10 Top Stocks to Buy Now
Year in and year out, we thumb through thousands of pages of SEC filings, earnings reports, and analyst reports as we search high and low and in every corner of the market for market-beating investment opportunities. We spend a great deal of money, effort, and investigative research into identifying what we believe are the best investment opportunities for our readers
We wouldn’t continually waste our efforts if it didn’t prove fruitful. Over the years our hard work has paid incredible dividends for our readers… and this research report in particular has proven to be one our most anticipated reports each year.
When we first started this ambitious project in 2003, our stocks have consistently beat the market. Nearly every year we’ve trounced the market… 2004… 2005… 2006… 2007… Even in the market crash of 2008, we saw losses like everyone else. But we still made fantastic gains with some of our picks… like Panera Bread that soared 45.8%.
It didn’t end there either… for instance in 2014, our stocks doubled the S&P 500’s return. In 2016 when the S&P 500 returned 12%, our top stocks beat the market again.
Even in 2019, when the S&P 500 soared an incredible 28.7%, our stocks on average topped the market’s return, generating an average gain of 31.5%. Of the 11 stocks in the report (including the bonus pick), all but two posted returned double digits.
And while our stocks have yet to close out the year, most of our picks are up considerably despite suffering through the Covid-19-inspired crash in March 2020. For example, our controversial gun pick, Smith & Wesson Brands (Nasdaq: SWBI) — formerly American Outdoors Brands — is up more than 60%, while our 5G pick, Marvell Technology Group (Nasdaq: MRVL) is also up more than 60%. Meanwhile, the S&P 500 has climbed less than 10%.
Other big winners that we’ve bagged over the years include a 35.1% return from 3M (NYSE: MMM), 39.1% from Packaging Corporation of America (NYSE: PKG), 44.3% from Intel (Nasdaq: INTC), and even 101.8% from Skyworks Solutions (Nasdaq: SWKS)… All in 12 months…
Some of the names you’ll see in this report are companies you’ve likely heard about. But there are others that we’d be surprised if they are on the radar of most investors.
This year we’ve focused our selection to just five stocks. Among them, you’ll find a company run by arguably the world’s greatest investor, a “picks and shovels” company that’s working behind the scenes to help all healthcare firms with vital vaccines and drugs.
But no matter what their story is, they all have one common thread: We think each one has the potential to beat the Dow… the Nasdaq… and the S&P 500 in the coming year.
Of course, there aren’t any guarantees, but when you read the profile of each pick, it’s easy to see why we’re excited about this exclusive group of 5 investments. Again, these are our top picks for 2021 that we think offer investors some of the best chances for positive returns in the coming year.
Stock No. 1: Berkshire Hathaway (NYSE: BRK.B)
Investing alongside some of the world’s greatest investors typically requires an astronomical net worth. Hedge funds won’t even give you the time of day unless you have millions to give them.
Even investing alongside the arguably greatest investor in the world, Warren Buffett with his firm Berkshire Hathaway (NYSE: BRK.B), requires $350,000 and that will get you only one share.
And for more than 20 years the company was content with its highly priced, single class of stock. But that all changed in 1996…
You see, it was difficult for the ordinary investor to even get a nibble of Buffett’s world-class business. At the time it was trading around $30,000 per share. But in 1996, Buffett, CEO of Berkshire Hathaway and the board of directors responded by issuing 517,500 shares of Class B shares.
The reasoning behind it was simple. First, Buffett wanted to provide investors the opportunity to invest alongside him without having to go through unit trusts, or mutual funds. He also didn’t want sneaky investment managers to form funds and market them as Berkshire replicas. As he told investors in his 1996 annual shareholder letter:
“As I have told you before, we made this sale in response to the threatened creation of unit trusts that would have marketed themselves as Berkshire look-alikes. In the process, they would have used our past, and definitely non-repeatable, record to entice naïve small investors and would have charged these innocents high fees and commissions.”
Retail investors who took advantage of the easier access to Buffett’s empire have done very well for themselves…
Surprisingly, many investors still aren’t aware that they can own shares of Buffett’s company for a fraction of the price. This can be seen by looking at the stock’s ownership summary. 99.8% of the stock’s outstanding shares are owned by foundations and endowments, private banking, mutual fund managers, investment advisers, and hedge funds. Just 0.2% of shares are owned by individuals.
Why You Should Own Shares of Berkshire in 2021… And Beyond
I understand that Berkshire Hathaway isn’t a very “sexy” or “exciting” recommendation. But it’s what I routinely call a “no-brainer” investment.
Most folks think they need to buy speculative, risky investments to strike it rich in the markets. But that’s not the case. After all, if you had bought shares of Berkshire’s new “B” shares in 1996 you likely wouldn’t be complaining with a near 10-fold increase in your investment.
