This has been a year that Wall Street and investors won't soon forget. Panic and uncertainty caused by the coronavirus disease 2019 (COVID-19) pandemic led to some of the wildest swings in stock market history. It initially took the broad-based S&P 500 a mere 33 calendar days to lose more than a quarter of its value. Subsequently, the index rebounded to hit fresh all-time highs in under five months.
We've finally hit the homestretch. If investors have learned anything, it's to appreciate the value-creating potential of long-term investing. While stock market corrections and crashes are inevitable parts of the investing cycle, great businesses tend to increase in value over long periods of time.
The recent pullback in equities has given long-term investors the green light to go shopping. Here are three top stocks that can make you richer in the fourth quarter and beyond.
Image source: Getty Images.
Sirius XM
One brand-name company that's taken it on the chin on a year-to-date basis is satellite radio kingpin Sirius XM (SIRI 0.96%). Historically speaking, recessions are relatively unkind to radio operators. Additionally, the COVID-19 pandemic has potentially disrupted new auto sales -- Sirius XM's primary means of reaching news users. Though it's unfortunate so many businesses have faced coronavirus hurdles in 2020, Sirius XM's concerns look to be overblown.
Sirius XM's operating model is nothing like terrestrial or online radio. It's the only satellite radio operator, period. It generates the bulk of its revenue from subscriptions, with the remainder coming from advertisements that are primarily associated with the Pandora streaming service.
When recessions inevitably occur, radio operators that rely on ad revenue (i.e., basically all terrestrial radio and most online radio providers) get pummeled. That's not the case for Sirius XM, which actually witnessed subscription revenue growth during the pandemic-impacted second quarter. Since 83% of revenue is from subscriptions on a year-to-date basis, Sirius XM is better equipped to deal with downturns than any other radio content provider.
Sirius XM's satellite network also comes with the advantage of relatively fixed operating costs. Yes, the company's royalty costs can fluctuate wildly depending on how much it pays for talent. However, no matter how many new net subscribers the company signs up, its transmission costs remain relatively fixed. As Sirius XM's subscriber count grows, we should see a steady expansion of its operating margin and cash flow.
Sirius XM isn't going to wow with double-digit growth, but being a satellite radio monopoly should allow the company to grow earnings per share by a mid-to-high single-digit rate for many years to come.
Image source: Getty Images.
Trupanion
There aren't too many industries on this planet that don't miss a beat when a recession rears its head. The companion pet industry (e.g., dogs, cats, birds, and so on) is one such industry, which is why companion pet health insurance company Trupanion (TRUP 1.79%) should be on your buy list this October.
According to the American Pet Products Association, the number of U.S. households owning a pet jumped from 56% in 1988 to 67% in 2019-2020. This equates to roughly 84.9 million U.S. households (i.e., opportunities) where Trupanion can find potential clients.
What's more, over $30 billion is projected to be spent on companion animal veterinary care and supplies in 2020. U.S. pet expenditures increase every single year, regardless of how well or poorly the U.S. economy is performing.
At the moment, Trupanion has only reached between 1% and 2% of the North American companion pet patient pool. This might sound like a disappointing figure, but it suggests there's a long runway to grow companion pet insurance subscribers by a double-digit percentage. This is exactly what the company did during the pandemic-impacted second quarter, when total enrolled pets jumped 29% from the prior-year period.
Although competition in companion health insurance is expected to grow over time, Trupanion also has a paw up on its peers. Having been in business for two decades, Trupanion has done an excellent job of forging partnerships at the clinical level. The premium investors pay for Trupanion reflects the quality of its partnerships with veterinarians throughout the country.
Investors should expect Trupanion to double sales over the next four years, making it a growth stock you'll want to get in your portfolio this October for the long run.
Image source: CVS Health.
CVS Health
Finally, if you want to get richer, consider buying into beaten-down pharmacy giant CVS Health (CVS -1.62%), which is about as inexpensive as I can ever recall at less than 8 times forward earnings.
Usually, healthcare stocks are considered highly defensive investments during a recession. That's because we don't get to choose when or how we get sick. Presumably, the sector should see steady demand even during a recession.
However, CVS Health has been among the few exceptions. Its front-end sales have been disrupted by the pandemic, and there's concern that Amazon or some other deep-pocketed company might attempt to disrupt the pharmacy space.
As a CVS shareholder, I'm not worried. You shouldn't be, either. First of all, CVS Health has demographics on its side. The U.S. is getting older, and baby boomers are retiring in increasing numbers. These facts suggest a growing likelihood that this rising number of older Americans will drive demand for prescription medicine. CVS Health's pharmacy segment generates some of the company's juiciest margins, so this is good news.
Secondly, CVS Health acquired health insurance provider Aetna in 2018. Though it might have been viewed as an oddball move at the time, this combination actually creates significant cost synergies between the two companies. It also boosts CVS' organic growth rate. It doesn't hurt that the addition of Aetna creates an incentive for the insurers' millions of members to stay within the CVS Health ecosystem.
Third and finally, CVS Health is focused on assisting patients with chronic illnesses. The company plans to open as many as 1,500 HealthHUB health clinics nationwide to help patients with chronic illnesses stay on top of their symptoms.
CVS Health may be an unpopular investment for the time being, but it's a moneymaker that's begging to be bought.
