Last month, investors received a not-so-subtle reminder that the stock market can (and does) move in both directions. In a span of two days, the iconic Dow Jones Industrial Average, tech-heavy Nasdaq Composite, and broad-based S&P 500 lost in the neighborhood of 6% to 7% of their respective value. This swoon also erased all year-to-date gains in the S&P 500, which is certainly a wake-up call after the benchmark index gained better than 31% in 2019, inclusive of dividends paid.
While factors such as the spread of COVID-19, the lung-focused novel coronavirus that's infected more than 80,000 people worldwide, and plunging bond yields clearly have investors on edge, there also the solace in knowing that the stock market tends to rise over the long-term. In fact, all 37 official stock market corrections since the beginning of 1950 in the S&P 500 have been put firmly in the rearview mirror by bull-market rallies. This means that investors who choose to buy and hold high-quality businesses have a very good chance of making money over the long run.
What great companies should you be considering for your portfolio this March? Below you'll find three top stocks that could easily slide in as core holdings today, and likely for many years to come.
The first top stock to consider buying is robotic-assisted surgical system developer Intuitive Surgical (ISRG -0.95%). Following the recent stock market swoon, shares of Intuitive Surgical are hovering at a 3.5-month low, which offers long-term investors the opportunity to buy a truly dominant medical-device innovator for an exceptionally attractive price.
What Intuitive Surgical brings to the table are a host of competitive advantages. For one, you can add all of its peers' surgical systems combined and you still wouldn't come close to the total the number of da Vinci surgical systems installed worldwide. Since these systems tend to be pricey ($0.5 million to $2.5 million each), and quite a bit of time and effort goes into training surgeons to use them, Intuitive Surgical also has little issue with customer churn. In other words, hospitals and surgical centers that purchase the da Vinci system tend to deliver consistent cash flow and long-term organic growth without the fear that they'll jump ship to a competing system.
Perhaps more important is that Intuitive Surgical's higher margin revenue streams are growing into a larger percentage of total sales. Although the da Vinci system costs quite a bit, the margins on these systems aren't great since they're costly and complex to manufacture. Rather, the company generates the bulk of its margins from selling instruments with each procedure and regularly servicing its installed systems. As of the fourth quarter, two-thirds of the company's sales were now derived from these higher-margin streams.
Also consider that Intuitive Surgical has a long runway with which to expand the use of its da Vinci system. Already a dominant player in gynecology and urology surgeries, management sees ample potential in thoracic, colorectal, and general surgery indications moving forward.
Double-digit sales and profit growth per year should be the expectation from shareholders moving forward.
Next up is social media giant Facebook (META -1.04%), which has pushed to a two-month low after reporting its slowest revenue growth (in Q4) since going public in mid-2012. But there's something investors should realize about this "disappointing quarter" -- namely, that it still featured sales growth of 25%, driven by advertising. While I fully understand that value is in the eye of the beholder, there aren't too many $562 billion companies still growing their top lines at 25% year over year!
Ultimately, Facebook's biggest competitive advantage is that it's... big! It reported 2.5 billion monthly active users and 1.66 billion daily active users as of year-end 2019, and owns four of the seven most-visited social media sites (Facebook, Facebook Messenger, WhatsApp, and Instagram). Advertisers know that the best way to reach as many eyeballs as possible is to go through Facebook or its owned social media sites, which gives the company incredible ad-pricing power.
Another overlooked growth aspect here is that Facebook is still in the relatively early stages of monetizing its broader platform. Sure, it generates a boatload of advertising dollars from Facebook and has been monetizing Instagram to a greater degree every year. However, Facebook is still just scratching the surface and kicking the tires as to what it could do with messaging services Messenger and WhatsApp. This makes a long-term revenue growth rate of say 15% to 20% highly achievable.
If you need one more reason to consider buying Facebook, look at the company's operating cash flow generation. Over the trailing five years, Facebook has been valued at an average of 26.4 times its cash flow per share. However, right now, Facebook is valued at closer to 15.6 times its cash flow per share, and is forecast by Wall Street to generate more than $14 in cash flow per share in 2021. In other words, Facebook is considerably cheaper than you probably realize.
Last, but certainly not least, a top stock that could really have your portfolio "charging" ahead is payment processing kingpin Visa (V -0.06%). Over the span of about a week, Visa's stock has declined from a 52-week high to within a stone's throw of a three-month low.
Once again, the predominant theme of this list is competitive advantages. Although the winds of recession remain in the air, Visa remains the dominant payment processing provider of merchants in the consumer-friendly United States. Between 2008 and 2018, Visa increased its U.S. credit card market share by network purchase volume by more than 10% (to 53%), with the dollar amount crossing its networks nearing $2 trillion in the U.S. in 2018, up from $824 billion in 2008. In short, it's the go-to payment processing network in a space that's very difficult to disrupt.
Visa is also working on a global opportunity with an exceptionally long runway. You see, roughly 85% of the world's transactions are still being conducted in cash. As payment processing infrastructure is put in place and underbanked regions of the world, such as Africa, the Middle East, and Southeastern Asia, gain improved access to lines of credit, Visa's overseas growth will become an increasingly important driver. This is a big reason I believe Visa can continue to grow by roughly 10% each year, despite its size.
One more thing to consider is that Visa isn't double dipping. By this, I mean Visa helps facilitate transactions, but it doesn't act as a lender. This is important because it means Visa isn't exposed to credit delinquencies when recession do strike.
History has shown that Visa is a clear outperformer, and a strong case has been made why it belongs in your portfolio in March, and beyond.