Do you have $ 5,000? Here are 4 stocks the smartest investors are buying right now
Just when you thought there were no more records to break, Wall Street is showing investors that it still has some tricks up its sleeve.
On Monday, investors witnessed something truly historic and disheartening. Despite the Federal Reserve’s best efforts to calm already turbulent markets with its biggest emergency rate cut in history (100 basis points), the stock market recorded its second-worst percentage drop of all time, as well as the biggest single-session point drop that we have never seen for the Dow Jones Industrial Average, Nasdaq Composite, and S&P 500.
The blame for these wild hesitations rests with the spread of coronavirus disease 2019 (COVID-19) and efforts to mitigate the economic uncertainty surrounding this disease have created. Closures in a number of developed countries, as well as restaurant closings in some US states, have made it clear that winning the battle against the coronavirus will take a heavy economic toll.
But there are several reasons to be exceptionally optimistic about the long-term outlook for the stock market. For example, the Volatility index, or VIX, recently hit its highest levels since the financial crisis. VIX peaks above 50 have always been strong buy signals for patient long-term investors.
Furthermore, each of the previous 37 fixes of the S&P 500 at least 10% since the early 1950s have finally been completely wiped out by a bullish rally. Essentially, if you buy high quality companies and hold them for long periods of time, you should be making money. Smart investors know this, which is why they have joined this coronavirus-induced panic.
With the benchmark S&P 500 down 30% from its all-time high after Monday’s historic collapse, now is the time to put your capital to work. If you have $ 5,000 of cash on hand (that is, you don’t need to pay bills or cover emergencies), you should consider following the lead of the smarter investors. of the world and buy the four most important actions.
Of course, you could use an S&P 500 trailing ETF to generate similar returns in the stock market, or you could do what the smartest investors have been doing for decades and put your trust in it. buy and hold ethos of investing the great Warren Buffett by buying shares of Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B).
Berkshire Hathaway has two ways to make money. Over the course of several decades, Buffett and his team have acquired approximately five dozen companies in a variety of industries and sectors that contribute to Berkshire’s sales and bottom line. Buffett also manages an investment portfolio which, as of December 31, 2019, consisted of 52 securities. Since the start of 1965, the average annual return, in terms of market value per Berkshire Hathaway share, has been 20.3%, which more than doubles the average annual return with dividends included by 10% for the S&P 500. Au total, Buffett drove Berkshire to 2,744,062% market value gains per share in 55 years.
Although Buffett is exposed to corrections and bear markets like any investor would be, Berkshire had a record cash treasure trove of $ 128 billion at the end of 2019. You can rest assured that Buffett is putting that money to work. wonderful businesses now. go for fair prices. This should mean that healthy long-term gains await Berkshire Hathaway shareholders.
I know, the idea of buying in retail with the fear of the coronavirus preventing consumers from leaving their homes probably doesn’t seem acceptable. Corn TJX companies (NYSE: TJX), who is behind chains such as TJ Maxx and Marshalls, is no ordinary retailer.
What makes TJX so special is the company’s ability to acquire branded products. Unlike many discount peers who lack brand appeal, TJX is able to use its size and geographic reach in the United States to buy branded clothing and accessories wholesale with a significant discount. He is then able to pass these discounts on to consumers, while accumulating incredible margins. Consumers have always shown that they flock to branded products, which makes the TJX model golden.
After Monday’s market collapse, TJX is valued at just 13 times next year’s earnings, which may or may not require some minor adjustments, depending on how long it takes to curb new coronavirus infections in the states. -United. This is the lowest forward price / earnings ratio for TJX companies since 2010! This is too good of a retailer to be low priced, and the smartest investors know it.
Another absolute puzzle is why manufacturers of specialty drugs like Pharmaceutical Jazz (NASDAQ: JAZZ) are raked over the coals despite the fact that the coronavirus is unlikely to have an impact on its operational performance.
As a reminder, we don’t have a choice of when we get sick or what disease (s) we develop, which creates a constant flow of activity for developers of new and generic drugs. Just because COVID-19 is spreading doesn’t mean that Jazz’s patients no longer need their therapies.
In addition, Jazz Pharmaceuticals focuses almost entirely on orphan indications. This ultimately minimizes the company’s exposure to competition and gives it significant pricing power over its new therapies. It should be noted that with Senator Bernie Sanders (I-Vt.) Now being considered a feature film for the Democratic Party presidential nomination, a major drug price reform is likely ruled out in Washington, DC, suppressing another concern for Jazz.
At Monday’s closing bell, one Jazz Pharma share is targeting less than 6 times next year’s earnings per share forecast. This is incredibly inexpensive for a business that can still generate modest annual sales growth.
Palo Alto Networks
While value stocks usually take priority during stock market declines, don’t overlook high growth tech stocks which in many cases can be incredibly valuable relative to their potential cash flow.
Take a cybersecurity company Palo Alto Networks (NYSE: PANW), which was hit by coronavirus issues, and also wound up delivering an orientation miss when it released its second quarter operating results three weeks ago. Since the stock market peaked on February 19, Palo Alto has lost 45% of its value. More importantly, it saw its price-to-cash flow ratio for the forward year drop to an all-time low of 12.7. That’s roughly half of its five-year average, which is remarkable given that the long-term trend for cash flow generation is higher, even with reinvestment should accelerate in cloud protection.
Besides cash flow, another selling point for Palo Alto is that a good part of its business model is subscription based. In the first six months of fiscal 2020, $ 1.11 billion of $ 1.59 billion in sales is related to subscription and support, with the remainder being revenue. This is relevant because subscriptions are unlikely to be canceled during times of economic downturn, and this category offers much juicier margins than products.
Finally, cybersecurity is not optional. It is a basic service for all businesses, making Palo Alto a easy purchase for smart investors.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.