Investors in 2020 have witnessed two wild extremes crammed into about a six-month time frame. During the first quarter, panic and uncertainty surrounding the coronavirus disease 2019 (COVID-19) pandemic sent the broad-based S&P 500 screaming to its fastest and steepest bear-market decline in history. It took less than five weeks for the index to shed more than a third of its value.
However, this was followed by the strongest and quickest rally from a bear-market bottom of all-time, with the benchmark index taking fewer than five months to recoup all of its losses.
While surprising bouts of heightened volatility are unnerving, they've historically proved to be an excellent buying opportunity for long-term investors. After all, the stock market has eventually erased all previous corrections and bear markets when given the proper amount of time.
Of course, volatility also has a way of bringing short-term investors out of the woodwork. Online investing platform Robinhood has been particularly popular among millennial and/or novice investors, and many of the most widely held stocks on the platform are penny stocks, awful companies, or whatever happens to be the hot stock on Wall Street in a given week.
Though it's fantastic to see young people putting their money to work in the stock market, Robinhood isn't giving these folks the tools or mindset guidance they need to be successful investors over the long run. If you're one of the millions of millennials or novice investors who've opened a Robinhood account, I'd suggest taking the long-term approach and buying into the following four smart stocks right now.
There's probably not a safer growth trend this decade than cybersecurity. We were already seeing a push toward remote-work environments prior to the pandemic. All COVID-19 has done is hastened that transition, thereby beefing up the need for adaptable network and cloud-security solutions.
Identity-verification company Okta (NASDAQ:OKTA) should be a prime beneficiary of this out-of-office push, with the company leaning on artificial intelligence and machine learning to make its security solutions smarter. The thing is, Okta isn't built as a one-size-fits-all identity service -- and that's a good thing. While gaining new customers is a key goal, having existing customers add on new solutions as they grow is Okta's bread-and-butter margin driver.
Additionally, subscription revenue accounts for roughly 95% of total sales. Subscriptions significantly reduce concerns about client churn, and the cash flow generated from subscriptions tends to be highly predictable. Look for Okta to keep growing at a hearty double-digit rate throughout the decade.
I know what you're probably thinking: "But Amazon (NASDAQ:AMZN) stock is at an all-time high! Why would I buy now?" The best answer I can offer is that it's still historically inexpensive.
Amazon is best-known for its retail ecosystem, which controls an estimated 44% of online sales, according to analysts at Bank of America/Merrill Lynch. Such a huge share of the e-commerce marketplace, along with more than 150 million Prime members, should allow it to continue to undercut brick-and-mortar retailers on price, as well as keep consumers loyal to its ecosystem of products and services.
But the real lure of Amazon is its considerably higher-margin cloud-infrastructure service segment. Amazon Web Services (AWS) grew sales by 29% in the COVID-19-impacted second quarter from the prior-year period and continues to be the primary operating-income driver for the company. Over the next four years, Amazon's operating cash flow per share could nearly triple, with AWS playing a key role.
In my view, Amazon is a $5,000 stock, with a shot at a $3 trillion valuation before any other publicly traded company.
Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) CEO Warren Buffett is one of the richest people in the world. But don't forget that he's also generated more than $400 billion in value for Berkshire Hathaway's shareholders over the past 55 years, with Berkshire's stock delivering a compound annual gain of 20.3% since 1965.
When buying Berkshire Hathaway, investors are getting the time-tested Buffett as their portfolio manager, as well as landing strong ties to the U.S. economy. The Oracle of Omaha strongly believes in never betting against America. Berkshire's portfolio is a testament to this with approximately 92% of its invested assets devoted to the technology, financials, and consumer staples sectors, all of which are highly cyclical. Since the U.S. economy spends a far greater length of time expanding than in recession, this has been a smart bet for Buffett over the long run.
Even though Berkshire Hathaway doesn't pay a dividend, Warren Buffett remains a big fan of rewarding his investors through share repurchases. Over the past two years, Buffett and his team have spent close to $13 billion repurchasing shares of Berkshire Hathaway. Buying back stock can often yield a positive impact on earnings per share and make a company look more fundamentally attractive.
Another smart stock for Robinhood investors to buy now is telemedicine giant Teladoc Health (NYSE:TDOC).
Make no mistake about it, the pandemic has helped Teladoc's business. Total telemedicine visits hit 2.8 million in the second quarter, up 203% from the prior-year period. But it's not like Teladoc was a slouch before COVID-19. Assuming $1 billion in annual sales in 2020, Teladoc's compound annual growth rate since 2013 is 75%! The thing is, telemedicine is a win for the entire healthcare treatment chain, with physicians able to "see" more patients, insurers paying less in fees than an in-office visit, and the patient having the convenience of consulting with a physician from home.
Teladoc is also in the process of merging with healthcare solutions provider Livongo Health (NASDAQ:LVGO) in a cash-and-stock deal. Livongo aggregates data for patients with chronic illnesses and, using artificial intelligence as an aid, sends its members tips and nudges to incite behavioral changes. Currently, Livongo Health has more than 410,000 diabetes members and has been at least doubling its member count on a year-over-year basis.
When Teladoc and Livongo become one company, it's going to be a telemedicine/personalized solutions powerhouse.