There's more than one way to succeed at investing, but one of the best, time-proven strategies has been a simple buy-and-hold strategy. Exhibiting patience, even in the face of brutal market sell-offs, wins more often than it loses because stocks tend to rise over the long haul.
Finding good companies that can withstand the rigors of market corrections is important. Even when stock indices are regularly setting new records, savvy investors can still find bargains to buy now. If you have $1,000 to invest that you won't need for at least three to five years -- and preferably for decades -- the following three stocks can reward investors who wait.
1. Annaly Capital Management
Mortgage real estate investment trust (REIT) Annaly Capital Management (NLY -1.67%) is the premier mortgage REIT (mREIT) and the largest by market cap. It invests in mortgages and mortgage-backed securities, primarily those backed by the full faith and credit of the federal government in the event of a default.
So-called agency-backed mortgages, because they emanate from Fannie Mae, Freddie Mac, and Ginnie Mae, represent 99% of Annaly's mortgage portfolio as of the end of June. While that protects its business to a degree, one of the bigger risks Annaly faces is the Federal Reserve pumping trillions of dollars into the economy.
The easy-money policies could have a negative impact on the long-term health of the economy and may help fuel the runaway inflation we're experiencing. It's also why Annaly is experiencing an increase in its constant pre-payment rate (CPR), or the percentage of its portfolio it expects to be paid off within a year.
CPR jumped to 26.4% this quarter from 23.9% in the first quarter. While the mREIT expects its long-term CPR to be 12.9%, better than the 18% it forecast a year ago, that's still up from the 11.8% rate it expected two months ago.
Like all REITs, however, Annaly is required to pay out most of its profits as dividends. The company's dividend currently yields around 10% annually, right in line with its average over the past two decades, as it has returned some $20 billion to shareholders in the form of dividend income. Look for this mREIT to continue growing and rewarding its investors for years to come.
It's clear that one of the biggest selling points right now for Novavax (NVAX -6.05%) is the potential for its coronavirus vaccine candidate NVX-CoV2373, which is showing significant promise. It provides the clinical-stage biotech with a real opportunity to be one of the Big Three in vaccine production as the company looks forward to completing its regulatory request in the fourth quarter.
While that's a good short-term catalyst for growth, it wouldn't make for a very compelling argument for Novavax to be a long-term part of one's portfolio if it was just a one-trick pony. Yet it's a drug-development company and has several therapies in the works. These include Nanaflu for regular influenza, which met all its primary endpoints in Phase 3 testing, and a COVID/flu vaccine mashup, for which it recently began clinical trials.
It's still in the early days with that one, but since each individual vaccine candidate has had positive outcomes so far, there's a good possibility a combined one can similarly succeed. It's a big benefit to provide a reason for patients to be stuck fewer times. While Moderna is also pursuing a dual-purpose vaccine, Novavax may be able to be first to market, which could give it a competitive edge.
Development-stage biotechs are inherently risky, so I wouldn't go all-in on Novavax, but a $1,000 investment as part of a larger portfolio mix might be a risk worth taking.
3. Upstart Holdings
Fintech Upstart Holdings (UPST -1.73%) has been public for less than a year (it IPO'd last December), but it's already making waves. Shares are up 700% in 2021, and are up over 16 times their $20 per-share offer price. The market obviously likes what the company's selling.
Upstart uses artificial intelligence (AI) to determine loan eligibility, which is a big difference from traditional lending institutions that use FICO scores or a handful of rules-based criteria to make loan determinations. The fintech's AI funnels its decision-making process through more than 1,000 data points, creating a network effect that it says allows it to accurately quantify true risk. This ends up providing more lending opportunities at lower rates for borrowers.
The vast majority of its lending activity is in unsecured personal loans, yet it recently expanded into auto loans. It sees further opportunities to grow with credit cards, mortgages, student loans, and home equity lines of credit. Obviously, there's still risk of default in Upstart's lending process.
Economic downturns like last year's pandemic-induced recession could cause borrowers to not pay back their loans. Upstart says that, because it's a digitally native operation, consumers might not view a loan received through its operations as significantly as they view one obtained through a bank or other traditional channel.
Upstart seems capable of mitigating those risks. Revenue surged 1,018% last quarter with fee revenue 1,300% higher, as loan originations through its bank partners jumped over 1,600% from the year-ago period. That allowed it to turn an operating profit of $36 million this year, compared to an $11 million loss last year, while adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of almost $60 million was a large leap forward from the $3 million loss a year ago.
Upstart isn't the cheap stock it was when it went public or even a month ago (it's up 60% since then), so an investor might want to wait for any sign of a pullback. But as part of a larger portfolio, a $1,000 stake in this fintech stock might not be a bad place to start right now.