Nobody knows what 2021 will bring us. But those willing to stash some cash in this no-brainer investment can rest easy knowing they are investing alongside one of the world’s greatest investors that has plenty of potential upside and strong downside protection.
The biggest worry folks have is what happens to Berkshire when Buffett — who is 90 years old — passes away.
But when that day comes, the stock might dip 5% to 10%, but in the long run the company will be just fine. Just look at how Apple’s stock has done, for example, since co-founder and CEO Steve Jobs died in October 2011 — it’s up more than 900%.
Action to Take: Berkshire has everything at its disposal to be a wonderful long-term investment and navigate whatever 2021 throws at us. It should likely continue to outpace the broader market, and you can own his empire for a fraction of the price through his “B” shares. Buy Berkshire Hathaway (NYSE: BRK-B) up to $290 per share.
Stock No. 2: Catalent (Nasdaq: CTLT)
Everybody loves a good “cocktail party” stock – that little-known company on which you recently took a flyer, the one they told you would become the “next Amazon” and make you a fortune in the process. The type of long-shot play that piques the interest of those around you.
Not that there’s anything wrong with that, of course. Even as a former advisor, I think it’s just fine – maybe even prudent — to occasionally swing for the fences, as long as you allocate your funds appropriately. Keep in mind, though, that these highly speculative trades are just that: highly speculative.
But that doesn’t mean we shouldn’t try.
And for 2021, I believe Catalent (Nasdaq: CTLT) could be one of those sexy, little-known, cocktail party stocks that will make you the talk of the town, not to mention pad your brokerage account.
The beauty with Catalent is that this isn’t some fly-by-night company. It’s a firm that provides us with a much better opportunity of making money on these more speculative types of investments. And to understand why let’s go back to the 1800s…
Stealing A Secret From The California Gold Rush
After an estimated 300,000 prospector wannabes stormed California in the mid-1800s in search of gold, most never hit paydirt. Yet, one group of savvy entrepreneurs made money regardless of whether the miners struck gold. I’m talking about the folks who sold them the tools of the trade… the picks and shovels.
And I think that’s one of the best approaches — the “picks and shovels” tactic — for finding that golden needle in the haystack.
It’s a simple approach that has yielded big results…
In early 2014, for instance, payment technology was all the rage. We had Apple Pay, Google Wallet, PayPal, and ISIS Mobile Wallet all vying for supremacy. With the use of near field communication (NFC), all it took was a simple tap of the credit card or mobile phone to pay for purchases.
While the biggest focus was on Apple Pay and Google Wallet, folks who dug a little deeper found an even better play with “picks and shovels” supplier NXP Semiconductor (NXPI), which was providing the NFC technology to Apple and other companies. In the 13 months ended in May 2015, shares of this under-the-radar company more than quadrupled, crushing the market and outperforming Apple and other big boys in the process.
The beauty of this strategy is that it works in nearly every industry. I’ve had success with it in the energy market, healthcare, technology — you name it. In each instance, I’ve dug a little deeper to find one of the main suppliers feeding whatever boom was underway at the time.
And once again, Catalent is a company that most people likely haven’t heard of. Yet, it’s a firm that’s had a hand in nearly half of the new drug products approved by the U.S. Food and Drug Administration (FDA) over the last decade.
It works with healthcare industry stalwarts such as Pfizer, Johnson & Johnson, GlaxoSmithKline, Novartis, Roche, and AstraZeneca – all of which are customers.
You see, Catalent works behind the scenes for large biotech and pharmaceutical companies to provide and/or develop biologics (a product derived from living organisms) and consumer health products.
The firm’s deep expertise in product development helps its customers take products to market – read, make it through the three-phase FDA approval process — faster.
Annually, Catalent produces roughly 73 billion doses for nearly 7,000 customer products. Put another way, Catalent has a hand in one of every 20 doses of such products taken each year by patients around the world.
In fiscal 2019, the company worked with 83 of the top 100 branded drug marketers, 21 of the top 25 generics marketers, 23 of the top 25 biologics marketers, and 21 of the top 25 consumer health marketers globally.
As I mentioned, Catalent’s key customers include some of the biggest drug-makers in the world. And here’s the thing… when you’re investing in a “picks and shovels” company like Catalent, it doesn’t really matter which pharmaceutical company comes through with the next blockbuster vaccine or drug.
This is especially true when it comes to the highly anticipated vaccine for Covid-19.
For instance, Moderna (MRNA) has tabbed Catalent to help with its Covid-19 vaccine candidate called mRNA-1273. Catalent will provide vial filling and packaging capacity, as well as clinical supply services to support Moderna’s vaccine.
