7 Stock Market Sweethearts You’ll Want to Call Your Own – Motley Fool
Posted: February 15, 2020 at 2:54 am
It's Valentine's Day, and love is in the air. But so are big stock gains, with the benchmark S&P 500 and technology-heavy Nasdaq Composite hitting all-time record highs earlier this week.
A number of top money managers have said that you shouldn't fall in love with your investments, but that's a pretty hard suggestion to follow when there are so many great businesses you can own a piece of and call your very own for a long time. Below, you'll find seven stock market sweethearts that offer a combination of competitive advantages, superior branding, and long-term growth opportunities that'll have you swooning.
Image source: Getty Images.
Amazon (NASDAQ:AMZN) is pretty much at its all-time high -- and so what? Not only is Amazon responsible for close to 40% of the United States' e-commerce retail sales, according to eMarketer, but its cloud services business, Amazon Web Services (AWS), is growing at a significantly faster pace than its retail operations.
Why's this important? AWS generates substantially juicier margins than traditional retail sales, meaning that as AWS becomes a greater percentage of total sales for Amazon, the company's cash flow and profitability should soar.
According to Wall Street estimates, Amazon's cash flow per share is expected to nearly double between 2019 and 2022, placing the company at a significant discount to its average price-to-cash-flow ratio over the past five years. Assuming Amazon continues to dominate with its cloud offerings, considerable upside remains for its share price.
Image source: Getty Images.
Like Amazon, robotic-assisted surgical system developer Intuitive Surgical (NASDAQ:ISRG) is a company that just continues to grow stronger over time. Although Intuitive Surgical earns quite a bit of revenue from the sale of its pricey da Vinci surgical systems ($0.5 million to $2.5 million per machine), these systems are costly to build and therefore result in only modest margins.
Rather, this company generates the bulk of its profits from selling instruments with each procedure, as well as servicing its systems. As more da Vinci systems are installed, these higher-margin revenue streams become a larger percentage of total sales. Translation: Operating margins should increase over time.
What's more, Intuitive Surgical is just scraping the tip of the iceberg on soft-tissue surgeries with da Vinci. Aside from prime market share in gynecology and urology procedures, there's a long-term opportunity to grow its market share in colorectal, thoracic, and general soft-tissue surgeries. In short, this is a razor-and-blade business model with an extremely long growth runway.
Image source: Getty Images.
Cannabis hasn't exactly been a top-performing investment over the past 10-plus months, but that hasn't stopped marijuana real estate investment trust (REIT) Innovative Industrial Properties (NYSE:IIPR) from thriving. This REIT, which acquires medical marijuana growing and processing sites then leases them out for long periods of time, currently owns 49 properties in 15 states.
These assets have a weighted-average lease length of 15.6 years, with its $538 million in invested assets yielding an average of 13.2%. In other words, Innovative Industrial Properties should have a complete payback on its invested capital in just about 5.5 years.
Furthermore, the only high-yielding cannabis stock continues to benefit from vertically integrated multistate operators in the U.S. having limited access to financing. As long as cannabis banking reform is swept under the rug or kicked down the road on Capitol Hill, Innovative Industrial Properties' key advantage remains in place.
Image source: Getty Images.
While there's no denying that AT&T (NYSE:T) isn't the telecom growth giant it once was, there's also no overlooking its rock-solid business model or longer-term growth drivers. For instance, the rollout of 5G networks, while initially costly for the company, should lead to a steady wave of smartphone upgrades. Increased data usage is great for AT&T and its bread-and-butter wireless division, since data is where its juiciest margins lie.
Furthermore, AT&T is a content giant that should be able to utilize its purchase of Time Warner to its advantage. The addition of TNT, TBS, and CNN provides a lure to new consumers, especially streaming customers, while bolstering AT&T's ad-pricing power.
Sporting a 36-year streak of increasing its dividend, AT&T and its 5.4% yield are about as safe as it gets on the income front.
Image source: Getty Images.
It's pretty incredible how quickly Bank of America (NYSE:BAC) has transformed since the Great Recession. A number of settlements tied to the mortgage meltdown are now firmly in the rearview mirror, and BofA has done a bang-up job of reducing noninterest expenses to improve profitability. This has been accomplished by closing some of its physical branches and focusing on the next generation of consumers via digital banking and mobile apps.
Bank of America is also expected to benefit from the long-term normalization of interest rates. There's not a money-center bank that's more sensitive to interest rates than BofA. If interest rates wind up nearing their historic average, it should lead to billions in added net interest income for Bank of America. Following a $37 billion capital-return plan, announced in June 2019, BofA's capital returns could be robust if the fed funds rate finds its way back to 3%.
Image source: Pinterest.
Maybe it's apropos that a list of stock market sweethearts includes social-media giant Pinterest (NYSE:PINS), which is all about sharing your interests and things you like/love with the world. Last year, Pinterest saw its sales rise 51% to $1.14 billion, with global monthly active users (MAUs) rising 26% in the fourth quarter to 335 million from the year-ago quarter.
The Pinterest story is really all about international growth. In 2019, U.S. MAUs increased by only 8%, with the bulk of the gains coming from international markets, with MAUs up 35%. What's more, average revenue per user (ARPU) in foreign markets is really beginning to take off.
ARPU more than doubled on a full-year basis to $0.54 from $0.25. Pinterests' global ARPU level is still way behind rival Facebook, but it clearly demonstrates that advertisers are willing to pay up for eyeballs on Pinterest's platform, which, in turn, suggests that the company's ad-pricing power is improving.
With a turn to recurring profitability expected in 2020, Pinterest looks to be a solid candidate to "pin" to your portfolio.
Image source: Getty Images.
Historically, there's just never a bad time to buy into payment-processing giant Visa (NYSE:V). Visa is a dominant force in the U.S. that's responsible for more than half of the country's network purchase volume. It's also laying the groundwork to be a major payment-processing provider in markets well outside the United States. The 2016 purchase of Visa Europe significantly increased its global merchant network, and the company has the ability to continue growing its overseas market share as underbanked regions of the world, such as the Middle East and Africa, improve banking and credit access.
The beauty of Visa's operating model is that it's not a lender. Sure, this doesn't allow the company to double dip like some of its peers and earn interest while also lending money. However, it also protects Visa from credit delinquencies when U.S. or global economic growth contracts. This sole focus on being a payment facilitator and payment innovator is what allows Visa to charge higher.
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7 Stock Market Sweethearts You'll Want to Call Your Own - Motley Fool
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