Successful investing does not need to involve taking excessive amounts of risk. There are plenty of companies offering shareholders compelling upside without extreme risk and volatility.
Here we will explore three low-risk investment opportunities to bolster your portfolio.
1. Nike -- a digital powerhouse
In Nike's (NKE 3.64%) most recent earnings report, the company posted a revenue decrease of 1%. With many of Nike's distributors shutting down their operations due to the pandemic, this muted decline is actually quite encouraging.
Furthermore, the company was able to grow its digital sales by 82%, reflecting strong demand for its products in any environment. This is encouraging for several reasons: The shift allows Nike to enjoy greater inventory efficiency by giving it a clearer, overarching picture of product demand. Nike also expects this digital shift to create accelerated growth in its women's and apparel categories.
Perhaps the most important by-product of the digital shift is the margin expansion that coincides with it. The company's gross margin on digital revenue is roughly 10% higher than wholesale. CEO John Donahoe expects this margin boost to expand as the company automates across the organization.
Donahoe has ample experience in creating digital powerhouses through his time with ServiceNow and Ebay. Now he is doing much the same thing at Nike.
2. CVS Health continues to impress
CVS Health (CVS 0.77%) posted revenue growth as well as operating margin expansion during its most recent quarter. Revenues grew by 3.5% to $67.1 billion, with operating margin expanding from 4.5% to 4.8%. Encouragingly, the company raised its operating cash flow guidance for 2020 from $11 billion to $11.5 billion to $12.75 billion to $13.25 billion. For the company, guidance improvements can be attributed to prescription volumes and more diagnostic testing, particularly for COVID-19. Despite the rosy quarter, CVS currently trades for 11.5 times earnings. Why?
As a brick-and-mortar chain, CVS is vulnerable to competitive threats from e-commerce. The company's decision to transform its stores into HealthHUBs is one of its main responses to this threat. HealthHUBs will serve as medical-service centers for routine things like blood testing, physicals, and much more. While a company like Amazon can easily ship the items CVS sells in its stores, it cannot ship the services CVS will provide in person.
In addition to HealthHUBs, CVS is also beginning to expand its own telehealth business. Over the past two years, the company's specialty digital solutions have grown at a brisk 25% compounded annual growth rate (CAGR). Since the beginning of the pandemic, 40% of CVS's specialty orders have been placed digitally. Clearly, consumer preferences are shifting, and CVS is positioning itself to provide care wherever and however a patient needs it.
3. Qualcomm is on fire
Qualcomm's (QCOM 1.62%) business is clicking on all cylinders. The semiconductor company posted 35% revenue growth in its most recent quarter, shattering expectations. Additionally, it guided to $7.8 billion to $8.6 billion in revenues for next quarter vs. just over $7.1 billion expected and is set to grow revenues by 38.5% this year. It grew operating cash flow by 41% thanks to an impressive 41.3% operating margin.
The semiconductor industry has steadily grown for decades and should continue to do so at a faster clip as 5G rolls out globally. While semiconductors have traditionally been used for cellphones and laptops, the proliferation of 5G will ultimately lead to the digitization of everything. Factories, farms, and other sectors will increasingly lean on technology powered by semiconductors.
Worldwide Semiconductor Sales data by YCharts
CEO Steve Mollenkopf believes his company is well positioned to capture new 5G revenue streams for years to come thanks to the connectivity provided by the Internet of Things (IoT) and its reliance on semiconductors. According to Mollenkopf, this will drive revenue growth for the very long term.
Furthermore, Apple's 5G phone uses Qualcomm's chips to function. This bodes extremely well for the company with new 5G phones now available for purchase. As Apple succeeds with its launch, so should Qualcomm.
Despite the strong financial performance and optimistic expectations, the company still trades atless than 19 times forward earnings, which is quite compelling for a growing technology stock.
The perfect balance between risk and reward
Here we have three companies offering investors strong fundamentals without excessive risk. All three have the ability to generate meaningful returns for shareholders, and all three should do so without all the drama associated with higher-risk investments.