To say that 2020 has been a challenging year for Wall Street would be a gross understatement. Thus far, the coronavirus disease 2019 (COVID-19) pandemic has cost more than 20 million people their jobs, and it, at one point, sent the broad-based S&P 500 lower by 34% in less than five weeks. That's the fastest bear market decline on record.
Then again, we've also witnessed one of the best quarters for the stock market in over two decades. The technology-dependent Nasdaq Composite has galloped to new all-time highs, while the S&P 500 has regained a significant portion of what it lost.
The ultimate lesson 2020 has taught investors is that sticking to your investment thesis, and thusly holding your stocks over long periods of time, is what will generate significant wealth. Taking this lesson to heart, here are my top five portfolio holdings (by dollar amount invested) as we enter the second half of what's been an unprecedented year.
As has been the case for a long time now, gold-mining stock SSR Mining (SSRM 5.95%) will continue to hold a lot of sway within my portfolio as my largest holding. My investment thesis in SSR is both macro and company-specific.
On a macro level, I can't envision a time within the past couple of decades where physical gold has looked this appealing. Global bond yields are virtually nonexistent, leaving income seekers few avenues to generate real income after inflation is accounted for. Similarly, central banks around the world continue to inject capital into their respective markets at an extraordinary pace. All of this points to physical gold being the preferred store of value moving forward.
On a company-specific level, SSR Mining is one of a small number of gold-mining stocks with a net cash position, and it's delivered record production at its Canadian Seabee mine every year since its 2016 acquisition of Claude Resources.
More recently, SSR Mining announced a merger of equals with Alacer Gold, which operates the Copler gold mine in Turkey. Assuming shareholders approve the combination (which I anticipate will happen), the combined entity will have the ability to produce 780,000 ounces of gold annually at an all-in sustaining cost (AISC) of roughly $900 an ounce. It would also be capable of $450 million in annual free cash flow, and would sport around $200 million in net cash. Suffice it to say that I expect a dividend and/or share buyback program to commence shortly after this merger is complete.
Teva Pharmaceutical Industries
My second-largest holding for the moment is brand-name and generic-drug developer Teva Pharmaceutical Industries (TEVA -1.23%). Teva is a rebound candidate after suffering the loss of exclusivity on its top-selling brand-name drug (Copaxone) and ballooning its debt levels following the closure of the Actavis acquisition in 2016.
Teva's secret weapon has been its no-nonsense CEO Kare Schultz. Schultz is a turnaround specialist who, since taking the helm in 2017, has reduced annual operating expenses by about $3 billion, as well as lowered the company's net debt by almost $10 billion to $24.3 billion. Although Teva has work to do to improve its balance sheet (i.e., lower existing debt levels), Schultz's approach has vastly improved Teva's financial flexibility and may give it enough leverage to refinance some of its debt to considerably more attractive rates.
Additionally, Teva stands to benefit from an aging population with an improved access to medical care. With the cost of brand-name drugs rising, generics should play an increasingly important role moving forward. As the largest generic-drug developer (for now), Teva should see both demand and pricing power improve over time.
With the worst now in the rearview mirror, I believe Teva is a bargain at less than 5 times Wall Street's forecast earnings for 2021.
First Majestic Silver
The third-largest holding I'll carry over into the second half of 2020 is silver-mining company First Majestic Silver (AG 3.79%).
First Majestic has not had the smoothest ride by any means in 2020, with the company's Mexican mining assets shut down for multiple months due to COVID-19, and the company placing a handful of its mines on care and maintenance until such time as higher spot silver prices makes sense to reopen them. The result -- as has become all too common with First Majestic -- is that the big uptick in production that investors (like me) have been expecting is yet another year out.
The good news is that costs will be substantially lower next year for the mines on care and maintenance, and efficiency measures at the company's three producing mines (San Dimas, Santa Elena, and La Encantada) should yield higher output at a reasonably low cost. My personal expectation that AISC per silver equivalent ounce should come in below $12 an ounce in 2021 and beyond, and provide the cash operating margins that investors like myself have been waiting for.
As the icing on the cake, silver is a metal that tends to boom during the late stages of a recession and the first 12 months of a recovery. In other words, we're nearing the sweet spot for physical silver, which should translate to improved margins for First Majestic, assuming production picks up.
At this point, I'm convinced that healthcare solutions provider Livongo Health (LVGO) is Superman in disguise, because nothing seems to be able to stop it. Despite being a fairly recent addition to my portfolio, shares of Livongo have more than tripled since my purchase. But make no mistake about it, I have no desire to sell.
Livongo is a cutting-edge play on personalized medicine, telemedicine, and artificial intelligence, rolled up into one company. Its goal is to help the tens of millions of people who have chronic illnesses live healthier lives. It does this by aggregating mountains of data on its patients, then using artificial intelligence to provide tips and nudges to help these folks better stay on top of their disease. Though currently focused on diabetes, Livongo has aspirations of providing solutions for patients with hypertension, weight management issues, and prediabetes, which, as you may already know, are huge markets, in terms of affected people.
Livongo Health ended the first quarter with more than 328,000 Diabetes members, representing an effective doubling from the prior-year period. This proved enough to push Livongo to its second consecutive surprise quarterly profit. Think about this for a moment: the company hasn't even fully penetrated 1% of the 34.2 million U.S. patients with diabetes, and it's already generating profits with heavy platform reinvestment.
My expectation is that Livongo will become a 10-bagger over the next decade.
Bank of America
Finally, my fifth-largest holding happens to be longest-tenured investment, Bank of America (BAC 0.92%). I've held BofA for nearly nine years, and it's one of those moneymaking stocks that, at this point, I'd never sell.
On one hand, banks are cyclical businesses, so the COVID-19-induced recession isn't good news for the industry. Bank stocks are likely going to see delinquency levels for all types of loans rise in the foreseeable future, while interest income declines as the Federal Reserve holds firm on record-low lending rates. This means Bank of America's profits will likely decline or be stagnant over the next six to 24 months.
However, BofA is also the most interest-sensitive of the big banks, suggesting that it could see the largest upswing in interest income among money-center banks by 2023 and beyond, assuming the Federal Reserve begins raising rates after 2022.
Bank of America has also done a bang-up job of controlling its noninterest expenses. Over the past decade, BofA has coerced its members to transact online or with their mobile devices in greater numbers, which is lower its transaction costs and allowing for the closure of physical branches.
At only 84% of its book value, Bank of America is the cheapest it's been in years. If anything, I may consider adding to my position for the first time since 2011 (not counting instances of dividend reinvestment).