Just over two years ago, the reference S&P500 fell 34% in just 33 calendar days. It was the fastest the widely followed index had ever plunged 30% (or more) in its storied history, and I threw every penny of available cash at an assortment of stocks I watched and I wanted to buy.
Since the pandemic low of March 2020, I’ve bought a few new stocks and added some more. However, I mainly built up my cash hoard. After some recent stock selling, I am now sitting in my largest nominal cash position in almost a quarter century as an investor.
Although I already own stakes in 40 companies and there is a very good chance that I will add to some of these existing positions, I am also looking to buy the following five stocks (which I do not currently own) on n any significant weakness.
Although I am not a proponent of owning all FAANG shares, I think it is possible to argue that Alphabet (GOOGL -2.62%)(GOOG -2.70%)the company behind internet search engine Google and streaming platform YouTube, is the best value of the bunch.
What investors get with Alphabet is well over a decade of internet search dominance. Google controlled between 91% and 93% of monthly search share that was at least two years old, according to GlobalStats. With such a percentage of control of the Internet search space, it’s no surprise that Google has excellent ad pricing power and almost always increases its search-based advertising revenue by a percentage to two. figures on an annual basis.
Yet perhaps what’s most exciting about Alphabet are its ancillary growth segments. YouTube is the second-largest monthly active user of any social media destination and earned nearly $35 billion in annual revenue, based on fourth-quarter sales of $8.63 billion.
There is also the Google Cloud cloud infrastructure segment, which has grown steadily by almost 50% year over year. Google Cloud is currently #3 in global cloud infrastructure spend. Even better, cloud services margins tend to be considerably higher than advertising margins. By mid-decade, Google Cloud is expected to play a key role in doubling Alphabet’s operating cash flow per share.
Put simply, a year-ahead earnings multiple of less than 19 is far too cheap for a company expected to maintain a 15-20% annual growth rate.
Electric vehicle (EV) manufacturer Nio (NIO -4.08%) is a second stock I’m looking to add to my portfolio (hopefully) sooner rather than later.
Valuations of electric vehicle makers have fallen sharply in recent months, largely due to supply chain constraints. A combination of semiconductor chip shortages and COVID-19-related shutdowns caused most auto stocks to cut or halt production. Last week, Nio announced that it would halt production due to supply chain issues plaguing its suppliers in various provincial regions of its home market (China).
However, it is important to note that Nio’s near-term challenges are entirely supply-side and not demand-side. Despite these challenges, Nio has managed to increase its quarterly deliveries from less than 4,000 electric vehicles to more than 25,000 over the past two years (Q1 2020 to Q1 2022).
Nio’s vehicle lineup also has a real shot at becoming a tough leader You’re here in China. The newly introduced ET7 and ET5 sedans can, with the top battery upgrade, travel approximately 621 miles on a single charge. This gives these vehicles superior range compared to Tesla’s former and current flagship sedans, the Model S and Model 3.
But Nio’s innovation is what really gives the company a long streak of growth. The company’s Battery-as-a-Service (BaaS) program lowers the purchase price of new electric vehicles and allows buyers to charge, swap and upgrade their batteries. In exchange, Nio receives monthly fees from BaaS registrants, as well as brand loyalty from its new buyers.
A third stock with a great mix of growth and value that I’m looking to buy is a semiconductor solutions company Qorvo (QRVO -3.79%).
Qorvo’s fame lies in its ties to next-gen smartphones. It provides an assortment of radio frequency solutions found in smartphones, which means that the more next-generation smartphones sold, the more opportunities it has to increase its sales and profits.
The main catalyst for Qorvo is the ongoing deployment of 5G wireless infrastructure. It’s been a good decade since wireless download speeds improved dramatically. As telecommunications companies upgrade this infrastructure and expand its reach, consumer and business demand to trade in or upgrade devices is expected to last for years.
Qorvo also has a close relationship with the leader in smartphone sales in the United States, Apple. Apple was responsible for 30% of Qorvo’s sales in 2021, and Apple’s iPhone accounted for 56% of the U.S. smartphone market share in Q4 2021, up from “only” 40% in Q3 2020 ( before 5G capability iPhones hit stores). As long as Apple continues to innovate, Qorvo succeeds.
One final note: don’t overlook Qorvo’s faster-growing side channels. For example, this company provides advanced antennas to help next-generation vehicles connect to the cloud.
A single-digit P/E for the year ahead is a boon for such a big player in semiconductor solutions.
Nio isn’t the only automaker I’m looking at and planning to buy. Legacy automaker General Motors (GM -3.24%) is on this list, too.
It doesn’t sound like a broken record, but GM’s production has also been curtailed by semiconductor chip shortages and supply issues. However, to be clear, we are looking at temporary supply issues and not a demand issue. This makes any decline in General Motors an opportunity for long-term investors to pounce.
General Motors fully understands the growth opportunity at its doorstep. Last year, the company announced it was increasing its planned investments in electric vehicles, autonomous vehicles and batteries, to a total of $35 billion through 2025. The plan is for GM to launch 30 new vehicles worldwide by the end of 2025, with two battery production facilities to be commissioned no later than the end of 2023. CEO Mary Barra estimates the company can produce more than one million vehicles electricity per year in North America by the middle of the decade.
It is also a company with a huge opportunity in foreign markets. Keep in mind that GM has delivered 2.9 million vehicles to China in consecutive years. Its brand(s) are familiar to Chinese consumers, and it has the infrastructure and deep pockets to become a significant player in the world’s top automotive market.
Even though auto stocks have historically been valued at low price-to-earnings (P/E) ratios, GM’s P/E for the year ahead is below 6, which makes little sense given a enhanced long-term forecast powered by electric vehicles.
The fifth and final stock I’m looking to buy is certainly the riskiest of the bunch: a technology-focused real estate company. red fin (RDFN -2.92%).
Redfin has faced a double whammy over the past six months. First, historically high inflation changed the Federal Reserve’s monetary policy stance and sent Treasury bond yields and 30-year mortgage rates soaring. Last week, the 30-year mortgage rate hit its highest level in more than a decade, which some say could dampen demand for home purchases.
Second, Wall Street and investors appear concerned about Redfin’s iBuying operations after its rival Zillow closed its iBuying program last year. iBuying refers to the process by which businesses acquire homes from sellers for cash and then ultimately resell the homes, hopefully at a profit.
To address the latter issue, Redfin has had no problem pricing the homes it has purchased and has in fact expanded its RedfinNow service to new markets over the past year. It would seem that Zillow’s problems are not an industry-wide problem.
The other differentiator with Redfin is that its technology and customization can overcome any short-term weakness caused by mortgage rate volatility. For example, Redfin charges 1% or 1.5% for its SEO services, depending on the volume of business already done with the company. This compares to an average listing fee of 2.5% to 3% for most real estate companies. With a national median listing price of $405,000 in March for active listings, according to Realtor.com, that means Redfin can save the average seller up to $8,100.
It’s an innovative company in a desperately troubled industry.