Moderna isn’t the only company collaborating with Catalent. In June, Catalent and AstraZeneca (AZN) formed a partnership for similar services — vial filling and packaging — as well as preparing for large-scale commercial supply of the University of Oxford’s adenovirus vector-based Covid-19 vaccine candidate, AZD1222.
And don’t forget, Catalent already has partnerships with Pfizer (PFE), Johnson & Johnson (JNJ), and GlaxoSmithKline (GSK) — all companies with Covid-19 vaccines in the works.
While Catalent isn’t a household name, neither is it a penny stock. It’s an established company that generates more than $3 billion in sales annually (fiscal 2020 figures), and it’s growing that figure at a fast clip. When the company reported its fiscal 2020 results in August, sales were 23% higher than the previous year. Operating income for the quarter jumped 30.6% year-over-year, and it generated $173 million in profit.
So, regardless of who wins out on the vaccine front, “picks and shovels” firm Catalent should benefit one way or another. While most folks will be clamoring over which company might come out with the vaccine, Catalent will be quietly helping them all, collecting cash, and rewarding shareholders.
Action to Take: Consider buying shares of Catalent up to $135 a share.
Stock No. 3: CyberArk Software (Nasdaq: CYBR)
In 2012, former FBI Director Robert Mueller said, “There are only two types of companies: those that have been hacked, and those that will be.”
As our lives have moved online with the proliferation of the internet, the need for securing our valuable information has skyrocketed.
According to a report by Cybersecurity Ventures, global cybercrime costs will grow by 15% per year over the next five years, reaching $10.5 trillion annually by 2025, up from $3 trillion in 2015.
This is a massive trend that companies are heavily investing in. After all, we’ve seen what can happen to a company’s shares when valuable customer information is hacked. You might recall when credit-reporting firm suffered a massive data hack in September 2017. Personal information — name, date of birth, Social Security number, credit card info, etc. — had been compromised, affecting 143 million consumers. That’s nearly half the population of the United States.
Shares plunged on the news…
This was one of the largest data breaches in history, but it surely won’t be the last. In fact, it’s hardly news anymore when we hear of this company or that company whose systems have been hacked, resulting in stolen personal information. Just look at a few of the names on this list of victims:
- The CIA
- The National Security Administration (NSA)
- Equifax
- Target
- The U.S. Securities and Exchange Commission
- Anthem
- JP Morgan Chase
- Yahoo
Interestingly, many of these breached companies turned to CyberArk Software (Nasdaq: CYBR) to provide a solution to remediate the attack and secure them against any future attacks.
CyberArk develops, markets, and sells software-based security solutions that protect organizations from cyberattacks in the United States and internationally. It offers Privileged Access Management, (“PAM”) security services to secure, manage and monitor account access and activities. CyberArk’s customers use its innovative services to add a critical security layer to protect against, detect and respond to cyberattacks before they strike and compromise the vital systems and data that businesses rely on.
CyberArk’s business has boomed along with the overall cybersecurity industry. For instance, in 2014 the company produced just over $100 million in sales. Five years later it churned out more than $430 million in sales.
It’s been able to generate this growth by acquiring more than 50% of Fortune 500 companies. Firms like Qualcomm (Nasdaq: QCOM), McKesson (NYSE: MCK), Pfizer (NSYE: PFE), Hershey’s (NYSE: HSY), Barclay’s (NYSE: BCS), Avis Budget Group (Nasdaq: CAR), and ConAgra Foods (NYSE: CAG) are on its customer list. But overall, the company is a vital security partner to more than 4,000 global businesses.
As you can see, the company covers the gamut of industries:
CyberArk isn’t just growing sales quickly. The cybersecurity firm grew net income by 34% in 2019 over 2018, and is on track to boost that figure again in 2020. Cash flow has also blossomed alongside sales and net income. Over the last five years it’s grown free cash flow at a compound annual growth rate of 43%.
Now to understand where CyberArk fits into the cybersecurity market you need to understand the Privileged Access Management, or “PAM” market.
CyberArk pioneered the PAM market, and its technology is effective in stopping hackers from stealing valuable data or causing damage, which is why the company has been able to land so many customers.
PAM Accounts And Why They Need To Be Secured
Perhaps you’ve ran into the problem where you are working away using a work computer (or even accessing one remotely) and you didn’t have permission to download a program or update something. Maybe you needed to download Zoom (Nasdaq: ZM), but weren’t authorized because you didn’t have “administration” privileges.
Well, those who have access to accounts with these special privileges are called Priveleged Accounts.
Privileged Accounts are special accounts that are often referred to as “keys to the kingdom”, granting the user the full access to the resource. For instance, they can create accounts for other users, delete accounts of other users, access other users accounts to reset passwords, or download software.
