What a truly wild time to be an investor. Panic and uncertainty surrounding the coronavirus disease 2019 (COVID-19) pandemic initially sent the benchmark S&P 500 to its fastest bear market decline in history (it took only 17 trading sessions to fall at least 20% from its recent highs), and ultimately lopped 34% off of the index in a matter of 33 calendar days.
Seemingly just as quick, the stock market has regained a good chunk of its declines. These gains come as the unemployment rate is set to rival the all-time record rate of 25% set during the Great Depression.
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While there's no question that things are likely to remain uncertain and volatile in the near term, the stock market has left little doubt that buying great companies and holding onto them for long periods of time is a great strategy. At no point over the past 100 years has the rolling 20-year return for the S&P 500, inclusive of dividends, been negative. In fact, in only two of the past 100 years (with these years representing the end point of the rolling 20-year period) have rolling 20-year returns averaged less than 5% on an annual basis.
Investing into weakness and holding great companies is a proven strategy for success.
With that being said, and with the stock market enduring quite a bit of weakness in 2020, if you have disposable cash ready to put to work, here are three top stocks that can make you richer in June, and probably well beyond.
A jubilant Warren Buffett at his company's annual shareholder meeting. Image source: The Motley Fool.
Berkshire Hathaway
Although growth stocks have been running circles around value plays of late, a 2016 report from Bank of America/Merrill Lynch found that value stocks actually outperformed growth stocks (17% versus 12.6%) on an annualized return basis between 1926 and 2015. That makes Warren Buffett's company Berkshire Hathaway (BRK.A 0.03%)(BRK.B +0.14%) a no-brainer buy right now.
The best aspect about owning Berkshire Hathaway is that you get Warren Buffett as your portfolio manager. Berkshire owns about five dozen businesses, and is currently investing in 46 other securities. Though Buffett's track record is more or less par for the course with the S&P 500 over the past decade, Berkshire Hathaway's per-share market value has outpaced the S&P 500 by more than 2,700,000% since 1964. You could certainly say that he has a knack for identifying value.
Another thing you can expect with owning Berkshire Hathaway stock is a strong tie-in to the U.S. and global economy. Berkshire Hathaway may own stakes in nearly four dozen equities, but Buffett is a big fan of concentrating his capital into a couple of big investments. For instance, information technology, financials, and consumer staples make up the vast majority of Berkshire's invested assets, and these are highly cyclical sectors.
Berkshire Hathaway is also an intriguing value at these levels from a fundamental perspective. Buffett's company has recently been trading at between 15% and 20% above its book value. That would mark Berkshire's least expensive valuation, relative to its book value, in nearly a decade.
Buffett has demonstrated the power of long-term investing time and again for more than six decades. Why fight that trend?
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Alexion Pharmaceuticals
Within the healthcare space, few drugmakers offer a sustainable competitive advantage quite like Massachusetts-based Alexion Pharmaceuticals (ALXN +0.00%). Though brand-name therapies do have finite periods of exclusivity, Alexion has a few tricks up its sleeve that allow it to maintain a veritable stranglehold on its cash flow.
One way Alexion differentiates itself is by focusing on ultra-rare indications. Tackling research in rare disease indications, and getting a therapy approved to treat an ultra-rare illness, likely means little or no competition. This lack of competition is a big reason why the company has been able to grow Soliris into a therapy generating over $4 billion in extrapolated annual sales (based on the $1.02 billion produced in Q1 2020).
Secondly, innovation allows Alexion to hang onto its cash flow. With fears mounting that the eventual sunset of Soliris' exclusivity would allow generics to potentially whittle away its sales, the company developed Ultomiris. Ultomiris is a next-generation therapy that only needs to be administered once every eight weeks, as opposed to every two weeks with Soliris. The plan is to transition patients taking Soliris to Ultomiris over time (pending ongoing clinical trials and supplemental new drug application approvals). Essentially, this will start the exclusivity clock all over again on its ultra-rare indications.
Third and finally, Alexion isn't afraid to make acquisitions in the rare disease space to expand its sales channel beyond Soliris/Ultomiris. Four weeks ago, Alexion announced that it would acquire Portola Pharmaceuticals in a $1.4 billion deal. Buying Portola brings Andexxa into the fold. Andexxa is given to patients taking certain types of anticoagulants and is designed to help stop life-threatening bleeding.
At less than nine times next year's earnings per share, but still maintaining a double-digit sales growth rate, Alexion is too cheap to ignore.
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Broadcom
Among tech stocks, one company looking to make its shareholders filthy rich over the long run is chipmaker Broadcom (AVGO +4.27%).
Why Broadcom? First of all, it's set to benefit in a big way from the boom in 5G. This is a company that derives most of its revenue from selling a range of chips and semiconductor devices that will wind up in the next generation of smartphones sporting 5G capability. With telecom companies in the early stages of rolling out these network upgrades, Broadcom is probably looking at a multiyear tailwind as consumers and businesses upgrade their wireless technology.
Broadcom is also set to benefit from growing enterprise cloud demand. The COVID-19 pandemic has accelerated an already existing work-from-home (WFH) trend, which is providing a shot in the arm to any businesses that make working from home easier. For Broadcom, more enterprise data being stored in the cloud should lead to significant data center growth over the next five to 10 years. As a provider of connectivity and access chips, it's in perfect position to benefit from the push to work from home.
Since Broadcom's proposed acquisition of Qualcomm was denied in 2018, it's also a company that's sitting on plenty of cash and operating cash flow. As such, it's been aggressively returning capital to its shareholders. Over the past decade, Broadcom's quarterly dividend has grown from $0.07 per share to $3.25 a share (4.6% yield). It's rare to find a high-yield dividend stock with double-digit profit growth potential, but that's exactly what you get with Broadcom.
