It’s been a turbulent year for Wall Street, and it doesn’t appear as if stock market volatility will ebb anytime soon. Numerous records have been broken this year, including the fastest bear market decline of at least 30% for the benchmark S&P 500, as well as the quickest return to new all-time highs from a bear market bottom.
Although we’re never going to know what the stock market is going to do in the short-term, we concretely know that the broader market heads higher over the long run. That makes all sizable moves lower in the market, including the recent turbulence equities have been navigating their way through, an opportunity to buy great companies at a perceived discount.
As we barrel into November and yearn to close the curtain on 2020, I view three stocks as particularly attractive bargains. These are companies that might begin delivering immediately, but are best served as long-term holdings to grow your wealth.
As you might recall, Fastly lowered its third-quarter revenue guidance a few weeks ago to a range of $70 million to $71 million from a previous forecast of $73.5 million to $75.5 million. With TikTok responsible for 12% of the company’s sales through the first six months of 2020, and TikTok involved in a dispute with the Trump administration stateside, ByteDance, the parent company of TikTok, significantly pared back its reliance on Fastly for content delivery and security.
While losing a big customer is never ideal, a closer inspection of Fastly’s third-quarter operating results, released last week, shows Wall Street’s concerns to be largely overblown. Even with TikTok usage declining, revenue still grew by 42% year-over-year, with Fastly picking up 96 new customers, including nine new enterprise clients, from the sequential second quarter.
What’s even more impressive is Fastly’s dollar-based net expansion rate (DBNER) expanded by 10 percentage points in Q3 2020 from the sequential quarter. I’d (wrongly) assumed that DBNER would decline given the company’s revenue revision, but that proved not to be the case. With the average enterprise customer spending $753,000 in Q3 2020, up from $716,000 in Q2 2020, it’s crystal clear that Fastly’s existing clients are boosting margins and pushing the company toward recurring profitability.
This is a company that doesn’t need TikTok to continue growing at 30% to 50% annually, and it’s on sale for the first time in months. Pound that table, high-growth investors!
Don’t worry value stock seekers, I haven’t forgotten about you. If deep discounts are more your thing, pharmacy chain CVS Health (NYSE:CVS) has the tools and intangibles to make your richer in November and beyond.
CVS Health has lost more than half of its value since mid-2015 as the combination of increased online competition, weaker generic-drug pricing, and slower foot traffic tied to the coronavirus disease 2019 (COVID-19) pandemic have all exacted a toll. Yet, at roughly 8 times next years’ profit forecast from Wall Street, CVS is as cheap as it’s been in a very long time.
Though CVS Health is a brand-name stock, it does have a number of catalysts that can reignite its growth engine and make its shareholders (myself included) richer. For one, CVS plans to open approximately 1,500 HealthHUB health clinics around the country by 2021, or perhaps a tad later now that COVID-19 has disrupted things from an operational perspective. These HealthHUB’s will specifically focus on patients with chronic illnesses and aim to get these folks in touch with physicians or specialists. It’s a means of engaging with CVS’ local community and driving repeat traffic through its doors or online portal.
CVS has also separated itself from the pack through its 2018 acquisition of health-benefits provider Aetna. The deal provides substantial cost synergies, as well as gives Aetna’s millions of members an incentive to stay within the CVS Health network. Further, the inclusion of Aetna actually boosts CVS’ organic growth rate and operating margins, which are often dragged down by the slow-growing, low-margin front-end retail segment.
The icing on the cake for value investors is that CVS Health offers a safe 3.6% yield. In other words, it’s the prescription that’ll cure your portfolio’s ills.
A third stock that can make you richer in November and beyond is natural and organic pet food and treats company Freshpet (NASDAQ:FRPT).
Whereas Fastly and CVS Health have fallen significantly from their respective all-time highs, Freshpet is within a stone’s throw (or should say squeaky ball’s throw) of its record-closing high. Despite being a pricey stock, this is a company that’s shown it deserves every bit of premium it’s received.
First off, consider the companion pet ownership and spending metrics behind a company like Freshpet. Data from the American Pet Products Association shows that year-over-year U.S. companion pet expenditures haven’t declined in at least a quarter of a century. In 2020, it’s estimated that $99 billion will be spent on companion animals, with $38.4 billion of this derived from food and treats. With an estimated 84.9 million U.S. households owning a pet, and nearly all of these owners viewing their companion animal as part of the family, it’s no surprise that they’ll spend big bucks to ensure their well-being.
Secondly, investors need to understand that Freshpet is to the pet industry what natural and organic food producers were in grocery stores in the mid-2000s. Pet owners are more than willing to pay higher prices if they’re getting a product that’s perceived to be more nutritious for their dog. These higher prices should translate into higher margins for Freshpet over the long run.
And finally, keep in mind that Freshpet is still in the early stages of its marketing and brand-awareness campaign. Even though it has a presence in over 22,000 retail doors (and climbing), its penetration is still relatively low. As the company picks up new customers and retains existing clients, it’s not out of the question that we see sales triple over the next four years.
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