In an organization that does not utilize a Privileged Access Management (PAM) solution, an administrator logs into an IT system directly using a Privileged Account login and password. If there are multiple administrators within an organization, they all share the same Privileged Account login and the password.
Worse, the logins and passwords are typically saved in a spreadsheet or a word document and is made accessible to all those needing them. This creates a major risk for the organization if that file is compromised.
Using privileged credentials, hackers or malicious insiders can take control of the organization’s infrastructure and applications, steal proprietary and confidential information such as trade secrets, customer lists and product plans, and commit financial fraud.
According to Wallix, a European competitor of CyberArk, some of the biggest breaches in 2019, including at Capital One, Georgia Tech, and First American Financial, could have been stopped by a PAM solution.
So, it comes as no surprise that PAM is fast becoming a must-have security technology for every company. Especially considering the massive work from home movement where workers are now logging in remotely.
Action to Take: The PAM market is expected to grow by 32% annually until 2023, and leading the charge is CyberArk. Buy CyberArk up to $170 a share.
Stock No. 4: CIENA (Nasdaq: CIEN)
It’s been billed as “world-changing.” Described as a “quantum leap,” and the “next big thing.” But will it live up to these lofty expectations?
This new technology is still in its infancy so it’s hard to give a concrete answer at this time. But one thing we do know is that even if it doesn’t exactly live up to or exceed the hype it’s currently receiving, investors stand a chance to make spectacular gains.
That’s because billions… even hundreds of billions of dollars are being spent to develop the next generation of wireless networks — more commonly known as “5G.”
I don’t need to tell you that 5G has considerable momentum behind it. When we talk about 5G, what immediately comes to mind are the speeds at which our smartphones can operate. And, of course, we will be able to surf the web at a faster clip and download movies in a matter of seconds.
But 5G isn’t just about speed. It’s about pervasiveness, capacity, durability, intelligent machines, privacy, security, and a ton of new standards. It’s much more than just our cellular devices.
This “upgrade” of our communication network will blindside every industry and business.
5G is expected to be anywhere from 10 times to 100 times faster than the current iteration of 4G. For instance, you’ll be able to download a season’s worth of Yellowstone in a matter of seconds.
When looking for investment opportunities in this space, a good place to start is finding the companies that will be critical to upgrading the communication network. And I’ve found such a company…
Ciena Corporation (Nasdaq: CIEN) is a network and communication infrastructure company with a specialty in optical transport — a critical piece of the puzzle in order to achieve the speed and performance that 5G boast.
Over the last 10 years, Ciena has quickly gained market share and at the end of 2019 controlled close to a quarter of the optical hardware networking market outside of China.
Despite the dominance, Ciena’s revenues haven’t grown at the incredible clip that we’ve seen from other technology companies. Last year, Ciena pulled in $3.6 billion in sales — a solid 15.4% increase over 2018. Over the last five years, it’s grown revenue at an average annual rate of 9.3%.
Don’t get me wrong, that’s strong sales growth… it’s just not the astronomical revenue growth that we’ve seen from other companies in the tech space.
But Ciena has plenty of tailwinds to greatly improve those figures – which, in turn, should buoy share price — as the company is sitting on a multibillion-dollar revenue opportunity. The optical network market was worth just over $23.6 billion in 2019 and is expected to hit $56 billion in revenue by 2025, according to Mordor Intelligence. That translates into a compound annual growth rate of 15.4%, indicating that Ciena could ramp up the modest pace of its revenue growth that it’s currently clocking.
As sales inflate, so will profits. To be sure, the company is already comfortably in the black. It cranked out $253.4 million in net income in 2019 and is on pace to crush that number in 2020. Through the first three quarters of 2020, it’s increased net income by 85% compared with the same quarter last year, 74% in Q2, and 64% in Q3. In fact, through the first three quarters, it’s already topped last year’s figure by $43 million.
The story is similar when we look at the cash flow statement. Cash from operations in its most recent quarter (the three months ended July 31) came in at $180.3 million, an eye-popping 117% improvement over the same period in 2019. After accounting for capital expenditures, we are left with free cash flow of $164.4 million.
Management has done this all without bloating the firm with debt, too. At the end of July, Ciena had nearly $1.2 billion in cash on hand and total debts of $821 million. So, it sports a strong balance sheet to top off its stellar financials.
Astonishingly enough, though, Ciena’s shares aren’t trading for the sky-high valuations that you see with many other technology companies. In fact, they’re changing hands at half of what the average company in the S&P 500 is going for.
Ciena currently sports a price-to-earnings (P/E) multiple of 17.1. Meanwhile, the S&P 500 sports a lofty P/E of 35.3.
