratio of 25. With a solid track record of success, a proven playbook, and plenty of business opportunities. acquisition. (It is estimated that there are over 100,000 software companies in the world and Constellation has less than 1,000) Constellation looks like a great long-term asset for anyone’s wallet.
2. InterActiveCorp (IAC)
IAC focuses on mainstream Internet companies. It started in 1995 with today Chairman Barry Diller as CEO, and has since acquired and sold numerous companies, including Expedia (NASDAQ: EXPE), Match group (NASDAQ: MTCH), and more recently Vimeo (NASDAQ: VMEO).
IAC currently holds a controlling stake of over $ 5 billion in Angi (NASDAQ: ANGI), a $ 2.45 billion stake in MGM Resorts (NYSE: MGM), and $ 2.8 billion in cash. He also owns a bunch of small businesses like the online publisher DotDash, the family care website Care.com and Ask.com. These assets are currently valued by the market at $ 2.28 billion and have generated $ 1.4 billion in revenue over 12 months.
IAC’s investment thesis is not based on the success of one company, but on a group of companies trading at a discounted valuation – its current market capitalization is $ 12.8 billion. If the team that Diller has assembled can continue to build successful consumer internet companies, IAC should prove to be a rewarding asset for IRA investors.
3. Boston Omaha
Since the inception of Boston Omaha in 2015, co-CEOs Alex Rozek and Adam Peterson have purchased a number of entire companies and taken minority stakes in others with the general goal of increasing long-term intrinsic value through action. Its largest wholly-owned subsidiaries are active in the display, bond insurance and broadband sectors. Over the past 12 months, these transactions have generated approximately $ 47.5 million in sales for Boston Omaha. In the billboard and insurance segments, revenues have been depressed due to the COVID-19 pandemic, so investors should expect its consolidated results to pick up over the next two years.
Apart from these wholly-owned businesses, the company has a stake valued at approximately $ 100 million in Dream search homes (NASDAQ: DFH), sponsor of an ad hoc acquisition company (SPAC). He also owns a 15% stake in subprime auto lender CB&T Corp.
As with the other two conglomerates discussed here, an investment in Boston Omaha is a gamble on the ability of management to do well by shareholders. It has less of a track record than IAC and Constellation Software, which makes it a bit riskier, but with a market cap of less than $ 1 billion, it has a lot of upside potential, especially for investors who plan to keep. his actions for a decade or two.
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Teresa Kersten, an employee of LinkedIn, a subsidiary of Microsoft, is a member of the board of directors of The Motley Fool. Brett Schafer owns shares of Boston Omaha Corporation and Match Group. The Motley Fool owns stock and recommends Boston Omaha Corporation, Constellation Software, Match Group, and Microsoft. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.