Investors have had their resolve tested like never before over the past year. They were presented with an opportunity to run for the hills during the 33-calendar-day coronavirus crash during the first quarter of 2020, and have been granted the potential to cash out their chips during this monumental bull run from the March 23, 2020 bear-market low.
But history has shown time and again that patience is often rewarded when it comes to investing in the stock market. Regardless of what emotion-driven traders do in the short-term, operating earnings growth, innovation, and skilled management teams are what drive equity valuations higher in the long run.
With this in mind, I have three brand-name top stocks in mind that have the potential to make investors a lot richer in March, and well beyond. When it comes to these time-tested businesses, patience pays off.
In the minds of most investors, there's a pretty clear line in the sand between growth stocks and value stocks. Growth stocks increase their sales by a double-digit percentage, are concerned with gobbling up market share, and aren't too focused on generating a profit. Meanwhile, value stocks are companies that have forward price-to-earnings multiples or price-to-earnings-growth ratios (PEG ratio) below the average of their industry or the broader market.
Most folks are probably very familiar with Facebook's social media platform. What they might not realize is just how dominant the company is at attracting users. It ended 2020 with 2.8 billion monthly active visitors to its namesake site, and 3.3 billion family monthly active people. This latter figure takes into account unique visitors that went to Instagram or WhatsApp, which Facebook also owns. There's not a social platform on the planet that comes close to matching this broad of an audience, which is music to the ears of advertisers.
Furthermore, Facebook owns four of the six most-visited social platforms on the planet -- Facebook, Facebook Messengers, WhatsApp, and Instagram. The crazy thing is, Facebook is only monetizing Facebook and Instagram with ads. Once the company opens the floodgates on Facebook Messenger and WhatsApp, it's not out of the question that sales and operating cash flow quickly double.
As for valuation, Facebook continues to grow sales by 20% to 25% annually, yet can be scooped up by investors for a mere 22 times Wall Street's earnings per share forecast in 2021. That's a PEG ratio of less than 1, for those of you keeping score at home. Facebook happens to be at historically low multiples relative to Wall Street's operating cash flow forecast, as well.
In short, it's what we long-term investors refer to as a "screaming buy."
Interestingly, Barrick is a company that a handful of high-profile money managers sold or reduced their stakes in during the fourth quarter. My suspicion is this has to do with the price of gold retracing since hitting all-time highs during the summer. But folks who believe gold has lost its luster could be sorely mistaken.
On a macroeconomic basis, the outlook for gold has just about never been better. The Federal Reserve intends to keep lending rates at or near historic lows through 2023, and it's monthly Treasury bond purchases should put a cap on the upside potential of Treasury yields (bond prices and yields move inverse of one another). Couple this with the federal government approving multiple rounds of fiscal stimulus, and you have a recipe for an inflating money supply and a higher price for gold.
As you can imagine, a higher price for gold is going to help mining stocks like Barrick. But the company isn't just sitting idly by and hoping the lustrous yellow metal heads higher. For example, the ongoing automation of underground mining at Kibali and Loulo-Gounkoto has helped both sites outpace production targets and reduce expenses. These two mining complexes, which account for roughly 20% of the company's 4.4 million to 4.7 million gold ounces of production forecast in 2021, can produce at all-in sustaining costs that'll yield margins of $800 to $900 per gold ounce.
What's more, Barrick Gold has been wisely using higher gold price to pay down debt. After racking up billions in net debt last decade, the company ended 2020 with a fractional net-cash position.
Having followed the gold industry for 15 years, I've found that a multiple of 10 times operating cash flow represents a fair valuation. Barrick is currently valued at only 6 times its operating cash flow for 2021. That makes it one heck of a bargain.
Bristol Myers Squibb
Finally, I'd encourage investors to pound the table on pharmaceutical stock Bristol Myers Squibb (BMY 1.64%) in March. Even though value stocks have been out of style for more than a decade, it's worth noting that value stocks have historically heavily outperformed growth stocks during the early stages of an economic recovery.
Bristol Myers made waves in 2019 when it closed on its acquisition of cancer-drug superstar Celgene. By purchasing Celgene, Bristol Myers welcomed three new blockbuster drugs into the fold, none of which is more important than Revlimid. Last year, Revlimid generated $12.1 billion in net sales, which marked yet another year of double-digit percentage growth. The multiple myeloma staple has benefited from label expansion opportunities, longer duration of use, improved diagnostics that lead to earlier cancer detection, and strong pricing power. Best of all, Revlimid has almost five full years before Bristol Myers Squibb will have to worry about a flood of generics hitting pharmacy shelves.
Bristol Myers also has a number of exciting organic growth opportunities. Leading oral anticoagulant Eliquis, which was developed in collaboration with Pfizer, saw net sales jump 16% in 2020, with Bristol recognizing almost $9.2 billion. Meanwhile, cancer immunotherapy Opdivo had sales dip by 3% to $7 billion. Though a 3% decline in sales is less-than-ideal, Opdivo is being studied in dozens of ongoing trials as a monotherapy and combination treatment. If even a small handful of these studies bear fruit, Opdivo could become a $10 billion-per-year drug.
Something else to consider about Big Pharma stocks like Bristol Myers Squibb is that they're highly defensive. Even if economic growth backtracks or the stock market enters into a correction, demand for drugs won't slow. Since we can't control when we get sick or what ailments we develop, drug developers are usually shielded from the pain associated with recessions or stock market corrections.
Opportunistic investors can scoop up Bristol Myers for roughly 8 times its adjusted profit forecast for 2021.