In short, Ciena is offering us an opportunity to invest with essentially a company that will be part of the backbone of the burgeoning 5G trend, and at a really good price. That’s not to say it will be a smooth ride to profits, as when there’s big money being thrown around it will attract a lot of competition. But Ciena already commands nearly a quarter of the market share, is number one or two in multiple markets in which it operates, and boasts a strong clientele including AT&T, Verizon, Lumen Technologies, and Vodafone Group.
Action to Take: Buy shares of Ciena (CIEN) up to $55 a share.
Stock No. 5: XYLEM (NYSE: XYL)
Since it was first coined in 2005, ESG investing is booming. If you’re not familiar, “ESG” stands for environmental, social and corporate governance, and it’s a mega-trend that’s showing no signs of slowing down.
For instance, in 2019 400 ESG strategies launched in the Morningstar investment universe, compared with around 160 launches in 2016. Assets under management in funds that abide by the ESG principles topped $1 trillion for the first time on record in 2020.
ESG covers a lot of ground when it comes to investments. You could go with renewable energy, electric vehicles, agriculture, waste removal, and even pest control. But one area that I think could see strong growth is water.
For most people in the United States, we might take water for granted. But according to the World Health Organization (WHO) at least 2 billion people use a drinking water source contaminated with faces. Contaminated drinking water is estimated to cause more than 485,000 deaths each year.
By 2025, WHO estimates that half of the world’s population will be living in water-stressed areas.
Xylem (NYSE: XYL) is one company that is looking to help alleviate these problems. It’s the largest collection to distribution water company in the world. The company believes its total addressable market runs north of $500 billion. Its current revenue base is just 1% of that, which means there’s a long runway for growth.
Xylem, whose slogan is “Let’s solve water,” operates in more than 150 countries. In 2019, it generated more than $5.2 billion in sales, $400 million in net income, and $613 million in free cash flow.
Let’s Solve Water turns out to be an apt slogan for a company that is called in when things go wrong with water.
For example, when bacteria in a German wastewater treatment plant caused an outbreak of Legionnaire’s disease in 2013, Xylem installed a large-scale ultra violet treatment system within 24 hours. Before the installation 150 people were diagnosed with the disease, and two people died from it. Since the installation, there have been no such cases reported.
After Hurricane Sandy, there was no electricity, but plenty of water. Hundreds of Xylem’s diesel-operated pumps were put to work, pumping out everything from Goldman Sachs’ (NYSE: GS) basement to subway and traffic tunnels. In the aftermath of the storm, Xlyem’s analytical instruments were used by water quality experts to monitor the health of drinking-water sources, fish habitats and conservation areas that might have been impacted by the inflow of seawater and the release of oil, sewage, sediment and other pollutants.
Of course its products also prevent bad things from happening in the first place. More than 25 pumps were installed at the new Yankee Stadium in 2009 to help flush the toilets, and so far, according to one independent contractor, there have been “zero maintenance problems: no clogging: no replacements and no service requirements.”
Many of the same pumps that Flygt — one of Xylem’s brands — supplied for the Panama Canal when it opened in 1914 are still in service today.
And the company found itself in the public eye in 2019 when it sent a team of engineers to recalibrate dewatering pumps and rescue a Thai youth soccer team trapped in a flooded cave.
With stories like these, it’s little surprise that Xylem has repeatedly made Fortune’s “Change the World” list.
Building America’s Crumbling Infrastructure
America’s water infrastructure has aged. Chicago alone has 4,000 miles of pipe more than a hundred years old. Currently one water main breaks every two minutes — amounting to 240,000 water-main breaks a year. The U.S. Geological Survey estimates that the country’s infrastructure is losing roughly 1.7 trillion gallons of water annually at a national cost of $2.6 billion. The country has also outgrown the capacity of its sewer systems. Roughly 10 billion gallons of raw sewage are released into waterways each year due to blocked or broken pipes.
The unfortunate residents of Flint, Michigan have experienced America’s crumbling infrastructure first had.
It’s estimated that $1 trillion will be needed over the next 25 years for maintenance and repairs, and Xylem will be among the first to be called on as cities and states begin rebuilding their aging water and wastewater infrastructure.
Action to Take: Buy Xylem (XYL) up to $127 per share.
Stock No. 6: Novo Nordisk (NVO)
As the calendar flips over to the New Year, most folks typically refocus on some goals, or resolutions, that they would like to accomplish for the year. Topping that list is improving our health. We want to lose weight, eat healthier, and build muscle. Gym memberships typically skyrocket this time of year, diet books are sold out, and health-monitoring devices fly off the shelves.
It’s easy to see why losing weight and eating healthier are at the top of many people’s lists… obesity is a common and serious problem in the United States.
