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Your pocketbook will thank you if you hang onto these quality companies for the long term.
It’s a truly trying time to be an investor. Panic and uncertainty caused by the coronavirus disease 2019 (COVID-19) pandemic pushed the broad-based S&P 500 into its fastest bear market in history in March and eventually sent the widely followed stock index down 34% in just 33 calendar days. Never have equities had the rug pulled out from beneath them so quickly.
But at the same time, panic often breeds opportunity when we’re talking about investing. Despite never knowing when stock market corrections will present themselves, how long they’ll last, or how steep the drop will be, every correction (and bear market) in history has proven to be an excellent buying opportunity for investors with a long-term mindset.
What’s more, you don’t have to be rolling in dough to put your money to work in the stock market. If you have $2,500 in cash that won’t be needed to pay bills or for an emergency, you have more than enough to make a difference. If you have cash to spare, here are some of the smartest stocks you can buy right now.
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Over the past decade, Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) CEO Warren Buffett is pretty much par for the course with the benchmark S&P 500. But dating back to 1964, Buffett has more than doubled the annual performance of the S&P 500, inclusive of dividends, and delivered an aggregate return for Berkshire’s stock that outpaces the S&P 500 by more than 2,740,000%! In other words, buying Berkshire Hathaway stock makes investing great Warren Buffett your default portfolio manager.
Buying a stake in Berkshire also ties your portfolio to that of the U.S. and global economy. Although recessions are an inevitable part of the economic cycle, the U.S. and global economy tend to spend far more time expanding than they do contracting. Thus, Buffett’s historically large bets on traditionally cyclical sectors, such as financials, consumer staples, and information technology, set his company up for success over the long run.
You can also buy Berkshire Hathaway stock at a significant discount. We’re talking about a company that’s ended each of the past five years at a valuation of 31% to 59% above its book value. Currently trading at 15% above book value, Berkshire is about as inexpensive as we’ve seen it in a decade. Perhaps this is why Buffett has been busy repurchasing his own common stock of late.
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The coronavirus pandemic hasn’t created new trends within certain industries — it’s more like it’s accelerated already existing trends. Take cybersecurity, for example, which was a necessity long before COVID-19 hit. However, with more employees working from home, the need to secure the cloud has grown exponentially. That’s what makes Ping Identity (NYSE:PING) such a smart cybersecurity/identity verification play.
Why Ping Identity? Arguably the most exciting aspect of this company is its incorporation of artificial intelligence and machine learning to help secure enterprise clouds. Ping’s solutions can evolve to spot potentially dangerous situations where a hacker or non-human might be attempting to access important data. In these situations, Ping may require multifactor authentication to confirm the identity of an employee and keep those who are unwanted out of the cloud.
A company like Ping Identity, which is providing a basic-need service in any economic environment, can reasonably grow by 15% to 20% annually, thereby doubling its sales every four years. That’s fantastic news considering that the company is already profitable.
IMAGE SOURCE: CVS HEALTH.
Another genius investment to consider is pharmacy-chain giant CVS Health (NYSE:CVS).
As you can imagine, stay-at-home orders throughout much of the U.S. have likely hurt CVS’ front-end sales over the past two months. However, it’s important to understand that CVS generates razor-thin margins from its front-end products. Rather, this is a story about pharmacy sales and insurer growth.
The great thing about pharmacy sales is that they tend to be consistent. By this I mean that if a person needed heart medication or insulin prior to COVID-19, they’re going to continue needing these medications during and after the pandemic.
Furthermore, CVS Health acquired insurance-giant Aetna in 2018, broadening its sales channels and bolstering its organic growth. I suspect 2020 will demonstrate the real cost synergies of combining these two businesses.
And don’t forget CVS Health’s push toward personalized services. This is a company that’s planning to open 1,500 HealthHUB health clinic locations across the country by 2021, which should help funnel additional foot traffic and prescriptions into its stores. Valued at just over eight times next year’s earnings, CVS Health is begging to be bought by value-focused long-term investors.
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Discount retailer TJX Companies (NYSE:TJX), which is behind the Marshalls, T.J. Maxx, and HomeGoods brands, is yet another smart way to put your $2,500 to work.
