Volatility has been the name of the game over the past year on Wall Street, and millennial investors have been loving every minute of it. Online investing app Robinhood, which has become a safe haven for retail investors, added approximately 3 million new users in 2020.
With an average age of only 31, Robinhood's user base is often looking to get rich quick and rarely thinking about the long term. We know this to be fact because Robinhood's leaderboard (i.e., the 100 most held stocks on the platform) is packed with momentum stocks, Reddit-rally plays, and penny stocks.
Yet among this sea of dart throws, Robinhood investors have scooped up three quality companies that value investors are bound to love. If you have cash at the ready and are looking for inspiration, young investors have their eyes (and money) on these brand-name companies.
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AT&T
For years, merely mentioning AT&T (T 1.88%) in passing context to an investor would have been grounds to put them to sleep. That's because AT&T's top-line growth has been middling along in the low single digits and its DirecTV subsidiary is steadily bleeding customers. But after baking in all of this bad news and adding two new catalysts, AT&T is exciting, once again.
Arguably the biggest catalyst for AT&T is the ongoing rollout of its 5G infrastructure. It's been a decade since we last witnessed a major upgrade to wireless download speeds. As AT&T and its peers begin the arduous process of expanding 5G coverage, you can bet that consumers and businesses will be upgrading their devices over the next couple of years to take advantage of these faster download speeds. That's great news for AT&T because data is the bread and butter of the company's higher-margin wireless segment.
Although DirecTV continues to lose out to cord-cutting, AT&T has an answer now -- and its name is HBO Max. Launched in late May, HBO Max was initially met with a lukewarm reception. However, it added approximately 4 million new subscribers in a matter of weeks following the end of the third quarter.
Further, AT&T subsidiary WarnerMedia plans to release all of its new movies on HBO Max in 2021 on the same day they're set to hit theaters. That's one heck of a dangling carrot to boost subscriptions.
AT&T's management is also getting aggressive with the company's outstanding debt. Share buybacks have been put on hold, and the company is seriously considering the sale of DirecTV. Any proceeds raised would go toward paying down debt.
Value investors can currently scoop up AT&T for about nine times forward earnings, and they'll be handsomely rewarded with a 7.3% annual yield for their patience.
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AstraZeneca
Clinging to the No. 100 spot on Robinhood's leaderboard is U.K.-based pharmaceutical stock AstraZeneca (AZN 0.49%). The company has been one of the coronavirus disease 2019 (COVID-19) vaccine front runners. Its vaccine was approved for emergency use in the United Kingdom in late December, which is primarily why it's been on Robinhood investors' radars.
The interesting thing is, it's not the COVID-19 vaccine that's going to drive growth at AstraZeneca over the next decade. The company's organic growth is primarily being fueled by a trio of oncology blockbusters -- Tagrisso, Imfinzi, and Lynparza -- that account for nearly a third of total sales. In 2020, the company recorded constant-currency sales growth of 36% for Tagrisso, 39% for Imfinzi, and 49% for Lynparza. With diagnostic equipment improving cancer detection, duration of use and pricing power are both on the rise.
AstraZeneca will also benefit from its biggest acquisition in history. The $39 billion cash-and-stock buyout of Alexion Pharmaceuticals (ALXN) looks like an absolute steal. That's because Alexion focuses on ultra-rare diseases. When it successfully develops a treatment for a small pool of patients, it rarely faces any pushback from insurers and usually goes years without any competitive threats.
Furthermore, Alexion developed Ultomiris, which is a next-generation treatment designed to replace current blockbuster Soliris. Only administrated every eight weeks, as opposed to every two weeks with Soliris, Ultomiris will lock in Alexion's billions in revenue and cash flow for another decade.
Sporting a price-to-earnings-growth ratio (PEG ratio) of around 1, AstraZeneca is the perfect cure for what ails value investors.
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ExxonMobil
Things have not been pretty over the past year for oil stocks, and that includes the normally resilient integrated oil and gas giant ExxonMobil (XOM 0.02%). The coronavirus pandemic led to an historic drop-off in crude oil demand and a brief period where West Texas Intermediate crude oil futures traded in heavily negative territory. While the road back to riches won't come easy, ExxonMobil has all the tools needed to right the ship.
One of the big reasons ExxonMobil has been such a long-term outperformer is the company's diversified operating model. While it's no secret that upstream drilling operations are what fuel the juiciest margins and profits, ExxonMobil also has its downstream refining and chemical operations that it can lean on when crude prices decline.
Downstream businesses benefit from lower input costs and the expectation that consumption will increase with petrol products at attractive prices. Perhaps unsurprisingly, the company's chemical operations generated their highest quarterly earnings in two years during the fourth quarter.
ExxonMobil also has levers that it can pull to improve its financial situation. For example, in the wake of the unprecedented pandemic, it pared back on capital expenditure plans of $30 billion to $33 billion in 2020 and ultimately spent only $21 billion.
CapEx in the current year is expected to decline even more, to a range of $16 billion to $19 billion. The company also generated $3 billion in structural reductions in 2020 and plans to squeeze an additional $3 billion out by 2023. These cost reductions ensure that ExxonMobil's premier dividend and 6.7% yield are safe.
However, this cost-cutting activity isn't hindering the company's advancement on key projects. For example, ExxonMobil is proceeding with its Payara development offshore of Guyana. By 2024, this expansion can boost output by up to 220,000 barrels of oil per day.
ExxonMobil might not be much to look at now, but it's only 22% above its book value and valued at perhaps 11 or 12 times forecasted earnings for 2024.
