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3 Stocks Peter Lynch Would Love

John Bromels, Keith Speights, and Leo Sun, The Motley Fool

In the investing Hall of Fame, there are some names that loom larger than others. Warren Buffett, of course, is one of them. But mutual fund manager Peter Lynch is at least as highly regarded as the Oracle of Omaha.

If you haven't heard of Lynch, you're certainly not alone. But as the manager of Fidelity's Magellan Fund, Lynch notched an average annual return of 29% over his 30-year tenure, simply by investing in stocks. That figure brought him renown as the most successful stock picker of all time.

We asked three of our Motley Fool contributors to pick a stock that they think Lynch would love. They came back with Waste Management (NYSE: WM), Weibo (NASDAQ: WB), and Disney (NYSE: DIS). Here's why they consider these to be investments of which Peter Lynch would approve.

A man in a suit flying toward a dollar sign drawn in chalk, surrounded by chalk stars.

Peter Lynch was one of the best investors in history. Following his advice can make you an investing superhero. Image source: Getty Images.

Disgusting is good

John Bromels (Waste Management): Peter Lynch loved stocks that were boring. In his book One Up on Wall Street, he went a step further, writing: "Better than boring alone is a stock that's boring and disgusting at the same time. Something that makes people shrug, retch or turn away in disgust is ideal."

His reasoning was that if a business did something disagreeable, investors would subconsciously want to avoid thinking about it, let alone buying it.

One boring, disgusting stock that Lynch would have loved is Waste Management. Heck, even its name sounds kind of disgusting. But North America's largest trash hauler and landfill operator has been anything but a disgusting investment. Over the last five years, Waste Management's stock has increased by 139.6%.

The big reason for the company's continuing success is that trash is big business. A growing global population only produces more and more trash, and there are big barriers to entry in the waste management business: You have to have land for a landfill, which is tough to come by, as nobody wants to live near one. You have to have a fleet of trucks to transport the trash. And if you hope to get a lucrative major municipal contract, as Waste Management has with cities like New York and Chicago, you'd better have experience. Waste Management has it all.

Waste Management's latest quarterly results say it all. In Q1 2019, the company's revenue was up 5.3% year over year, operating EBITDA increased 3.4% year over year, and operating cash flow was up an impressive 10% over the prior year's Q1. The company also made a major acquisition of Advanced Disposal, which should lead to even more outperformance down the road.

Waste Management looks like a good bet to continue growing, and its valuation is comparable to its peers'. So even if just the thought of Waste Management turns your stomach, you should feel safe holding your nose and picking up some shares.

The "Twitter of China"

Leo Sun (Weibo): Many Chinese tech stocks -- which were beaten down by trade and tariff worries -- now offer robust growth at the low valuations that Peter Lynch pursued throughout his career. One such stock is Weibo, the microblogging platform that is often dubbed the "Twitter of China."

Weibo was spun off from SINA in 2014. On its own, Weibo flourished as a top platform for Chinese celebrities and influencers, and it continues to grow -- last quarter, its monthly active users grew 13% annually to 465 million.

However, some investors weren't pleased with its revenue growth of 14% (in USD terms), which marked a significant slowdown from previous quarters. That drop was caused by a slowdown in the Chinese economy, which throttled spending on Weibo's core business of online ads, and the depreciation of the yuan.

Weibo expects its revenue to rise just 0% to 2% annually (but 7% to 20% on a constant currency basis) during the second quarter. Analysts expect its revenue to grow just 2% this year as its earnings stay flat.

That growth looks anemic, but things could improve as Weibo reduces its dependence on ads with the growth of its VAS (value-added services) business, which mainly generates revenues from live videos. Easing trade tensions could revive ad spending, and the stabilization of the yuan could boost year-over-year comparisons.

That's why Wall Street expects Weibo's revenue and earnings to rise 14% and 18%, respectively, next year. Those are solid growth rates for a stock that trades at less than 14 times forward earnings -- and could arguably meet Lynch's high standards.

Over 1 billion fans and strong growth prospects

Keith Speights (Disney): Peter Lynch is famous for advocating that investors stick with the stocks of companies that they understand. I suspect that pretty much every investor understands Disney.

Disney operates in 12 major markets across the world, including, of course, the U.S. In those markets, a whopping 95% of consumers are familiar with the Disney brand. Familiarity is one thing, but being a fan is another. More than 1 billion people self-identify as Disney fans.

Neither of these statistics is surprising. After all, millions of visitors go to Disney's theme parks every year. The company owns some of the most popular movie franchises of all time, including the Marvel Cinematic Universe and the Star Wars films. Disney's ESPN has ranked as the No. 1 cable network among men for 13 consecutive years.

Even Peter Lynch would tell you that growth opportunities are just as important in investing as understanding a company. The good news is that Disney has tremendous growth opportunities. For example, the company is launching its Disney+ streaming service this year. This service is expected to be a huge hit.

Disney is also especially strong at maximizing the profits from its intellectual property. As a case in point, the company is leveraging the popularity of its Star Wars movie franchise by expanding its Disneyland and Walt Disney World theme parks to include a new Star Wars: Galaxy's Edge area.

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John Bromels owns shares of Sina, Twitter, Walt Disney, and Waste Management. Keith Speights owns shares of Walt Disney. Leo Sun owns shares of Sina and Walt Disney. The Motley Fool owns shares of and recommends Twitter and Walt Disney. The Motley Fool has the following options: long January 2021 $60 calls on Walt Disney and short October 2019 $125 calls on Walt Disney. The Motley Fool recommends Sina, Waste Management, and Weibo. The Motley Fool has a disclosure policy.