After a couple of very unusual years in the stock market, it feels as if things are starting to get back to normal. And market volatility is bringing less speculative companies back into vogue.
It's why I think investors wanting to put a little money to work should take a closer look at Align Technology (ALGN -0.57%), TJX Companies (TJX -0.01%), and JPMorgan Chase (JPM -0.96%). They have solid track records that should comfort shareholders if things get turn south in the market. Here's why I think they are good buys right now.
1. Align Technology
Align technology is the company behind the Invisalign teeth straightening system. You could be forgiven for thinking the business was just about those clear trays. It did ship more than 2.5 million last year. That number grew 55% over 2020 and 66% over 2019, a compounded 29% two-year growth rate. That's at the high end of management's long-term guidance of 20% to 30% annual growth. It can grow that fast for so long because management estimates there are 21 million orthodontic case starts per year globally.
But Align is embedded in much of the value chain for dentists and orthodontists. It has combined the aligners with scanning equipment and software to help those doctors be more productive. That means more revenue for them and for the company. For example, the utilization rate -- the number of cases shipped per doctor -- for North American orthodontists increased from 65 cases in 2019 to more than 98 last year. It was just 11 at the end of 2016. It's just one reason Align has been able to grow revenue 24% per year over the past decade.
Despite the numbers, the stock is down more than 40% from its high. It now trades at a pre-pandemic price-to-sales (P/S) ratio. That's despite the fact that working from home created new demand from many who suddenly found themselves looking at their own faces for hours every day on video calls. For a company with an enormous and growing addressable market, it's a good time to pick up shares for the long term.
2. TJX Companies
Another company trading for a P/S ratio that it hadn't seen since well before the pandemic is off-price clothing and home retailer TJX -- the owner of TJ Maxx and Marshalls. In its most recent earnings release, management said overall open-only comp store sales -- same-store sales for those that remained open -- climbed 15% last year. Despite that, profit margins decreased in the fourth quarter because of freight and labor inflation. Having more merchandise in-transit also pushed inventory up.
The prospect of continued inflation and supply chain issues is likely what has the stock trading at a discount to its recent valuation. After all, sales don't mean as much when it is costing the company more to acquire, ship, and sell the merchandise. For now, investors will have to wait to see how those costs impact profits in the coming year. Management delayed providing full-year guidance until the picture clears up.
Still, economic cycles don't last forever. And TJX is where many turn when budgets are stretched. Before COVID, the stock had outpaced the S&P 500 Index for decades. Expect that to continue once the world returns to normal.
3. JPMorgan Chase
Are you interested in tradition? How about a blue chip stock that can trace its roots back to the end of the 18th century? Although the largest U.S. bank has only matched the total return of the S&P 500 Index over the past 10 and 20 years, it's currently trading near its lowest price-to-earnings ratio of the past decade.
That's certainly not true for the index. Of course, JPMorgan just reported a quarter that saw revenue drop 5% year-over-year and net income fall 42%.
Normally, rising interest rate environments like the one we are in would be good for banks. They can earn more interest on deposits while not paying as much to customers. But the prospect of persistent inflation and a potential recession has Wall Street looking elsewhere for gains. For its part, JPMorgan's credit losses are at historically low levels, and it just beefed up its loan loss reserves to prepare for any downside -- the reason for that giant drop in profits last quarter.
Over the long term, JPMorgan has proved itself perhaps the best-managed large financial institution. Although returns haven't beat the market, the current valuation represents a good place for a long-term investment right now.