Bargains can be found across the stock market if you know where to look. But with the stock market overall trading near all-time highs, they can be hard to find.
We put together five stock picks from our contributors in industries ranging from automotive to phamaceuticals to gambling. Collectively, they think General Motors (NYSE:GM), Cummins (NYSE:CMI), NovoCure (NASDAQ:NVCR), Whole Foods Market (NASDAQ:WFM), and Las Vegas Sands (NYSE:LVS) are five great stocks to buy in April. Here's why.
The tortoise to Tesla's hare
John Rosevear (General Motors): Auto sales are probably past their cyclical peak. Upstarts like Tesla seem to be taking over for the old auto names. So why am I recommending General Motors? Three big reasons:
- GM is cheap.
- GM is returning cash to shareholders.
- GM isn't afraid of your self-driving electric car.
Let's dig into those points.
GM is cheap. GM's shares are trading at just 5.7 times last year's earnings, mostly because of the concerns I mentioned above. Because it's cheap, GM's (conservative and sustainable) dividend is yielding almost 4.5%.
GM is returning cash to shareholders. Under CEO Mary Barra, the days of GM being driven by sales numbers are over. Barra and her team talk in terms of returns on invested capital, and they are committed to returning excess cash to shareholders.
There's been plenty of excess cash recently: GM's net income was a fat $9.4 billion last year, with an operating margin of 7.5%. Both are up substantially from just a few years ago, and Barra has a comprehensive plan to boost them further over the next few years.
How is that cash coming back to shareholders? Not only is GM paying a sustainable dividend, it has also committed to a $14 billion share-repurchase program as a way to return additional cash to shareholders while GM's share price is low and profits are high.
GM isn't afraid of your self-driving electric car. GM isn't afraid of Tesla or any other tech upstart. It doesn't have to be: It saw the threat early and responded ahead of almost all of its rivals. Now, it has the technology -- and something the upstarts don't: the vast global scale and resources that come with being General Motors.
While it seems like everybody is scrambling to develop long-range electric cars for the mass market, GM is already shipping a good one, the Chevrolet Bolt EV. Likewise, everybody is talking about self-driving cars, but GM is about to build "thousands" of self-driving Bolts for Lyft (like, this year).
You get the idea. GM's cheap, it's taking very good care of its shareholders, and it's prepared to thrive as technology transforms its industry. You may have to be patient before it pays off, but there's a lot to like here.
Keep on trucking
Chuck Saletta (Cummins): Truck-engine titan Cummins has a lot going for it when it comes to being considered as a worthwhile potential investment. Key among them is that it's in an industry that's almost always in some level of demand. As long as things get manufactured in one place and consumed in another, they'll need to be transported. Trucks powered by Cummins' engines have the ability to move that stuff virtually anywhere there are roads.
Those trucks tend to have limited useful lives thanks to heavy usage and high mileage. That drives fairly regular replacement cycles, keeping Cummins operating even if overall freight levels happen to temporarily stagnate, or even decline a little because of a poor economic climate. Still, while there is always some demand for its engines, it does have some cyclical impact, as those replacements can often be postponed a bit by limping along with older equipment in tough economic times.
With that background, what makes Cummins a worthwhile potential investment now is a combination of a reasonable balance sheet, a shareholder-friendly dividend policy, and decent valuation. From a balance sheet perspective, it has wisely limited its debt load. It carries a debt-to-equity ratio of around 0.3, and it has over $1 billion in cash and equivalents on hand.
From a dividend policy perspective, Cummins has regularly increased its dividend when it's able to, but it hasn't forced increases just to maintain a growth streak. With a payout ratio around half of its earnings, it has room to keep that trend going if times are strong, while still giving itself some room to maintain the payment when the downside of the economic cycle hits.
And finally, from a valuation perspective, Cummins currently sports a $25.2 billion market capitalization. That is slightly below the $27 billion I estimate it's worth via a discounted cash flow model. While that's not a steep discount to fair value, it's rare to find a strong company at a substantial discount, which makes even that reasonable price worth paying for a stake in the company.
