A little over two years ago, the benchmark S&P 500 fell by 34% in just 33 calendar days. It was the fastest the widely followed index had ever plunged by 30% (or more) in its storied history, and I threw every cent I had in available cash at a smorgasbord of stocks I'd been watching and wanting to buy.
Since the March 2020 pandemic bottom, I've purchased a few new stocks and added to others. However, I've been predominantly building up my cash hoard. Following a few recent stock sales, I'm now sitting on my largest nominal cash position in my nearly quarter of a century as an investor.
Although I already own stakes in 40 companies, and there's a very good chance I'll be adding to some of those existing positions, I'm also looking to buy into the following five stocks (which I don't currently own) on any significant weakness.
While I'm not a believer in owning all the FAANG stocks, I do feel a strong case can be made that Alphabet (GOOGL -1.80%) (GOOG -1.91%), the company behind internet search engine Google and streaming platform YouTube, is the best value of the group.
What investors are getting with Alphabet is well over a decade of dominance when it comes to internet search. Google has controlled between 91% and 93% of monthly search share dating back at least two years, according to GlobalStats. With such a controlling percentage of the internet search space, it's no surprise that Google commands excellent ad-pricing power and almost always grows its search-based ad revenue by a double-digit percentage on a year-over-year basis.
Yet what's most exciting about Alphabet might just be its ancillary growth segments. YouTube has the second most monthly active users of any social media destination, and made close to $35 billion in annual run-rate revenue, based on fourth-quarter sales of $8.63 billion.
There's also cloud infrastructure segment Google Cloud, which has been consistently growing by close to 50% on a year-over-year basis. Google Cloud is currently No. 3 in worldwide cloud infrastructure spend. Best of all, cloud service margins tend to be considerably higher than advertising margins. By mid-decade, Google Cloud should play a key role in doubling Alphabet's operating cash flow per share.
Put simply, a forward-year earnings multiple of less than 19 is far too inexpensive for a company that's expected to sustain a 15% to 20% annual growth rate.
The valuations for EV makers have come way down in recent months, largely due to supply chain constraints. A combination of semiconductor chip shortages and COVID-19-related shutdowns have caused most auto stocks to pare down or halt production. Last week, Nio announced it would halt production due to supply chain challenges hitting its suppliers throughout various provincial regions of its home market (China).
However, it's important to note that Nio's near-term challenges are entirely related to supply and not demand. Despite these challenges, Nio managed to increase its quarterly deliveries from fewer than 4,000 EVs to north of 25,000 over the past two years (first-quarter 2020 through Q1 2022).
Nio's vehicle lineup also has a real shot at challenging leader Tesla in China. The newly introduced ET7 and ET5 sedans can, with the top battery package upgrade, go approximately 621 miles on a single charge. That gives these vehicles superior range over Tesla's former and current flagship sedans, the Model S and Model 3.
But Nio's innovation is what really gives the company a long growth runway. The company's battery-as-a-service (BaaS) program reduces the purchase price of new EVs and allows buyers to charge, swap, and upgrade their batteries. In exchange, Nio receives a monthly fee from people enrolled in BaaS, as well as locking in the brand loyalty of its newest buyers.
Qorvo's claim to fame is its ties to next-generation smartphones. It provides an assortment of radio-frequency solutions found in smartphones, which means the more next-gen smartphones sold, the more opportunity it has to grow its sales and profits.
The biggest catalyst for Qorvo is the ongoing rollout of 5G wireless infrastructure. It's been a good decade since wireless download speeds were meaningfully improved. As telecom companies upgrade this infrastructure and expand its reach, consumer and enterprise demand to trade in or upgrade devices should last for years.
Qorvo also has a tightknit relationship with the leader of U.S. smartphone sales, Apple. Apple was responsible for 30% of Qorvo's sales in 2021, and the Apple iPhone accounted for 56% of U.S. smartphone market share in the fourth quarter of 2021, up from "just" 40% in the third quarter of 2020 (before 5G-capable iPhones hit stores). As long as Apple keeps innovating, Qorvo gets to ride its coattails to success.
One final note: Don't overlook Qorvo's faster-growing ancillary channels. For instance, this company is supplying advanced antennas to help next-gen vehicles connect to the cloud.
A single-digit forward-year price-to-earnings ratio is a screaming bargain for such an integral player in the semiconductor solutions space.
Nio isn't the only automaker I'm eyeing and planning to buy. Legacy automaker General Motors (GM 1.12%) is on that list, too.
Not to sound like a broken record, but GM's production has also been cut by semiconductor chip shortages and supply concerns. However, to be crystal clear, we're looking at temporary supply hiccups and not a demand-side issue. This makes any decline in General Motors an opportunity for long-term investors to pounce.
General Motors fully understands the growth opportunity on its doorstep. Last year, the company announced that it was stepping up its planned investments in EVs, autonomous vehicles, and batteries, to an aggregate of $35 billion through 2025. The plan is for GM to launch 30 new EVs globally by the end of 2025, with two battery production facilities coming online by no later than the end of 2023. CEO Mary Barra believes the company can produce more than 1 million EVs annually in North America by mid-decade.
This is also a company with an enormous opportunity in overseas markets. Keep in mind that GM delivered 2.9 million vehicles in China in back-to-back years. Its brand(s) are familiar to Chinese consumers, and it has the infrastructure and deep pockets to become a significant player in the world's top auto market.
Even though auto stocks have historically been valued at low price-to-earnings (P/E) ratios, GM's forward-year P/E is below 6, which makes little sense given a beefed-up long-term forecast fueled by EVs.
The fifth and final stock I'm looking to buy is certainly the riskiest of the group: Tech-focused real estate company Redfin (RDFN -2.23%).
Redfin has faced a bit of a double whammy over the past six months. First, historically high inflation has altered the Federal Reserve's monetary policy stance and sent Treasury bond yields and 30-year mortgage rates screaming higher. Last week, the 30-year mortgage rate hit its highest level in over a decade, which some fear could temper demand for homebuying.
Second, Wall Street and investors appear concerned with Redfin's iBuying operations after rival Zillow shuttered its iBuying program last year. iBuying refers to the process of companies acquiring homes from sellers for cash, then ultimately reselling the homes, hopefully at a profit.
To address the latter, Redfin hasn't had any issues pricing the homes it's purchased and has actually expanded its RedfinNow service to new markets over the past year. It would appear that Zillow's issues aren't an industrywide problem.
The other differentiator with Redfin is that its technology and personalization can overcome any short-term weakness caused by volatile mortgage rates. For instance, Redfin charges either 1% or 1.5% for its listing services, depending on how much business has previously been done with the company. That compares to an average listing fee of 2.5% to 3% for most real estate companies. With a national median listing price of $405,000 in March for active listings, according to Realtor.com, it means Redfin can save the average seller up to $8,100.
It's an innovative company in an industry desperate for disruption.