Generally speaking, diversification is an excellent strategy. It allows investors to spread risk across different sectors in case something goes especially wrong for one company or in one area of the stock market. Diversified portfolios also stand to benefit from multiple different institutions' and sectors' responses to the same market-boosting event.
American industrialist Andrew Carnegie once said, "Put all your eggs in one basket, and watch that basket [closely]." Today, let's look at why a 5G network giant, a workplace social platform, and a coronavirus vaccine developer are among the top breakout stocks to buy now, and why you can feel confident devoting a large chunk of your portfolio to each one.
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1. Ciena
Ciena (CIEN -0.69%) is one of the world's largest telecommunications companies, and boasts the largest global market share in network infrastructure, data centers, and software solutions. Over the past 12 months, the company brought in $3.6 billion in revenue and spent $518 million of these sales on the research and development (R&D) of integrated 4G/5G routers.
Ciena reported $976.7 million worth of sales and $1.06 in earnings per share (EPS) in the third quarter of 2020, compared to $960 million in revenue and $0.71 EPS in the second quarter of 2020. Ciena's net income also increased substantially from $86.7 million in Q3 2019 to $142.3 million in Q3 2020. Optical network packets made up 75% of Ciena's revenue.
Ciena is surprisingly inexpensive at its current price, trading at a mere 1.7 times price-to-sales (P/S) and 17.3 times to price-to-earnings (P/E). That's a very good deal considering most 5G stocks are trading between 34 to 352 times P/E and 3 to 27 times P/S. The company also has $1.2 billion in cash and investments, more than enough to cover its debt situation. Ciena would have $410 million left over if it paid all of its long term debts today. If investors interested in the telecom sector are looking for a breakout 5G stock on the cheap, Ciena, up about 10% in the past year, is definitely a top choice.
2. Slack Technologies
Since 2009, Slack Technologies (WORK) has been revolutionizing workspaces via its online, desktop, and mobile platform, which helps employees communicate through chat rooms, shared content files, and emojis, and offers a powerful search engine to dig into conversation records. The company's services have been in higher demand ever since the coronavirus pandemic forced many companies to close down HQs and move employees to work-from-home situations.
More than 122,000 businesses and paid customers use the Slack platform. The company boasts a net retention rate of 125%, and a growing number of customers are spending more and more money on the service. As of Q2 2021, Slack has 87 clients contributing more than $1 million in annual revenue, up from 49 in Q2 2020. Additionally, 985 businesses on Slack now constitute more than $100,000 in recurring annual revenue, up 37% year over year.
Slack fits the needs of investors hoping to capitalize on the digital transformation of the workplace -- even though it's trading at a P/S ratio of 23. Since last year, Slack stock is up about 50% and shows few signs of slowing down.
3. Johnson & Johnson
Johnson & Johnson (JNJ 1.14%) is arguably the top biotech in the race to develop a COVID-19 vaccine. Unlike its competitors, the company's vaccine candidate only requires a single dose to achieve immunity and can be refrigerated instead of stored at -94°F. The World Health Organization (WHO) estimates that one in every two vaccines globally goes to waste due to improper temperature control or delivery difficulties.
Johnson & Johnson recently paused its vaccine candidate's phase 3 clinical trials due to a safety concern in one volunteer. Because the standards (and stakes) are so high, it has become a standard procedure for developers to halt clinical trials based on one unexplained illness.
Johnson & Johnson will supply up to 400 million doses of its COVID-19 vaccine to the E.U. and 300 million doses to the U.S. contingent on clinical trial success and regulatory approvals. By the end of next year, the company expects to have the capacity to manufacture 1 billion doses of the vaccine per year. At $10 per dose, that spells a potential $10 billion in annual revenue from a vaccine, on top of the $80.68 billion Johnson & Johnson already brings in from internationally commercialized products.
At five times sales and 23 times earnings, Johnson & Johnson is trading at a very reasonable price given its massive growth potential. If that wasn't enough, the stock also boasts a strong dividend yield of 2.75%, well above the S&P 500 average yield of 2%.
