Best Stocks for Growth and Income: Top 3 Picks for Your Portfolio

Key Points

• As lower rates work their way through the financial markets, investors might want to prioritize growth and income.
• Three stocks in different industries fit the description to offer these characteristics for investor portfolios in the coming quarters.
• Wall Street analysts agree with the double-digit upside in these names moving forward.

Now that the Federal Reserve (the Fed) has cut interest rates by 50 basis points, the financial sector yields for treasury bonds and savings accounts are becoming less attractive for investors and customers. For this reason, portfolios should now have a preference for stocks that offer potential growth in the coming quarters alongside enough dividend income to cushion any of the low-rate side effects.

Considering this criterion, investors can combine sound fundamental thinking and business models to align their future potential returns on the winning side of history. Stocks like Phillip Morris International Inc. NYSE: PM, a consumer staples sector play, bring these characteristics to the table. Chevron Co. NYSE: CVX can be considered a way to bet on the energy sector’s rise in the coming months.

Finally, as an additional layer to consumer staples, investors can consider an early Warren Buffett stock through shares of Kraft Heinz Co. NASDAQ: KHC for a stable low-beta ride ahead with still enough growth and income to justify putting some of their capital to work in the coming quarters. Of course, all of this sentiment is accompanied by Wall Street analyst sentiment as well.

Philip Morris Stock: A Classic Adapting to New Market Trends

Even though tobacco products have been with society for generations, the appeal for cigarettes is starting to die down for newer generations, so Phillip Morris's management decided to do something about it instead of just watching the industry break down and have its competition take over.

They introduced "Zyn," nicotine pouches widely adopted by the finance industry and others for their convenience and trendiness. So far, this new product line has turned into a multi-billion-dollar revenue source for Phillip Morris and is only expected to continue growing. Based on this trend, Wall Street analysts now forecast up to $1.85 in earnings per share (EPS) for next year.

This forecast calls for a net growth of 16.4% over the year compared to today's $1.59 EPS. Based on these forecasts, analysts at Barclays decided to reiterate their "Overweight" rating on Phillip Morris stock and keep their price targets of $145 a share, calling for up to 22.5% upside from where the stock trades today.

That's most of the company's growth story; now, here's something for income. A payout of $5.4 a share would offer shareholders an annualized dividend yield of up to 4.6% today, beating inflation and most treasury bond yields. Facing all of this bullish evidence, bearish traders decided to bail out of Phillip Morris's stock.

The company's short interest declined by 7.7% over the past month, showing signs of bearish capitulation for this growth and income story. In the coming quarters, this might become a preference for investors.

Chevron Stock Tops the List as a New Energy Cycle Unfolds

Warren Buffett already made his bullish view on oil public, as he recently bought up to 29% of Occidental Petroleum Co. NYSE: OXY. While that stock went lower after his purchase, investors can get ahead by riding off Chevron’s recent bullish price action. That name now trades at 85% of its 52-week high price.

More than that, because oil is still struggling to stay above $70 for a prolonged period, management has been able to manage the company’s cash flows tightly enough to afford a $6.52 a share payout for shareholders today.

Annualized, this payout translates into a dividend yield of up to 4.3%, which also beats inflation and treasuries.

That’s not the only benefit Chevron stock offers investors, however. Analysts at the UBS Group and Mizuho see a price target of up to $189 a share for Chevron, calling for an additional upside of 25% from where the stock trades today.

With interest rates headed lower, business activity and demand might be on the rise soon, which is usually good for oil prices. So, the new energy cycle is standing behind Chevron stock as a potential tailwind in the near future.

Kraft Heinz: The Unlikely Candidate That Fits Both Growth and Income Portfolios

Even though this stable stock trades at 91% of its 52-week high and only offers a low beta of 0.48 today, investors don't have to lose hope in seeing a double-digit run higher with this one. Knowing that lower rates might hurt other businesses but actually help staple names like Kraft, Wall Street jumped all over the stock.

Including those analysts at Deutsche Bank, who reiterated their "Buy" rating as of July 2024, keeping a price target of $39 a share for the company. To prove these analysts right, the stock would need to rally by as much as 14% from today's already elevated prices, calling for a new high for the year and more bullish momentum.

Realizing how fatal it may be to bet against this growth and income name, bearish traders decided to decrease their short positions in Kraft Heinz stock.

Over the past month, the company reports its short interest declined by as much as 13.7% to show signs of capitulation from the bearish side, leaving more room for bulls to take their place instead.

Counting on this company's stable and predictable cash flows, management affords a $1.6 payout to shareholders or an annualized dividend yield of up to 4.7% to maintain the income and growth potential trend.