A new way to treat cancer
Brian Feroldi (NovoCure): I'm a relatively conservative investor, so I typically shy away from companies that are still burning through capital. However, I must admit that NovoCure is one of the most exciting companies I've ever come across, which is why I'm currently seriously considering adding a few shares to my personal portfolio.
What makes NovoCure unique is that scientists at the company figured out that emitting low-intensity electric fields toward cancerous tumors actually disrupts cell division. What's more, those electric fields appear to have little to no effect on healthy cells. After lots of research and development, the company launched a product called Optune that is FDA-cleared to treat glioblastoma, which is a deadly brain cancer. To use Optune, a patient wears the device on their head like a hat, turns it on, and the device does the rest.
What's so attractive about this new therapy option is that it is completely noninvasive. Patients can wear the device at home and live their lives normally. Given these benefits, perhaps it isn't surprising to learn that Novocure's top line has consistently grown at triple-digit rates since launch.
However, what's most exciting about this growth story is that the company believes Optune can be used for many other types of cancer, too. The company just posted encouraging data from trials using Optune in combination with chemotherapy for treating malignant mesothelioma, advanced pancreatic cancer, and ovarian cancer. The news was so good that shares shot up by more than 50% on the day of the announcement, which is telling about the company's long-term potential.
Make no mistake, NovoCure is still losing money, so it is a highly risky stock. However, its growth potential is so massive that I can't help but think that nibbling on a few shares today could prove to be a smart financial move.
Say bon appetit to this food stock
Dan Caplinger (Whole Foods Market): Whole Foods has had a tough time over the past couple of years, but things are finally starting to look up for the organic and natural foods pioneer. Whole Foods started running into trouble when competitive threats began eating into its first-mover advantage, and despite having a strong reputation for quality and integrity, the natural-foods grocer saw margin levels erode at the expense of its rivals. Since then, criticism about the company's premium pricing structure has led to more skepticism about whether Whole Foods truly has a sustainable competitive advantage, especially as mainstream grocery companies have begun offering their own organic and natural foods items at more attractive prices.
Yet Whole Foods has finally attracted the attention of activist investors, and that could spur the company to take more aggressive action to take advantage of its assets. Jana Partners announced recently that it had taken a more than 8% stake in the organic specialist, and it intends to challenge existing management in an effort to persuade Whole Foods to look at strategic options for the grocer. Whether Whole Foods ends up yielding to Jana entirely or simply takes elements of its proposals to heart, investors are in a position to reap the rewards as long as some forward movement results from the latest news.
Now the casino pays you
Travis Hoium (Las Vegas Sands): In a market where there are a lot of stocks that feel overvalued, and disruption of even the oldest industry seems to be the norm, Las Vegas Sands holds a very enviable position. The company is the biggest gaming operator in the world and has one of only two gaming licenses in Singapore and one of only six in Macau, which happens to be the world's biggest gaming market.
In Macau, there's a renewed sign of hope in the gaming industry. After over two years of sharply declining gaming revenue, gambling is up eight consecutive months, and it rose 13% in the first quarter of 2017. Although the recent crackdown on Chinese corruption had recently slowed traffic, that tide looks to be turning, and new resorts opening in Macau make it an even more attractive destination.
What makes Las Vegas Sands a great stock today is its incredible cash flow from resorts in the U.S. and Asia. In 2016, the company generated $4.13 billion in adjusted property EBITDA, a measure of cash flow from a resort, which allowed for an anticipated $2.92-per-share dividend in 2017.
There aren't a lot of growth opportunities in gaming today, so investors need to look for cash flow. And with over $4 billion in new cash coming in each year, there's a lot of room to pay dividends from the company's properties. If you're an investor looking for a good value with potential for upside if Macau continues to grow, Las Vegas Sands is a great stock to own.
John Mackey, CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Brian Feroldi owns shares of Tesla. Chuck Saletta has no position in any stocks mentioned. Dan Caplinger owns shares of Whole Foods Market. John Rosevear owns shares of General Motors. Travis Hoium has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Cummins, Tesla, and Whole Foods Market. The Motley Fool has a disclosure policy.