You don’t need to start with luck to have one on Wall Street.
When the curtain finally drops in 2020, there’s no uncertainty it’s going in the history books as one of the wildest years on record for Wall Street and investors. We’ve seen about ten years’ worth of volatility get crammed into just a couple of months.
Though times of intensified volatility can be scary, particularly thinking that we don’t know when corrections will strike or how long they’ll last, they’ve always proved to be opportunities for long-term investors. That’s because a bull market has eventually erased every single stock market repair in history. Little did we know that it’d take just five months for Wall Street to put the 34% tumble in the S&P 500 into the rearview mirror.
But just because the broader market is at a fresh all-time high doesn’t mean there aren’t bargains to be had. There are three stocks right now that have all the makings of being no-brainer buys for the patient, long-term-oriented investors.
And just in case you need a reminder, investing in the stock market doesn’t require you to be productive. If you have $300 to spare, which won’t be required to pay bills or cover crises, you have more than sufficient to invest in these no-brainer buys.
The first excellent way to put $300 to work would be to buy stock in social media kingpin Facebook (NASDAQ: FB)
Facebook has faced two meaningful headwinds through the first-half of 2020. First, the coronavirus disease 2019 (COVID-19) pandemic has generally caused businesses that advertise on the platform to cut their ad spend. Second, it’s had to contend with ad campaign suspensions from several brand-name companies unhappy with Facebook’s inaction concerning stopping hate speech and misinformation on its platform. Considering Facebook relies virtually entirely on ad revenue, these issues have pushed its year-on-year growth to its lowest levels yet.
But look at this from another angle. Even with nonessential business shutdowns in most U.S. states and developed markets worldwide, and with the U.S. unemployment rate rising to levels not seen consistently since the 1930s, Facebook still managed to grow ad revenue a double-digit percentage from the prior-year period. It also delivered double-digit growth on the daily active user and monthly active user (MAU) front.
When push comes to shove, Facebook provides businesses with more eyeballs than they can get anywhere else. With 2.7 billion MAUs and 3.14 billion family monthly active people (a metric that includes other sites owned by Facebook, such as Instagram and WhatsApp), Facebook offers businesses their best chance of reaching targeted eyeballs.
Best of all, Facebook is still in the process of monetizing its programs. While it’s generating big bucks from ads, the company has yet to open the advertising floodgates on WhatsApp or Facebook Messenger. Likewise, it hasn’t done much to monetize Facebook Pay, streaming, or other potential revenue channels on Facebook.
This is a firm with long-term double-digit growth potential.
Another prominent stock that’s a no-brainer buy is pharmacy chain CVS Health (NYSE: CVS).
Comparable to Facebook, CVS Health has faced its share of COVID-19 hurdles in 2020. The pandemic has reduced foot traffic into its stores. It has also hurt clinic revenue since fewer patients are receiving preventive care. But what everyone seems to be overlooking is that the pandemic isn’t a long-term issue.
One of the most reserved tailwinds for CVS Health is that America’s population is aging. As life expectancies lengthen and baby boomers hit retirement, reliance on prescription medicines to improve the overall quality of life should increase. Since pharmacy margins are many times higher than front-end retail margins in CVS stores, an aging population with easy access to prescription medicines is suitable.
What’s more, CVS Health has been driving the personalized medicine narrative in many of its locations. The company has plans to open around 1,500 of its HealthHUB health clinics around the country by the end of next year, to help patients with chronic diseases better manage their symptoms. If CVS can improve customer loyalty with these clinics and drive new foot traffic, it will effectively give its pharmacy operations an organic shot in the arm (pun fully intended).
Also, don’t neglect CVS Health’s acquisition of health insurance provider Aetna in 2018. We don’t often think of health insurers as high-growth companies, but that’s precisely what Aetna is relative to CVS Health’s low-margin retail operations. Aetna’s incredible premium pricing power, coupled with cost-saving synergies from this deal, should provide a helpful boost to organic growth.
With CVS Health lately increasing its operating cash flow and adjusted profit outlook for 2020, and currently going for nine times this year’s adjusted earnings per share, it checks all the boxes for value investors.
Lastly, if you want results, you can bank on (yes, more puns), put your $300 to work in regional bank U.S. Bancorp (NYSE: USB).
Sustaining with the theme, bank stocks have been clobbered by the pandemic-induced recession. The Federal Reserve has aggressively decreased its federal fund’s rate back to a record-tying low, which means banks are going to generate less in the way of interest income on loans for probably the next two years. Plus, recessions tend to increase the rate of loan delinquencies, hitting banks from both ends.
However, U.S. Bancorp is in a class by itself. Whereas most money center banks were mauled during the financial crisis a little over a decade ago, U.S. Bancorp emerged from that mess no worse for the wear. Its management team has a history of concentrating on the bread and butter of banking profits — i.e., loan and deposit growth — and has avoided riskier derivative investments. As a result, it usually emerges more quickly from recessions than its peers.
Moreover, U.S. Bancorp has done an outstanding job of keeping its noninterest expenses in check. This isn’t to say these expenses aren’t rising as the company gains new clients and makes investments into technology-focused solutions. Alternatively, it means that U.S. Bancorp minds its costs by promoting considerably cheaper digital and mobile transactions for retail customers. It’s also angling to close at least 10% of its physical branches.
Reasonably not surprisingly, U.S. Bancorp has also been a leader among big banks in return on assets (ROA). The company’s ROA during the past two quarters is nothing to write home about, particularly with loan-loss provisions soaring. Yet, during periods of steady economic expansion, an ROA of 1.6% is pretty typical. For some context, most banks deliver a ROA of around 1%, which demonstrates just how superior U.S. Bancorp is concerning making money off its assets.
With U.S. Bancorp wearing its most moderate price to book ratio in at least a decade, it’s a no-brainer buy for patient investors.