According to the Centers for Disease Control and Prevention (CDC), obesity affects roughly 40% of adults in America. The estimated annual medical cost of obesity in the United States is more than $147 billion. Obese individuals tend to have medical costs that are nearly $1,500 more per year than those of normal weight.
But here’s the thing… this public health crisis is going global.
The World Health Organization shows that obesity around the world has tripled since 1975. Now, more than 650 million adults worldwide live with obesity — roughly 13% of the global adult population.
There’s just no way to sugar-coat it: The health problems associated with obesity are life-threatening. Obesity-related conditions include heart disease, hypertension, sleep apnea, stroke, and certain types of cancer.
Yet, one of the most common — and debilitating — results of obesity is diabetes.
Diabetes is typically classified into two major groups: Type 1 and Type 2.
Type 1 diabetes is an autoimmune disorder that usually develops during childhood. Those with Type 1 diabetes must rely on frequent insulin injections in order to regulate and maintain blood glucose levels.
Type 2 diabetes is a metabolic disorder — usually due to poor health and obesity – in which the body is unable to produce sufficient amounts of insulin or becomes insulin resistant. Depending on the severity of Type 2 diabetes, individuals may require diet and nutrition management, exercise, oral medications or insulin injections to regulate blood glucose levels.
Diabetes is a growing epidemic. Every 21 seconds someone in the United States is diagnosed with the malady. It affects 30 million children and adults. Some 84 million Americans have higher-than-normal blood sugar levels, a condition known as pre-diabetes, and are at risk for developing type 2 diabetes.
The health-care costs are huge, standing at roughly $327 billion in the United States alone. Here’s a graphic from the American Diabetes Association:
Diabetes is a life-threatening disease. Every seven seconds one person dies from diabetes, according to the International Diabetes Foundation. It’s the primary cause of kidney failure and can also cause blindness, stroke, heart attack, amputations… the list goes on.
What’s more, this isn’t only a problem in the United States. In 2017, approximately 425 million adults worldwide were living with diabetes. That number is expected to increase to 629 million by 2045.
The trend is unmistakable.
With the rise of diabetes growing at an alarming rate, it comes as no surprise that the global drug market (think insulin) for diabetes has also seen rapid growth.
A Global Leader In Diabetes Care
Novo Nordisk (NYSE: NVO) is the global leader in insulin production, with a nearly 50% share of the overall market.
There are two main types of synthetic insulin: human insulin and modern insulin.
From a chemical structure standpoint, human insulin is very similar to the insulin that’s produced naturally by the pancreas. It’s simply made in a lab. Human insulin is very cheap. Novo Nordisk even gives it out for free for some people.
Novo Nordisk has a Patient Assistance Program (PAP) that provides free insulin for qualifying patients. It’s a pretty neat program. You can read more about it directly from Novo Nordisk, here. In 2018, more than 50,000 Americans received free insulin from Novo Nordisk through this program.
Modern insulin has a slightly different structure. Researchers can tweak it to give it special qualities — such as being long-lasting or fast-acting. Because of these special qualities, modern insulin is more expensive.
84% of Novo Nordisk’s sales come from its diabetes care and obesity segment. The remainder of sales comes from its biopharmaceuticals business line, which produces drugs that treat hemophilia and growth hormone disorders.
For 2021, the company is on track to pull in more than $21.6 billion in sales and $7.2 billion in profit. The company also generates a significant amount of free cash flow. In 2020 it had $7 billion in free cash flow, and it’s on track to up that figure to over $8.2 billion in 2021.
Management uses that free cash flow to return cash to shareholders. In 2020, it dished out more than $5.6 billion to shareholders in the form of dividends and share repurchases.
Action to Take: As the market leader in insulin, Novo Nordisk will benefit from treating the global rise in obesity. Novo Nordisk (NVO) is a “Buy” when shares trade for less than $102.
Stock No. 7: Crown Castle International (NYSE: CCI)
This probably isn’t the first time you’ve heard this… but 5G is going to huge.
This next generation of wireless technology has endless applications. We’re not talking about just better, faster cell phone coverage here, although that will be an added perk. 5G will be anywhere from 10 times to 100 times faster than the current iteration of 4G. For instance, you’ll be able to down a season’s worth of Game of Thrones in a matter of seconds.
But what’s really going to be a game changer is the low latency that 5G offers. Latency is the response time when you click on a link or start streaming a video and it actually happening. In today’s instantaneous world we become frustrated if we click play on a YouTube video and doesn’t immediately begin playing. We blame it on slow service, a faulty phone or tablet, or even going as far as thinking the internet went down altogether. In reality, when we click play that request gets sent to the network, the network needs to decipher it and respond.