Like most retailers, TJX has been walloped by the coronavirus, with many of its stores shut down for weeks at a time. But as other retailers struggle and try to formulate a plan to survive COVID-19, TJX’s business model puts it in prime position to succeed.
TJX’s success is derived from its ability to scoop up brand-name merchandise at a discount. Management learned a long time ago that consumers love brand-name merchandise, and they’ll buy a lot of it at a perceived discount. TJX should have an absolute field day purchasing merchandise from the growing number of retailers going out of business. Because the company buys in bulk, it’s already getting a huge discount, meaning it can pass along a portion of this discount to consumers and still reap significant margins.
What investors are getting with TJX Companies is a retailer that still envisions opening more than 1,500 new stores over the long run (many of them in the U.S.) and has sales-growth potential of nearly 10% a year. It’s possibly the cream of the crop among retail stocks.
1. Nike: At the top of its game
Nike is the leader in the shoe and sports apparel industry and continues to innovate, raking in sales with its celebrity-endorsed and technologically advanced products. With $39 billion in annual sales, it has a good lead over its competitors, it’s almost uncatchable, and it’s still growing.
IMAGE SOURCE: NIKE.
In the company’s recently completed third quarter, revenue increased 5% despite the closure of stores in China, its biggest growth market. And during the current fourth quarter, with retail outlets around the globe currently closed, the Chinese stores have reopened, giving Nike a chance to partially balance out losses.
Nike has been in the process of developing a strong direct-to-consumer business that it’s been nurturing to support the company’s operations. Once retail operations get back up to speed, Nike is ready to renew that transformation. In the meantime, its robust digital initiatives that include several mobile apps in addition to its e-commerce platform are bringing in needed revenue to help it maintain operations.
Nike stock is down about 14% year to date, which makes it a good time to buy. Even at the current price, its forward price-to-earnings ratio is 36, so it’s not quite on sale, but with great future prospects for continued growth, the price has already bounced back from earlier coronavirus-induced lows and should keep climbing.
2. TJX: A retailer for any environment
The TJX Companies, a discount retail operator of several store brands, including Marshalls, T.J. Maxx, and HomeGoods stores as well as other off-price retailers, has been maintaining solid growth levels and comps increases in the U.S. as well as making inroads into several international markets.
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In the company’s fourth quarter at the end of 2019 there was a 10% increase in sales and a 6% increase in comps. CEO Ernie Herrman frequently reassures shareholders that with 21,000 vendors supplying goods, there’s an abundance of merchandise for TJX’s stores to sell. The strong supplier relationships in 100 countries give the off-price retailer incredible flexibility and options. Now more than ever, TJX is likely to have a huge assortment of goods to acquire at a discount from assorted retailers who are burdened with excess inventories they need to offload in the face of COVID-19 lockdowns.
TJX has performed well in many types of environments, including recessions, as customers look for more competitive pricing and potential bargains.
TJX stock is down around 19.7% year to date, making this a good time to take a position.
3. Starbucks: Everyone loves a good cup of coffee
While you can get a coffee at pretty much any corner cafe, Starbucks brand of specialty coffee products is so far ahead of other shops in terms of sales and technology that no rival can offer what it can for customers or investors. This gives it a leg up on any competition and a strong place from which to operate for many years to come.
IMAGE SOURCE: STARBUCKS.
Part of that is the relentless innovation that has brought the company consistently higher customer engagement and sales. In Starbucks’ just-released second-quarter results, the company reported a drop in revenue attributed to COVID-19 shelter-in-place orders, but it also had an increase in the average ticket price, or the amount ordered per ticket. While the coffee king said it expects further revenue decline in the third quarter, it projects that the decline will slow in the fourth quarter before regulating to more of the norm.
Starbucks stock is already recovering from COVID-19 lows and is currently down 12.7% year to date.
Each one of these companies has a proven track record of innovation and generating increased revenue. Here’s how these three companies have delivered shareholder value over time as compared to the S&P 500:
|Metric||1-year return||5-year return||10-year return|
|S&P 500 (SNPINDEX:^GSPC)||(0.4%)||38%||145%|
SOURCE: CHART CALCULATIONS BY THE AUTHOR.
All of these companies have the potential to keep producing these kinds of results and add value to your portfolio.
By Sean Williams