Over the past 10 weeks, investors have had their resolve, as well as their investment theses, tested like never before. The proliferation of the coronavirus disease 2019 (COVID-19) has completely turned the U.S. economy on its head, abruptly ending the longest economic expansion in U.S. history. In the process, nonessential businesses across much of the country have been shuttered, and at least 30 million Americans have lost their jobs.
While the financial and economic impacts of COVID-19 have been jaw-droppingly bad, there's a bit of good news among all of this -- namely, every single stock market correction and bear market in history has proved to be a buying opportunity for patient investors. While it's impossible to know what the market is going to do next week or even a year from now, there hasn't been a rolling 20-year period in history where the benchmark S&P 500 didn't deliver a positive average annual return (inclusive of dividends) to investors.
In other words, there's no better time to go shopping than during bear markets.
You should also know that you don't need to be rich to invest in the stock market. If you've got, say, $3,000 set aside that you can put toward investments rather than your emergency fund or to pay bills, then consider investing it into these surefire winners.
Within the healthcare sector, there's probably not a stock that I would consider a more surefire investment opportunity over the long run than surgical-system manufacturer Intuitive Surgical (ISRG -0.29%). Don't let its share price of around $500 fool you -- it has plenty of upside potential still left in the tank.
Intuitive Surgical is best known for manufacturing the da Vinci surgical system, which is used by surgeons to make smaller and more precise incisions in various soft tissue surgeries. The goal is to keep the patient from dealing with added complications and getting them out of the hospital sooner.
As of the end of March, there were 5,669 systems installed worldwide, which is far more than Intuitive Surgical's competitors have on a combined basis. This not only makes the da Vinci system the go-to for assisted surgical procedures, but also makes it highly unlikely that hospitals purchasing these systems would ever leave for a competitor.
The beauty of Intuitive Surgical's business model is that it's built atop the razor-and-blades concept. In this instance, the da Vinci system is the razor. Although these systems are pricey ($0.5 million to $2.5 million each), they're also highly complex, and therefore expensive to build. This is a fancy way of saying that the margins from selling these systems aren't anything to write home about.
Where the company generates the bulk of its margins and growth is from selling instruments and accessories with each procedure, as well as in servicing these systems. Instruments and servicing are the "blades." The more systems installed worldwide, the greater the percentage of total sales derived from these high-margin segments.
With Intuitive Surgical's da Vinci system still a long way from reaching market share saturation, a double-digit annual growth rate is a reasonable expectation for years to come.
Another company that has surefire winner written all over it, assuming you give it the proper amount of time, is e-commerce giant Amazon (AMZN -3.01%).
Perhaps the biggest issue with Amazon is that Wall Street and investors can't help but hone in on the present. We're talking about a company valued at 111 times its trailing 12-month earnings that recently guided its second-quarter profit forecast well below what was expected. Amazon plans to utilize its expected $4 billion in operating income in the second quarter for measures to protect its workers and customers during the coronavirus pandemic. But if you can look well beyond the next quarter, you'll see a company that looks pretty much unstoppable.
Last June, eMarketer estimated that Amazon controls about 38% of the U.S. e-commerce market. Despite retail being a high-cost, low-margin segment, controlling so much online market share has helped boost ad revenue, as well as keep consumers within its retail ecosystem. Tack on more than 150 million Prime members worldwide, and you have an e-commerce monster.
But what's most exciting is Amazon's cloud-service operations, Amazon Web Services (AWS). Cloud services offer considerably juicier margins than traditional retail or ad revenue, meaning that as they grow into a larger percentage of Amazon's total sales, cash flow from operations should explode higher. In the recently reported first quarter, AWS was responsible for $10.2 billion in sales (13.5% of total revenue, up from 11% in all of 2018), but generated $3.08 billion of the $3.99 billion in operating income.
If AWS keeps outpacing other business segments on the growth front, it's not out of the question that Amazon's operating cash flow will triple over the next five years.
No discussion of surefire winners is complete without the most successful investor of our time, Warren Buffett, and his conglomerate Berkshire Hathaway (BRK.A -0.22%) (BRK.B -0.28%). According to Buffett's 2019 annual shareholder letter, the S&P 500 has returned 19,784% since 1964, inclusive of dividends, while Berkshire Hathaway's per-share market value has increased by 2,744,062%. He's absolutely run circles around the broader market over the long run.
One secret to Buffett's success is that he tends to invest in established, dividend-paying companies. According to a 2013 report from J.P. Morgan Asset Management, companies that initiated and grew their dividends between 1972 and 2012 averaged a compound annual return of 9.5% over this 40-year period, compared to just 1.6% annually for non-dividend-paying stocks. Although Buffett has seen more than $1.1 billion in dividend income removed this year due to COVID-19 issues, Berkshire is still on track to generate well over $4 billion in dividend income in 2020.
Buffett's also a big fan of betting on cyclical businesses. Well over 80% of Berkshire's holdings are tied to the financial, information technology, and consumer staples sectors. While this certainly exposes the Oracle of Omaha to weakness when recessions arise, it also positions Berkshire to succeed over the long run considering that economic expansions and bull markets far outpace recessions and bear markets in length.
You'll also find that Berkshire Hathaway is cheaper now than it's been in at least a decade. Traditionally valued at 18% to 59% above its book value, Berkshire's stock was, at last check, going for just 5% more than its book value. With Buffett unafraid to repurchase Berkshire's stock when he and his right-hand man Charlie Munger see value, now may be the perfect time to buy into Berkshire and make Buffett your investment manager by default.