As much as we don’t like it, on occasion the playback on a video lingers… keeping us in suspense until it begins playing. That suspense, or lag, is the latency. With the current technology the latency is around 20 milliseconds, which is fast, but not fast enough for many of the applications that will flourish under 5G.
With 5G the latency gets reduced to as little as 1 millisecond. That responsiveness is critical for the next leap in communication technology. The reduction in latency, down to “real time” means a surgeon in New York could control a pair of robotic arms to perform a procedure on a patient in Seattle. It means self-driving vehicles could communicate and process data in fractions of a second. Artificial intelligence will flourish under 5G. The Internet of Things will continue to evolve. More and more devices will be connected offering more capabilities and faster speeds.
But it does come at a cost…
We can’t simply flip a switch to turn on 5G. All these devices connected to the internet will demand an enormous amount of bandwidth. Current infrastructure can’t meet the requirements needed. Imagine the creek in your backyard… only so much water can flow through without it flooding. That creek is the current iteration of bandwidth technology. For 5G, we need the Amazon River — the largest river by volume in the world.
In 2018, the global 5G market was roughly $43 billion. It’s expected to grow exponentially by 2025. We are talking about a 56.7% compounded annual growth rate — making it one of the fastest growing markets in the world. Which means massive amounts of money will be spent — and made — from this massive shift in technology.
Like the California Gold Rush in the 1800s, hundreds of companies will flock to this market, looking to stake their claim and strike it rich. But not everyone will strike gold…
Many investors will surely look for the speculative up-and-coming firm that promises to dominate the 5G market. But many of those firms will fall flat on their faces and lose investors all their money.
Instead of gambling on those speculative plays, we’ve found a company that should prosper regardless of who comes out on top. That’s because this firm owns the infrastructure. It’s the leading provider of shared communication infrastructure in the United States. It has more than 40,000 towers, 75,000 miles of fiber optic lines, and roughly 65,000 small cells — these are small lower-powered devices that will relay, and direct internet traffic. Instead of large towers spread miles apart, these small cells will be located every few blocks, and will be vital in the successful launch of 5G.
This company has been around since 1994 so it has a proven record of consistently delivering growth through market cycles, and it’s about to embark on its largest cycle growth in decades.
Headquartered in Houston, Texas, Crown Castle International (NYSE: CCI) is a real estate investment trust, or REIT that provides access to wireless infrastructure via long-term contracts. In other words, it likely owns the infrastructure that’s powering your cell signal. It simply leases it out to communication firms like AT&T (NYSE: T), Verizon Communications (NYSE: VZ), T-Mobile (Nasdaq: TMUS) and other carriers.
Crown Castle has enviable portfolio of wireless infrastructure located in the top U.S. metro markets, which allows it to secure long-term contracts. These long-term contracts provide predicable and consistent revenue and cash flow. And the firm is dedicated to growing and returning that cash flow to shareholders in the form of dividends and share repurchases.
Over the last five years CCI has grown revenue at a 13.8% average annual clip. In 2020, it pulled in nearly over $5.8 billion in sales, and it’s on track to bump that figure up to around $6.3 billion this year. Operating income came in at more than $1.7 billion last year, giving it a robust 38.8% operating margin.
In 2020, funds from operations (FFO) — a figure used by REITs to define cash flow from operations — was more than $2.6 billion, or $6.90 per share, a 14% increase over the prior year. $2.6 billion in FFO divided by its annual sales of $5.8 billion gives us a cash profit margin of 44.5%. That’s incredible. That means for every $1 in sales, roughly $0.45 is straight profit that can be attributed to shareholders.
In the last four quarters, Crown Castle has returned more than $2.1 billion in the form of dividends and share repurchases. Its annual dividend of $5.32 per share, gives the firm a nice dividend yield of 2.7%, topping the meager 1.4% offered by the S&P 500. (One thing to note is that REITs receive favorable tax treatment so long as they pay out at least 90% of its taxable income as dividends. The tax burden gets passed onto shareholders, meaning dividends are taxed as ordinary income for shareholders.)
We know there’s a massive growth wave coming with the 5G technology. Yet, most investors are overlooking Crown Castle, because it’s not an exciting small-cap company creating the next breakthrough technology. But that’s okay. Their loss is our gain. Crown Castle will benefit greatly from the 5G upgrade, because its infrastructure forms the foundation. Companies will be clamoring to sign a contract with Crown Castle to use its infrastructure. More demand means higher prices. Higher prices mean more money in shareholders’ pockets.
Action to Take: Buy Crown Castle International (CCI) up to $200 per share.
Stock No. 8: Domino’s Pizza (NYSE: DPZ)
Who doesn’t love pizza?
And a company that’s been delivering pizza (and outstanding returns) is Domino’s. The company operates a network of company-owned and franchise-owned pizza stores throughout the United States and Internationally.
