What an absolutely wild time to be an investor. Since mid-February, Wall Street and investors have witnessed a peak decline in the benchmark S&P 500 of 34% -- a decline, mind you, that took less than five weeks -- as well as one heck of a rebound that sent the technology-heavy Nasdaq Composite to an all-time high above 10,000.
At the heart of this volatility is the sheer uncertainty tied to the coronavirus disease 2019 (COVID-19) pandemic. Even though nonessential business shutdowns have mostly ended, business activity isn't exactly ramping up as quickly as when it was halted. This likely portends a period of protracted struggles for the U.S. economy.
However, periods of panic and fear have historically opened the door for investors to buy into game-changing companies at a discounted price. Though the short-term is usually driven by emotion, operating earnings and market potential eventually drive long-term gains.
With that being said, if you have, say, $2,000 in disposable cash (i.e., money that won't be needed for bills or an emergency fund) that you can used for investment purposes, then you should consider following in the footsteps of the smartest investors and buy these stocks hand over fist.
When the going gets volatile, smart investors look to the healthcare sector for stability. That's because people don't get to choose when they get sick or what ailment(s) they develop, which creates a consistency of cash flow that typically isn't seen in most sectors or industries. Within the healthcare sector, drugmaker Alexion Pharmaceuticals (ALXN) is a wise place to park your money for the long haul.
What makes Alexion such an eye-catcher for investors is the company's focus on ultra-rare indications. Developing therapies for a very small pool of patients can be both costly and risky. But when it works out, competition tends to be nonexistent, and strong pricing power ensures continued growth, even with relatively small patient pools.
For more than a decade, Alexion has built up intravenous infusion treatment Soliris into an absolute blockbuster. Based on the $1.02 billion in first-quarter sales, Soliris is tracking more than $4 billion annually in revenue.
But what's really exciting is the introduction of Ultomiris. Ultomiris is an injection given every eight weeks, as opposed to every two weeks with Soliris, and the expectation is that it'll eventually replace Soliris. This is important as Soliris' patent exclusivity clock was ticking. With Ultomiris, Alexion just bought itself another decade of exclusivity in a number of indications.
Alexion also has the cash to broaden its sales channels. Last month, the company announced the $1.4 billion buyout of Portola Pharmaceuticals in order to gain hold of Andexxa, a drug given to patients taking certain types of anticoagulants to stop life-threatening bleeding. Andexxa likely has peak sales potential of more than $500 million a year.
With Alexion valued at less than 10 times next year's earnings, despite high single-digit sales growth potential, it looks like a no-brainer buy.
As we've seen with Amazon.com, sometimes game-changing businesses deprioritize profitability in order to spend aggressively and establish market share. If it works, the long-term gains can be huge for shareholders. That's why, despite continued forecasts calling for operating losses, real estate services provider Redfin (RDFN 0.29%) should be on your buy list.
Despite an absolutely ridiculous year that saw Redfin lose more than 70% of its value only to climb to an all-time high just three months later, Redfin has the ability to disrupt the real estate services space, which is why it's continued to attract investors.
First, there are its listing fee commissions of around 1% to 1.5%. These listing fees typically undercut other selling agents by around 2 percentage points, making Redfin a logical choice for homeowners looking to save money.
Additionally, Redfin is expected to ride the wave of historically low lending rates. While not every person or family is necessarily in the position to buy a home following the sharpest economic pullback since the Great Depression, the Federal Reserve's pledge to keep its federal funds rate at historic lows through 2022 should help to hold mortgage rates down and fuel buying activity.
But what Redfin really brings to the table that can differentiate it from its peers is its ease of use. Redfin is looking to tack on high-margin services that it believes homeowners will pay for to simplify the buying or selling process. This includes fees for Redfin to handle titles, appraisals, and home inspections, as well as a flat-service fee for Redfin to acquire properties from members to hold as inventory for its own agents to sell at a later date.
Housing may be a typically ho-hum industry, but Redfin could potentially double its sales every five years, all while gobbling up market share.
Another stock that smart investors are buying hand over fist is cybersecurity play Ping Identity (PING). If the name doesn't ring a bell, don't feel too bad, as it only went public back in September 2019.
The reason cybersecurity plays are hot is simple: the work-from-home trend has really taken off. To be clear, there was already a steady push toward offsite work well before the COVID-19 pandemic hit. However, the coronavirus has accelerated the demand for offsite work and only further enhanced the need for protections of company information stored in the cloud.
Though there are a lot of great cybersecurity stocks to choose from, Ping Identity stands out for its usage of artificial intelligence. Geared as an identity verification play, Ping leans on machine learning and artificial intelligence to allow its systems to evolve in order to spot potential threats to enterprise clouds. For instance, Ping's solutions may require multifactor authentication in certain instances to help weed out robots or criminals attempting to gain access to sensitive information.
Ping Identity is also quite profitable despite being a smaller cybersecurity player. It's a company that has the potential to grow sales by 10% to 20% annually and effectively double its revenue every five years. Assuming a healthy amount of reinvestment that'll allow it to innovate and secure a greater share of cloud-based identity verification, the sky is the limit.