This year has been a firm reminder that no matter how long you've been investing, you haven't seen it all.
The coronavirus disease 2019 (COVID-19) pandemic has crammed about 10 years' worth of volatility into a four-month stretch and taken investors for one heck of a ride. We've witnessed the benchmark S&P 500 lose more than a third of its value in less than five weeks, as well as the tech-heavy Nasdaq Composite rattle off one record high after another in recent weeks.
However, periods of heightened panic and volatility have historically proved to be a good thing for long-term-oriented investors. That's because it allows folks to buy into great businesses at a discount.
And if the stock market has taught us anything, it's that you don't need a boatload of cash to take hold of your financial future. If you can spare $300 right now that won't be needed to pay bills or to cover emergencies, you have more than enough to buy into these three smart stocks.
Although the near-term rise in Okta (OKTA 6.25%) can be aptly described as meteoric, and some near-term choppiness is always a possibility, one trend to absolutely pound the table on this decade is cybersecurity. Okta might seem pricey now, but you'll probably be kicking yourself five or 10 years from now for not buying it at this "bargain price."
One reason cybersecurity is such a hot industry is because enterprises were already moving toward remote work environments and shared clouds long before COVID-19 struck. The pandemic has merely accelerated demand for cloud development, and therefore cloud-protection services. Also, don't forget that cybersecurity isn't an optional solution. No matter how well or poorly the economy is performing, enterprises big and small need solutions to protect their information against illicit activity. This gives cybersecurity companies some expectation of consistent cash flow.
What makes Okta an intriguing choice is the company's identity verification solutions. Many of Okta's platforms rely on machine learning to evolve and identify situations where extra precautions, such as two-factor authentication, may be necessary before access to a shared cloud is granted.
Furthermore, Okta doesn't offer a one-size-fits-all product. Rather, its solutions are scalable to a business's needs. This means there's a strong likelihood of Okta generating better margins over time as longtime clients grow and add on additional Okta security solutions.
In my view, Okta has the potential to average 30% annual sales growth throughout much of this decade.
Another smart stock to buy that might look expensive now but has all the tools necessary to support a lofty valuation is natural pet food and treats manufacturer Freshpet (FRPT 1.07%).
Just as cybersecurity is an unstoppable trend, so is our nation's love for companion animals. Since 1988, the number of U.S. households that own a pet has risen from 56% to 67%, according to a survey conducted by the American Pet Products Association. It's also noteworthy that at no point in at least the past quarter of a century have year-over-year sales for pet expenditures declined. Pet owners will pay whatever is necessary to ensure the health of their honorary family members -- and that's where Freshpet comes in.
Just as we've witnessed organic and natural foods carve out a healthy slice of total grocery spending, Freshpet's focus on natural and organic ingredients for pets should yield similar results. A higher-quality product comes with a higher expected price point, and typically juicier margins. With Freshpet increasing its footprint beyond 22,000 stores, as of June 12, 2020, it's all but a certainty that double-digit growth will continue for the foreseeable future.
Additionally, don't overlook that Freshpet is still in the early innings of marketing its brand and reaching its core audience. As its market penetration improves among premium dog and cat food manufacturers, margins should increase and big profits should soon follow.
Kirkland Lake Gold
Who says precious-metal mining stocks can't deliver superb growth? Certainly not the owners of Kirkland Lake Gold (KL), who've watched management acquire top-tier assets and deliver some of the most impressive results in the entire mining industry.
One component of the Kirkland Lake story is that its underlying core metal, gold, is currently at more than an eight-year high. Aside from the uncertainty tied to COVID-19, gold is benefiting from historically low lending rates around the world and central banks pumping money into their respective financial systems hand over fist. Such action should weaken the U.S. dollar -- that's good considering gold and the dollar typically move opposite of each other -- and send people to gold as the preferred safe-haven asset.
Beyond just higher precious-metal prices, Kirkland Lake Gold has the best balance sheet among gold stocks. It ended the first quarter with $530.9 million in cash and cash equivalents, as well as no debt. It also recently doubled its quarterly payout to $0.125, and repurchased 9.7 million shares of stock totaling $329.8 million. Everything this management team has done in recent years is to improve shareholder value.
On an operating basis, Kirkland's three producing assets delivered an all-in sustaining cost (AISC) of $776 per gold equivalent ounce (GEO) during the first quarter -- and this was with higher costs associated with the Detour Gold acquisition. Even with this perceived-to-be elevated AISC, Kirkland is currently tracking an operating cash margin of better than $1,000 per GEO. Translation: You can expect robust reinvestment, a healthy dividend, and perhaps additional acquisitions, in the future.