At the end of 2020, the company had more than 17,600 pizza shops set up, and those pizza joints have been bringing in sales at a solid double-digit average annual clip over the last five years.
In 2020, Domino’s pulled in more than $4.1 billion in sales, a 13.8% increase over 2019. About 12% of those sales fell to the bottom line, giving the company net income of $491 million.
The company also produced $504 million in free cash flow in 2020, and has grown that line item by a whopping 17.1% average annual rate over the lats five years.
The company has a long record of generating stout financials, and that’s translated nicely into returns for investors. Over the last five years, investors have enjoyed an average annual return of 28.5% from the pizza chain.
It’s no wonder why Bill Ackman’s Pershing Square just took a 5% stake in the company in May of 2021.
To top it all off, the company has grown its dividend an incredible 149% over the last five years, and currently dishes out $3.76 per share in annual dividends.
Action to Take: Buy Domino’s Pizza (DPZ) up to $500 per share.
Stock No. 9: Wells Fargo (NYSE: WFC)
Wells Fargo has a long and rich history dating back to 1852. It’s now one of the largest banks in the world and has attracted the likes of Warren Buffett as one of its top investors.
But the banking giant tarnished its once stout reputation as it the company’s sales culture went from serving the customer to brutal, boiler-room sales culture where it pushed products on its customers and even went as far as opening bank accounts, debit cards, and credit card accounts without customer approval.
Wells Fargo eventually admitted that its employees defrauded customers by opening more than 3 million unauthorized deposit and credit-card accounts and secretly transferred money between accounts, causing overdrafts and unnecessary fees.
The bank agreed to pay $3 billion to resolve investigations into its sales practices and sock away billions more to cover lawsuits.
Shares lost over 64% from their 2018 highs to their 2020 lows.
But sometimes the best times to buy a company are shortly after the company has suffered a major crisis.
You see, despite the damage that shareholders of Wells Fargo have gone through the business of Wells Fargo is still intact. It’s not going anywhere.
Soon, this crisis will only be recounted in case studies and be a distant memory… and shares will rebound and soar to new highs.
Wells Fargo is located in more communities than any other bank. It serves one in three consumer households and 10% of the businesses in the United States.
It has the largest retail branch network, it’s the No. 1 debit card issuer and home lender, No. 2 in retail deposits, and the No. 3 auto lender.
The company is focusing on restoring its image and cutting costs. It slashed its quarterly dividend from $0.51 to $0.05 — a move that will save the company $5 billion per year.
But you know once this storm is behind them, they will once again grow their dividend.
This is the perfect “crisis” investment, and shares should once again return to its heydays so long as it continues to run a tight ship with no more scandals.
Action to Take: Buy shares of Wells Fargo (WFC) up to $50 per share.
Stock No. 10: Gladstone Land Corp. (Nasdaq: LAND)
When it comes to the best performing asset class, most folks might be surprised to learn that it’s not stocks, commodities, or gold…
It’s farmland.
Since 1992 farmland has appreciated by more than 1,750%… without a single down year. That crushes the S&P 500’s 910% return and gold’s 424% return over the same time frame.
It’s no wonder why Bill Gates has been snapping up major swaths of farmland across the country. Gates is now the biggest private owner of farmland in the United States with more than 268,000 acres.
Clearly, he understands what an investment in farmland brings to the table (or portfolio).
As an asset class, farmland produces a hefty recurring income stream – not from selling fruits, grains, and vegetables, but from rent. Most farmland is leased to operator tenants. But the underlying land has shown great appreciation potential as well.
According to the National Council of Real Estate Investment Fiduciaries (NCREIF), farmland values increased by an average annual rate of 14.7% between 2004 and 2018, outperforming the 9.1% of the S&P 500. Normally, those higher returns would involve greater risk. But not in this case. Standard deviation (a measure of volatility) of farmland values was less than half of the S&P, and not much more than the Barclay’s Aggregate Bond Index.
Farmland is also negatively correlated with equities, making it a great portfolio diversifier.
One of the top farmland plays is a company called Gladstone Land. This real estate investment trust (“REIT”) has been a steady income producer for years.
It owns 114 farms that span 89,000 acres. Most are suited to growing higher-value fruits and vegetables such as olives, grapes, blueberries, and pistachios.
Per acre, strawberry farms can be 80 times more profitable than corn – which means higher rent. And those rent collections are turned over to the stockholders. Since the IPO in 2013, Gladstone has made 81 consecutive monthly dividends – increasing the distribution 16 times over the past five years.
If there’s one thing for certain is that people need to eat, and we can’t manufacture more land.
Action to Take: Buy Gladstone Land up to $24 per share (be patient).