Valentine's Day is known for chocolates, heart-shaped gifts, and showing your significant other how much you care for them. But on Wall Street, it's the perfect day to show how much you love game-changing businesses.
Although all three major stock indexes plunged into a bear market last year, patience has been the lure that's brought investors and equities together for decades. Eventually, all double-digit percentage declines in the major indexes are fully recouped (and then some) by bull market rallies. It makes the current bear market for equities the perfect time for opportunistic investors to pounce.
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With most stocks well off their all-time highs, Valentine's Day is the ideal time to put your money to work in the following four stock market sweethearts.
Johnson & Johnson
The first stock market sweetheart you'll want to call your own on Valentine's Day, and for years beyond, is healthcare stock Johnson & Johnson (JNJ -0.46%). Despite negative press and lawsuits tied to its talc-based baby powder, J&J, as Johnson & Johnson is more commonly known, is a highly profitable, rock-solid company that continually delivers for long-term investors.
First, healthcare is a naturally defensive sector. No one can control when they get sick or what ailment(s) they develop, which is what allowed J&J to grow its adjusted operating earnings for a jaw-dropping 35 consecutive years, prior to the COVID-19 pandemic taking shape.
The fuel for Johnson & Johnson's bottom-line growth is its pharmaceutical segment. For more than a decade, J&J has shifted its revenue mix toward brand-name therapeutics, which offer exceptional pricing power and lift the company's operating margin.
On the flip side, brand-name drugs have finite periods of sales exclusivity. Johnson & Johnson avoids these patent cliffs by aggressively investing in internal research, collaborations, and even acquisitions.
J&J is also one of the world's leading medical-device companies. As the domestic and global population ages and gains better access to preventative medical care, this device segment should be able to step up and offset drug exclusivity-based sales weakness.
One last thing: Johnson & Johnson is one of only two publicly traded companies with the highest possible credit rating (AAA) from Standard & Poor's, a division of S&P Global. There's effectively no doubt that it can service and repay its debts.
PubMatic
Sometimes thinking small can help your portfolio grow big. That's why Cupid's arrow is aimed at cloud-based programmatic adtech stock PubMatic (PUBM 2.19%).
PubMatic's shares have been clobbered in recent quarters by weakening ad spend. It's very common for advertisers to pare back their spending when the winds of recession begin blowing. However, it's just as important to recognize that periods of economic expansion last much longer than contractions and recessions. This is why buying ad stocks during bear markets can be a such a smart move.
PubMatic is at the center of the fastest-growing aspect of advertising: the push from print to digital. Specifically, it's focused on mobile, video, and connected TV (CTV)/over-the-top programmatic advertising. Whereas the digital ad industry is expected to grow by an annualized average of 15% through 2025, PubMatic's reliance on CTV has, at times, helped push its organic growth rate even higher.
To add to this point, PubMatic operates on the sell-side within the digital ad space. In short, it helps publishing companies sell their digital display space to advertisers. There's been a lot of consolidation among sell-side platforms, which leaves PubMatic as one of the few top-tier players left.
Best of all, PubMatic ponied up the capital to develop its own cloud-based infrastructure. Since it doesn't have to rely on a third party to operate its programmatic ad platform, it'll enjoy juicy margins and have an opportunity to outpace many of its peers as its revenue scales.
Image source: Getty Images.
Alphabet
Another stock sweetheart investors should absolutely love at its reduced valuation is Alphabet (GOOGL 0.67%) (GOOG 0.78%), the parent company of internet search engine Google, autonomous vehicle company Waymo, and streaming site YouTube. In spite of near-term ad weakness and a very public wrong answer from its experimental artificial intelligence (AI) chatbot, Bard, Alphabet is a cash-flow juggernaut with a history of rewarding its patient investors.
The crown jewel of Alphabet's cash creation is, and will continue to be, Google. Since December 2018, it's accounted for no less than 91% of global internet search share. Advertisers understand that the best way to target their message is by using Google, which is what gives Alphabet's leading search platform exceptional ad-pricing power more often than not.
But Alphabet is far more than just internet search. YouTube is the second most-visited social network on the planet. Aside from increasing premium subscriptions, the company is looking at ways to further boost monetization for short-form videos known as YouTube Shorts. In a nine-month stretch, daily views of Shorts rocketed from 30 billion to more than 50 billion. Any time you dangle 50 billion daily impressions in front of advertisers, you're bound to enjoy solid pricing power.
Cloud infrastructure service Google Cloud is another opportunity with long legs. Enterprise cloud spending is still in its early innings, and cloud-service margins are usually beefier than advertising margins.
Based solely on future cash-flow potential, Alphabet's stock has never been cheaper.
CrowdStrike Holdings
A fourth and final stock market sweetheart you'll want to call your own is cybersecurity stock CrowdStrike Holdings (CRWD -0.43%). Although rapidly rising interest rates have made investors less willing to pay a premium for high-flying growth stocks, CrowdStrike has shown it's worth every penny.
Similar to Johnson & Johnson, CrowdStrike is a beneficiary of the industry it operates in. With businesses moving their data online and into the cloud at an accelerated pace following the start of the COVID-19 pandemic, the responsibility of protecting end users is increasingly falling onto third-party providers like CrowdStrike. No matter how well or poorly the U.S. and global economy perform, hackers aren't taking time off from trying to steal data. This means steady cash flow and ongoing opportunities for CrowdStrike.
The company's Falcon security platform is one reason it's such a special company. Falcon was built in the cloud and is driven by AI and machine-learning software. With Falcon overseeing trillions of events on a weekly basis, it's able to grow more efficient at recognizing and responding to possible threats.
The true sign of how much businesses love CrowdStrike's suite of services can be seen in its operating results. In less than six years, its gross retention rate has risen from less than 94% to more than 98%. Even though there are less costly software-as-a-service (SaaS) cybersecurity solutions than Falcon, more of CrowdStrike's subscribers are sticking around than ever before.
What's more, 60% of CrowdStrike's 21,146 subscribers have purchased at least five cloud module subscriptions. Existing subs adding on new purchases is a recipe for earnings growth to outpace CrowdStrike's already phenomenal sales growth.
