If Wall Street has shown anything, it is the value of patience. If you buy high-quality businesses and hold them for long periods of time, your chances of growing your initial investment by leaps and bounds increase dramatically.
During the coronavirus crash in February / March 2020, I practically threw the kitchen sink of the cash on hand I had on hand over more than a dozen new and already held inventory. Many of these purchases have worked wonderfully, and I have no intention of selling. But with minimal buying activity during that 18-month mega-rebound, I’m now sitting on more money than at any point in my more than two decades as an investor.
Below are five stocks that I do not currently own that I am watching very closely and likely looking to buy if there is significant weakness.
As a rule of thumb, I don’t usually buy biotech stocks at the clinical stage. The last one I had a stake in was Geron, and that was over three years ago. However, a clinical-stage biotechnology company Novavax (NASDAQ: NVAX) to my full attention.
The point is that Novavax is unlikely to be a developer of drugs in the clinical stage any longer. It is one of the few companies expected to play a key role in the fight against coronavirus disease 2019 (COVID-19). The company’s investigational COVID-19 vaccine (NVX-CoV2373) has been shown to be highly effective in two large-scale studies.
A study conducted in the UK last March showed vaccine efficacy (VE) of 89.7%. Three months later, a large-scale trial in the United States and Mexico gave an EV of 90.4%. While initial efficacy is not the end with COVID-19 vaccines, Novavax could have a real chance to assert itself as the third major player on the vaccine front, alongside Pfizer/BioNTech and Moderna.
In addition, Novavax’s vaccine development platform should enable it to quickly tackle new variants and develop potential combination therapies in the future. For example, Novavax has the opportunity to beat its rivals in the market with a combined COVID-19 / influenza vaccine.
While I think Moderna’s $ 174 billion valuation is a bit expensive to pay for a business with just one therapy, it makes little sense that Novavax is only worth $ 17.7 billion when its vaccine could generate $ 5. billion dollars or more in sustainable annual sales.
Marijuana stocks have been nothing short of a buzzkill over the past seven months. It was hoped that the Biden administration would legalize cannabis federally, but more pressing concerns (eg, COVID-19) have taken precedence. While this disappointed equity investors, it drastically reduced valuations. That’s why i watch Cresco Laboratories (OTC: CRLBF).
The interesting thing about Cresco is that it has two very profitable plans of attack. First, like most US multi-state operators (MSOs), it is expanding its retail operations. Following the closing of its Cultivate acquisition in Massachusetts, Cresco now has 37 operating dispensaries, 47 retail licenses in total (i.e. it can open 10 additional outlets) and a presence in 10 states.
Notably, many of the states in which Cresco operates are limited license issuers. This means that only a fixed number of retail and / or growth licenses will be awarded. By deliberately limiting competition, Cresco is offered the opportunity to develop its brands and to gather a loyal clientele.
But the determining factor here, at least for me, is the wholesale turnover of Cresco, the industry leader. Even though wholesale is a low margin segment compared to retail, Cresco more than makes up for the lower margins with insane volume potential. That’s because it holds one of the few cannabis distribution licenses in California, the world’s largest jar market in terms of annual sales. With the ability to place potted products in more than 575 dispensaries statewide, Cresco is a budding cash cow.
Annaly Capital management
But it’s not just unbridled growth. If I can find stocks that offer inflation-crushing income with a modest rise in stock prices, I’ll jump at this opportunity. This is where ultra-high dividend stocks Annaly Capital management (NYSE: NLY) kicks in. Annaly is currently paying a 10.2% return.
Annaly Capital is a Mortgage Real Estate Investment Trust (REIT). To demystify this long descriptor, it simply means that it borrows money at lower short-term borrowing rates and uses that capital to buy Mortgage Backed Securities (MBS) that have long yields. higher term. If you subtract that higher long-term average yield from the lower borrowing rate, you get Annaly’s net interest margin.
What intrigued me was the high probability of a steepening of the yield curve and a widening of the net interest margin in the years to come. Almost every economic recovery I have looked at involves higher long-term returns and flattening or lowering short-term returns. If accompanied by slow, telegraphed monetary policy changes from the country’s central bank, mortgage REIT profits tend to soar.
In addition, Annaly Capital buys almost exclusively agency MBS. Agency titles are those guaranteed by the federal government in the event of default. This additional protection allows the business to use leverage to increase its income potential.
With Annaly averaging an annual return of around 10% over the past two decades, it seems like a good bet to put inflation in its place.
Going back to growth stocks, I’m also watching an ad technology company very closely. PubMatic (NASDAQ: PUBM).
The days when humans negotiated the price and placement of ads are long gone. The advent of the internet, and now machine learning algorithms, allows platforms like PubMatic’s to help buy, sell and optimize ads. Specifically, PubMatic is a sell-side platform, which means that it works with publishers to sell their display space.
What is quite obvious is that PubMatic is in the early stages of its growth. As more and more content moves to digital platforms, PubMatic has consistently shown that it can grow at double (or more) the rate of the entire ad technology industry. In particular, smart TV and over-the-top programmatic advertising are expected to be the fastest growing segment of the business at least by the middle of the decade.
The valuation is also compelling, given that the company can maintain a growth rate of over 20% for years to come. PubMatic is already profitable on a recurring basis, and it can currently be recouped for less than six times Wall Street’s consensus sales for 2022.
Considering that the company’s existing publishers spent 50% more in the last quarter, compared to the previous year period, I’m pretty confident that PubMatic could be worth a lot more in five years.
Finally, I keep a close eye on what I consider to be the first name in cybersecurity: CrowdStrike Holdings (NASDAQ: CRWD).
The pandemic has shown the world how important it is for businesses of all sizes to protect their data. As the workforce has become remote, the demand for data and identity protection has increasingly been imposed on third-party vendors. CrowdStrike, one of these key vendors, has shown it is up to the challenge.
The star here is the company’s native cloud platform known as Falcon. Falcon relies on artificial intelligence to become more efficient at recognizing and responding to threats over time. Since it was built in the cloud, it is often a more efficient and cheaper cybersecurity solution than on-premises security products.
The proof is also in the pudding. In less than five years, CrowdStrike’s subscriber count has grown from 450 to over 13,000. The number of customers purchasing four or more of its cloud module subscriptions has also grown from a high percentage to a single figure of 66 % over a similar period. As customers add to their existing services, the company’s subscription gross margin has been pushed into the upper 70% range.
With cybersecurity offering one of the safest double-digit growth potentials, CrowdStrike is a no-brainer for my list of potential shopping.
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.