Many investors have a gross misconception of value investing, that it is only applicable to buying shares of companies trading below their net asset value, or at a ridiculously low multiple of earnings. However, this method's real success lies in purchasing stakes in companies that that are capable of unlocking their actual intrinsic value.
Figuratively speaking, some well-run companies virtually have the license to print more and more money, year after year. Yet their corresponding growth in cash flows, at various times, do not reflect in their stock prices. But eventually the market catches the hint and wakes up to these businesses.
In fact, three such value stocks in this category have returned between 21% to 2,930% in the past three months alone: Ocugen (OCGN +3.37%), Social Capital Hedosophia Holdings V (IPOE +0.00%), and Nano-Dimension (NNDM 0.83%). That's far better than the S&P 500's meager 6% return during the same period. Just how much value is stored in these companies?
Image source: Getty Images.
1. Ocugen
Ocugen is a biotech that is developing gene therapies with the ultimate goal of curing blindness. Its therapeutics have not yet entered phase 1 clinical testing. Despite being in the infancy of accomplishing a seemingly impossible feat, the company has already racked up a massive $1.77 billion market cap. What gives?
As it turns out, Ocugen is up for a billion-dollar opportunity via the distribution of a coronavirus vaccine. Its partner Bharat Biotech has developed an 81% effective coronavirus vaccine (COVAXIN) that cleared India's regulatory pathway. Bharat Biotech and Ocugen are now seeking an emergency use authorization for its vaccine with the U.S. Food and Drug Administration.
The two firms plan to sell 100 million doses of COVAXIN in the U.S. starting in Q2 2021. If successful, Ocugen would receive up to 45% of the venture's profits, which would likely amount to $1 billion given the current pricing environment for them.
Moreover, the biotech could then reinvest its profits back into developing its gene therapies, skipping the alternative of diluting existing investors' holdings for more capital. This is one heck of a fantastic move on Ocugen's part to fund its own research. I would definitely recommend avid biotech investors add it to their portfolios.
2. Social Capital Hedosophia Holdings V
Right now, the only way to buy personal finance company SoFi is through shares of its acquirer Social Capital Hedosophia Holdings. The transaction is set to close in April.
SoFi is one of the fastest-growing firms in the finance sector. It distinguishes itself from competitors by offering an all-in-one platform for home loans, student loans, personal loans, investments, credit cards, and more. Customers can access an enormous selection of financial products all through its namesake SoFi app.
This year, SoFi expects to grow its revenue by 60% year over year to $1 billion and break even in terms of operating income less non-cash expenses (EBITDA). By 2025, Sofi projects its revenue and EBITDA will increase to $3.7 billion and $1.2 billion, respectively.
It currently has more than 1.72 million members, with 775,000 customers signing up for more than one product. Trading at just 14 times 2025 earnings, this is a fast-growing gem in the financial sector you do not want to miss.
3. Nano-Dimension
With a market cap of $2.4 billion but an annual revenue of just $3.4 million in 2020, many investors are probably wondering how on Earth Nano-Dimension comes close to being a value stock. The answer lies in its intangible assets.
You see, the company has invented its signature device, called the DragonFly LDM, for the manufacturing of 3D printed electronics such as sensors, conductors, antennas, and molded connected devices. Each machine comes at a cost of $100,000 to $250,000.
Fear not the price tag, for there are ample cost savings attached to such a device. For starters, developers can automate the DragonFly LDM for it to run 24/7. Its ability to manufacture complex geometries saves designers time and effort, as they can easily print prototypes early on and fix errors. Finally, because it's a 3D printer, the actual time taken for manufacturing and assembling individual components disappears almost entirely.
The company took a temporary hit to its sales as the COVID-19 pandemic forced many manufacturers to cut capital expenditures. By 2025, however, the global 3D printing market will likely recover and grow to $2.4 billion. Nano-Dimension has more than enough cash ($670.9 million) to sustain its operating loss of $35.7 million per year, so I'd expect it to make a full and robust recovery. If you are passionate about industrial stocks, Nano-Dimension is a great bet.
