On Monday, March 15, both the iconic Dow Jones Industrial Average and benchmark S&P 500 hit new all-time highs. But the reality is that these indexes might just be getting started. Under the Joe Biden administration, Dow 40,000 and S&P 5,000 are a real possibility.
Although President Biden and his cabinet inherited a challenging task of getting life back to normal after the coronavirus pandemic, the recent passage of $1.9 trillion in fiscal stimulus, coupled with ongoing quantitative easing measures by the Federal Reserve, should ignite a fire under the U.S. economy. With abundant cheap access to capital, businesses of all sizes should have no trouble innovating and expanding.
While this would typically be great news for growth stocks, it's value stocks that have historically been the top-performers during the early stage of an economic recovery. Given the confluence of catalysts in the sails of publicly traded companies, the following four value stocks all have the potential to double in a Biden bull market.
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I know it probably sounds odd to think of high-growth social media company Facebook (FB +1.81%) as a value stock, but it fits all the criteria. It's valued at roughly 20 times forward-year earnings, and its projected 2021 sales growth rate of 25% puts its price-to-earnings growth ratio (PEG ratio) below 1. Typically, a PEG ratio below 1 is considered an undervalued company.
Even with the seemingly always-present concern that Facebook could one day be broken up by lawmakers, it has all the tools necessary to double investors' money with Biden in the White House. For example, it ended last year with 42% of the entire global population visiting one of its owned assets every month. That's 2.8 billion monthly active visitors on Facebook, and another 500 million unique monthly visitors on Instagram or WhatsApp, which Facebook also owns. This sheer dominance in the social media space has advertisers clamoring for placement on Facebook's platforms.
Facebook's ability to step on the gas should also be a growth driver in the coming four years. It's only marginally monetized WhatsApp and Facebook Messenger to this point, despite the fact that both platforms rank among the top-five most-visited social sites in the world. Once Facebook begins monetizing these assets, operating cash flow could explode higher.
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Teva Pharmaceutical Industries
Brand-name and generic-drug producer Teva Pharmaceutical Industries (TEVA +3.65%) is what you might call an ultra-value stock at something like 4 times forward-year earnings.
The reason Teva is so fundamentally inexpensive is because it's found itself the target of multiple lawsuits concerning alleged generic-drug price-fixing, and its purported role in exacerbating the opioid crisis. However, the company has a secret weapon of its own.
Turnaround specialist Kare Schultz was brought on as the company's CEO in late 2017. Since taking over, he's slashed annual spending by about $3 billion and reduced the company's net debt from north of $34 billion to under $24 billion. He'll also play a key role as the lead negotiator between the company and the U.S. regulators. Schultz is likely aiming for solutions that involve non-cash or minimal cash concessions. After all, his goal is to get Teva below $15 billion in net debt by late 2023.
The company also stands to benefit from higher brand-name list prices. With previous efforts by Capitol Hill to address high brand-name drug prices getting swept under the rug, the expectation is that generic drug demand will only increase under the Biden administration.
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SSR Mining
Despite a rough go of things in recent months, the lustrous yellow metal and gold-mining stock SSR Mining (SSRM +1.93%) should do quite well under the new administration.
From a macro perspective, the Fed's ongoing quantitative easing measures (i.e., its monthly Treasury bond-buying activity designed to drive down long-term yields) and the ballooning money supply should pressure the U.S. dollar and buoy the price for physical gold. The Fed's pledge to keep interest rates at or near historic lows through 2023 is a green light for gold stocks.
As for SSR Mining, it completed a merger of equals with Turkey's Alacer Gold last year. Bringing the Copler mine under its umbrella means nearly doubling its annual output and significantly bolstering its annual free cash flow. The company expects to produce between 700,000 and 800,000 gold-equivalent ounces for at least the next five years, with an estimated $450 million in annual free cash flow in 2021 and 2022.
Because SSR Mining is one of the few gold stocks with a large net cash position (about $457 million), it's also commencing a $0.05 quarterly dividend at the end of March. At just over 4 times this years' cash flow per share, SSR Mining is a good candidate to double.
Image source: Goodyear.
Goodyear Tire & Rubber
Another deeply discounted value stock that could double in a Biden bull market is Goodyear Tire & Rubber (GT +7.13%). Even after its recent surge, shares of the company can be bought for roughly 11 times forward-year earnings.
The macro catalyst for the highly cyclical Goodyear is the expected rebound in the U.S. and global economy. When U.S. and global gross domestic product are increasing, it's common to see businesses and consumers spending more. That means an expected uptick in business and personal vehicle purchases (i.e., more tires sold).
What's more, rubber future have retraced about 20% from their one-year high set in January. For Goodyear, this means lower input costs and potentially higher margins when demand for tires really picks up.
Wall Street also seems pleased with the company's $2.8 billion cash-and-stock deal to buy rival Cooper Tire & Rubber. Combining these two companies will enhance Goodyear's leading U.S. market share, broaden its product portfolio in the high-margin light truck and SUV segments, nearly double its presence in the fast-growing China tire market, and lead to an estimated $165 million in cost-savings over the next two years. Suffice it to say, Goodyear could be burning rubber for its shareholders for years to come.
