It's hard to believe we are more than one year into the coronavirus pandemic. Even harder for some folks to fathom is how incredibly well the stock market has done over that period. But the market is ever forward-looking.
There's certainly reason for optimism, with a post-COVID future within reach, and a full economic recovery potentially already underway. Moreover, the most successful investors are the ones who continue looking for opportunities to buy great companies across every part of the market cycle; right now is no different in that regard.
To help you invest better, we ask five Motley Fool contributors for their best ideas each month. For April, they came back with Netflix (NFLX 1.10%), Zillow Group (Z 2.76%)(ZG 2.70%), Axon Enterprise (AXON 2.04%), DermTech (DMTK +0.00%), and Clearway Energy (CWEN 4.37%)(CWEN.A +0.00%). Keep reading for a closer look at all five companies below.
Image source: Getty Images.
Netflix is a steal right now
Anders Bylund (Netflix): It's kind of hard to come up with a time when Netflix (NFLX 1.10%) wasn't a solid buy, but the video-streaming veteran looks more inviting than usual right now.
The business saw a large boost from the stay-at-home COVID-19 policies of 2020, even if the gains were heavily weighted toward the first half of the year. The company has now proven that it can deliver positive free cash flows when the conditions are right, and should be able to do it on a consistent basis within the next couple of years. Three months ago, management said that Netflix wouldn't need to tap the bond market for cash infusions at this point. The rising cash flows and current stack of debt-based cash reserves should be enough in the long run.
At the same time, investors seem to have lost patience with this long-running growth story. The stock is trading nearly 15% below January's all-time highs amid a broad retreat from high-growth investments. I see that as an invitation to pick up Netflix shares at a discount. The market-beating stock should continue to treat us long-term investors like kings over the next couple of decades, as digital media platforms become the standard delivery method for entertainment content.
The global video streaming market is still in its infancy, and Netflix is establishing itself as the leader in user-friendly viewing experiences and high-quality content -- all at affordable monthly subscription prices. You should buy Netflix on the dips, and we're in the middle of a significant discount run today.
Here's a home for your investable cash
Dan Caplinger (Zillow Group): New companies have disrupted many well-established industries, but for the most part, the housing market is still highly inefficient. The buying and selling process for homes can take months and be full of traps for the unwary.
Zillow Group (ZG 2.70%) (Z 2.76%) has long sought to disrupt the real estate industry, initially providing information that was previously the sole province of professional brokers. Now, Zillow is aggressively moving into the newest high-growth area in residential real estate.
The real estate specialist's Zillow Offers service represents its foray into the fast-growing iBuyer market. Homeowners in certain markets who are interested in selling can use the service to get an offer directly from Zillow in just days. The process gives sellers the flexibility to pick their own timeline for closing on a sale, making it far easier to coordinate moving plans with the subsequent purchase of another home in their new location.
Zillow Offers is ramping up quickly, with the company recently saying it would use its popular Zestimate home valuations as initial cash offers in nearly two dozen markets across the nation. By using Offers as the centerpiece for its multi-service cross-selling strategy, Zillow could see growth perk up considerably -- and that could spur further gains in its stock throughout 2021 and beyond.
Good for society and investors
Brian Stoffel (Axon Enterprise): If I didn't already own so much of Axon, I would be starting April by buying more of this stock. For those who are unfamiliar, Axon provides three critical services for law enforcement agencies:
- TASERs: Formerly known as TASER International, this is the company behind the weapon that's trying to make the bullet obsolete.
- Axon body cameras: As the past year has shown, body cameras are capturing vital information we wouldn't otherwise have access to.
- Cloud services: There's lots that can be done with the data Axon cameras capture.
From an investing standpoint, the third group is the most interesting. Police departments pay monthly subscription fees to store and analyze footage (Axon Evidence), use the data collected to help auto-fill incident reports (Axon Records), and gain real-time situational awareness during incidents (Axon Respond).
The company released a solid earnings report in early March, but the stock is down roughly 30% from all-time highs. That doesn't concern me one bit -- Axon has always had a somewhat volatile stock. But there's little doubt that if the company can accomplish what it wants to over the next decade, it will be a win-win-win, for the company, our larger communities, and shareholders.
A different twist on skin in the game
Keith Speights (DermTech): I love to find the stocks of companies that offer better, faster, and cheaper solutions to pressing problems. That's why DermTech ranks as one of my favorite stocks right now and is a great pick to buy in April.
DermTech developed a non-invasive DNA test that can detect melanoma at early stages. The standard approach for diagnosing melanoma requires a dermatologist to perform a surgical biopsy, which is sent to a lab for examination under a microscope. With DermTech's Pigmented Lesion Assay (PLA) product, an adhesive patch is placed on the skin. The patch is removed and then sent to the company's lab for genomic analysis.
Is DermTech's solution actually better, faster, and cheaper? Yep. The surgical biopsy method is 17 times more likely to miss a diagnosis of melanoma. DermTech's results are available within 72 hours. And PLA is nearly 25% less expensive per lesion tested than the surgical biopsy approach.
Sure, the stock has retreated more than 40% from its highs set earlier this year. However, I don't think there's anything to worry about. DermTech is one of quite a few growth stocks that have experienced pullbacks with a market rotation to value stocks.
DermTech's total addressable market for all types of skin cancer is around $10 billion. The company's market cap currently stands at close to $1.4 billion. With PLA picking up momentum and other skin cancer genomic tests in its pipeline, I think this stock is poised to be a huge long-term winner.
The best way to profit from the renewables trend
Jason Hall (Clearway Energy): Renewable energy is becoming a serious player in powering the world. Costs are falling and efficiencies are rising, making renewables cheaper, more reliable, and able to meet a wider range of applications. Combine these with the global focus on combating climate change, and renewable energy is a massive growth business.
The problem? It's also a tough segment for investors. The companies that design, manufacture, and install wind, solar, and energy storage devices have to deal with the highly cyclical nature of the energy industry. And this can turn nice gains into losses for shareholders pretty quickly.
This is where investing in Clearway Energy can pay off.
CWEN.A Total Return Level data by YCharts
As an independent power producer, Clearway owns and operates utility-scale power generation assets including wind and solar, and sells the power on long-term contracts to utility customers. This means steady demand across economic cycles, and the benefits of long-term growth as demand for more low-carbon energy increases.
There's more to the story than just the sheer growth prospects of the business. Clearway also pays a strong dividend, yielding well over 4% at recent prices, and aims to grow the payout 5% or more annually. If you're looking for a lower-risk way to profit from the renewables trend, Clearway Energy should be on your short list of stocks.
