It's been a rough year for the investing community, with the broad-based S&P 500 logging its worst first half to a year since 1970. Things have been even more challenging for growth stocks, with the closely watched Nasdaq Composite losing as much as 34% of its value since hitting its November closing high.
But amid this peril comes opportunity. Between the 2020 pandemic crash and present day, I've increased the size of my portfolio from around 10 stocks to 44 separate holdings. When held for years or decades, I believe the vast majority of these companies will outperform the benchmark S&P 500.
However, not all holdings in my portfolio are weighted equally. Among the 44 stocks I hold, just five account for 62.5% of my invested assets. You could rightly say I'm betting the farm on the following five stocks.
Image source: Getty Images.
SSR Mining
As has been the case for about six years, gold-mining stock SSR Mining (SSRM 6.42%) is my largest holding by a significant amount. Originally, I owned shares of Canadian gold-mining company Claude Resources, but Claude was acquired by SSR in a cash-and-stock deal in 2016.
Like most precious-metal mining companies, SSR has had its challenges. Temporary shutdowns during the initial stages of the COVID-19 pandemic disrupted production. Further, the company's Copler mine, located in Turkey, has been closed for a few weeks while repairs are made following a minor leak of leach solution containing diluted cyanide.
However, SSR Mining has demonstrated time and again that it's a well-run company that has shareholder value at the forefront. Whereas most major and junior gold miners are still working their way out of sizable debt loads piled up in the early 2010s, SSR Mining has a net cash position in excess of $500 million. This hearty cash pile has allowed the company to repurchase its common stock as well as boost its quarterly dividend.
What's more, the merger between SSR Mining and Alacer Gold in 2020 should provide abundant operating cash flow throughout this decade. The Copler mine has the potential to eventually produce north of 400,000 ounces of gold annually, and it can do so while lowering SSR Mining's all-in sustaining costs.
Even though I've pared down about a quarter of my SSR Mining stake in 2022, there's a good chance it remains my largest holding for the foreseeable future.
NYSE: TEVA
Key Data Points
Teva Pharmaceutical Industries
I'm a big fan of turnaround candidates, which might explain why troubled brand-name and generic-drug producer Teva Pharmaceutical Industries (TEVA 2.28%) is the second-largest position in my portfolio. Whereas I'm up 1,100% from my cost basis in Claude Resources/SSR Mining, I'm currently down by more than 40% on my stake in Teva.
Teva has had no shortage of issues over the past five years. The company has settled bribery allegations, endured generic-drug price weakness, shelved its dividend, and is now contending with a mountain of litigation tied to its role in the opioid crisis.
So, "Why invest in Teva?" The primary thesis is that the company will put its litany of litigation in the rearview mirror sooner than later. Teva has already settled a number of state-level opioid cases, with CEO Kare Schultz anticipating that his company will remove the grey cloud of litigation that's hung over the company for years by the end of 2022. If Teva can settle most of its opioid litigation with minimal cash out of pocket, shares could soar.
I've also been really impressed with Schultz's efforts to improve Teva's balance sheet. As a true turnaround specialist, Schultz has reduced Teva's annual operating expenses by billions of dollars, and slashed his company's net debt from more than $35 billion to $20.7 billion in a little over four years.
With Teva valued at just three times Wall Street's forecast earnings, I expect common sense to eventually outpace near-term fear.
Image source: Getty Images.
First Majestic Silver
SSR Mining isn't the only precious-metal stock that grew into one of my largest positions. Thanks to an original holding in Primero Mining, First Majestic Silver (AG 6.69%) is a company I'm now betting the farm on. First Majestic acquired Primero in an all-stock deal in May 2018, leaving me with a cost basis of around $2 per share in First Majestic.
Unlike SSR Mining, First Majestic Silver has run into quite a few operational challenges, beyond just the COVID-19 pandemic. High operating costs and the need to upgrade certain core assets have often led First Majestic to report all-in sustaining costs that are higher than expected. Although the company is paying a token quarterly dividend, its profits have disappointed more often than not.
However, First Majestic Silver has two saving graces. First, there's the San Dimas mine, which it acquired when it purchased Primero. San Dimas is rich in byproducts, offers a healthy amount of annual gold production, and is unquestionably First Majestic's most cost-effective mine. As upgrades to existing mines scale production and lower costs, San Dimas should play a key role in boosting the company's operating cash flow.
The other factor working in First Majestic's favor is the growing demand for silver. Silver is a critical element needed for solar panels and electric vehicles. This rising demand, coupled with a historically high gold-to-silver ratio, implies that the lustrous silver metal can outperform in the years to come.
NYSE: BAC
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Bank of America
The fourth stock I'm betting the farm on happens to be my longest-tenured holding, Bank of America (BAC 0.87%). I've been holding shares of BofA for 11 years, as of this coming November, with an initial cost basis of a little over $5 per share. I've continued to add to my position over time thanks to a dividend reinvestment plan (DRIP) through my online brokerage.
While some investors might not see it this way, the beauty of bank stocks is that they're cyclical. Although this means banks are exposed to rising loan delinquencies when inevitable recessions strike, it also means they're able to take advantage of disproportionately long periods of economic expansion. It's these long-winded expansions that allow BofA to steadily grow its loans and deposits.
What makes Bank of America such an exciting investment right now is its interest rate sensitivity. Among the big U.S. banks, none will benefit more from the Fed rapidly increasing interest rates to get inflation under control than BofA. According to the company's second-quarter investor presentation, a 100-basis-point parallel shift in the interest rate yield curve should generate an estimated $5 billion in added net-interest income over 12 months.
Furthermore, Bank of America has made big strides in the digitization department. As of the end of June, it had 43 million active digital banking customers, which was up 6 million from the comparable period three years ago. More importantly, 48% of sales were completed digitally in the second quarter, which was up 19 percentage points from the second quarter of 2019. Online and app-based sales are much more cost-effective for BofA than phone-based or in-person interactions.
NASDAQ: LOVE
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Lovesac
The fifth stock I'm betting the farm on is furniture company Lovesac (LOVE 2.97%). Whereas furniture companies are traditionally boring businesses that are almost entirely reliant on foot traffic into brick-and-mortar stores, Lovesac is looking to completely disrupt this stodgy industry.
The most obvious thing that separates Lovesac from its competition is its furniture. While the company was originally known for its beanbag-styled chairs, known as "sacs," approximately 88% of its revenue these days comes from selling sactionals. A "sactional" is a modular couch that can be rearranged to fit virtually any living space.
In addition to being functional, sactionals offer an abundance of choice. For example, these modular couches can be upgraded to include surround-sound systems and wireless charging. There are also north of 200 cover choice options. To add, the yarn used in these covers is made entirely of recycled plastic water bottles. That makes Lovesac's products ecofriendly.
But perhaps the most impressive thing about Lovesac is its omnichannel sales platform. Instead of being reliant on its physical stores, Lovesac was able to shift to online sales, popup showrooms, and showroom partnerships during the pandemic. This ability to sell product through multiple channels helps lower Lovesac's overhead and ultimately boosts its operating margins.
