While the Dow Jones Industrial Average sits at record highs, the overall U.S. economy is still struggling. In times like these, investors need to be extra careful when investing in growth stocks, because there could be some pullback in the near future. Even with vaccines to protect against COVID-19 on the way, their approval wouldn't cause an immediate economic rebound. To help protect your portfolio, it's important to consider buying stocks that have good growth prospects, but aren't obscenely overvalued.
Three stocks that fit that criteria are Innovative Industrial Properties (NYSE:IIPR), Regeneron Pharmaceuticals (NASDAQ:REGN), and Walmart (NYSE:WMT). Although they may not be scorching-hot tech stocks, they can provide investors with a safer mix of value and growth.
1. Innovative Industrial Properties
Innovative Industrial stock got a big boost in November after voter in five states checked boxes in favor of marijuana legislation. Arizona, Montana, New Jersey, and South Dakota legalized marijuana for recreational use. Mississippi legalized medical marijuana (as did South Dakota, which passed both medical and recreational initiatives). Innovative Industrial has a presence in 16 states across the country with 64 properties in total, but it does not yet have a presence in Mississippi, Montana, and South Dakota.
However, as marijuana use is expanded, especially recreationally, it'll encourage more marijuana producers to start activity in those states -- whether they're new or expanding from other parts of the country. And they're going to need locations to operate out of. That's where Innovative Industrial comes in. Innovative Industrial buys up properties from growers and leases it back to them. It's a win-win for both sides, as pot producers don't have to worry about financing, which can be difficult given that marijuana is still illegal federally, and Innovative Industrial gets a steady stream of revenue from rental income.
The company has already been generating strong growth numbers this year. Through the first nine months of 2020, Innovative Industrial has reported revenue of $79.8 million, nearly triple the $27 million it generated during the same period last year.
Next year looks like it could be an even better one for Innovative Industrial. And although the stock may look expensive, trading at a forward price-to-earnings (P/E) multiple of 46 (the typical growth stock on the Nasdaq trades at a P/E of 33), it could still look like a great deal in a couple of years. This is a company that saw its earnings per share nearly triple from $0.75 in 2018 to $2.03 in 2019. And with more growth on the way, Innovative Industrial's bottom line will only get better. Year to date, the stock is up 112% while the S&P 500 has climbed just 13%.
Unlike Innovative Industrial Properties, Regeneron is nowhere near its highs for the year. The stock has been in a free fall, declining 15% over the past month (the S&P 500 is up about 3% during that time). The company released its third-quarter results on Nov. 5 for the period ending Sept. 30, reporting that its revenue of $2.29 billion had risen 32% year over year and beat Wall Street's projections of $2.09 billion. The strong results were driven by the company's eye medication, Eylea, whose sales of $2.1 billion came in higher than the $1.75 billion that analysts were expecting.
Regeneron had more good news for investors, when on Nov. 21 it announced the U.S. Food and Drug Administration granted its antibody cocktail, REGEN-COV2, Emergency Use Authorization (EUA). The cocktail can be used in patients who are high-risk and who have mild to moderate COVID-19.
The healthcare stock's recent dip in price makes now an attractive time to buy Regeneron. While all eyes are on the vaccine makers, there will still be a need to treat COVID-19, as not everyone will get vaccinated right away. And there's no guarantee how smoothly the vaccination process will go. Regeneron's antibody cocktail could be in high demand and help boost the company's sales over the next year. At a forward P/E of 15, Regeneron is an even cheaper buy than Innovative Industrial. Year to date, Regeneron stock is up 27%.
Walmart's high-growth days may be long gone, but the company continues to find ways to expand its business. One example is in healthcare. A year ago, the company launched its first Walmart Health location in Georgia. The company is expanding its presence to more locations and it expects to have 22 locations open by the end of next year. The company's low-cost health clinics could see strong demand especially as many out-of-work Americans no longer have health insurance and are in need of affordable options.
But it's not just healthcare that's growing. The company's e-commerce business has been thriving amid the pandemic. On Nov. 17, Walmart released its results for the third quarter ended Oct. 31, and sales of $134.7 billion rose 5.2% from the prior-year period. A key reason for those strong results was its e-commerce sales, which increased 79% year over year.
With the possibility of more shutdowns coming as COVID-19 cases continue to climb, the strong online sales numbers aren't likely to subside anytime soon. Combined with its growing presence in healthcare, this is a stock that investors shouldn't overlook as there's still a lot more growth Walmart can achieve. The stock trades at a forward P/E of 26, which is richer than Regeneron's valuation but it makes up for that by being a more diverse and stable investment over the long term. Year to date, shares of the big-box retailer are up about 24%.