So far in 2020, the only certainty for investors is uncertainty. The 2019 coronavirus disease (COVID-19) pandemic caused stocks to have the fastest and steepest bear market correction in history during the first quarter, only to see stocks post their strongest quarterly rally since 1998 in the second trimester. I really realized that trying to buy and sell on the market is a fruitless endeavor.
But this unprecedented volatility has also opened the door for long-term investors and allowed them to buy into fast-growing, game-changing companies at a perceived discount. Remember, no matter how dire the US economic outlook is, at any given time, all the stock market corrections and bear markets have finally been followed by a bull market rally.
If you are among the many long-term investors looking to get rich the right way by buying big companies and holding on to them for long periods of time, consider adding the following three obvious stocks to your portfolio right now.
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Palo Alto Networks
While it may not be the fastest growing industry, cybersecurity will be the safest and most recession resistant industry capable of double-digit annual growth over the next decade. That’s why Palo Alto Networks (NYSE: PANW) should be considered an obvious action to buy.
The beauty of cybersecurity solutions is that they have gone from being a luxury to a necessity. No matter how well or poorly the economy is performing, or the size of a business, network and cloud protection is necessary to protect sensitive information. This provides cash flow predictability that simply cannot be counted on in most other industries.
Palo Alto, in particular, is focused on protecting enterprise clouds. We were already seeing a shift from static office environment to remote work and shared clouds long before COVID-19 hit. However, during and after the pandemic, the demand for remote work protection will only increase.
In particular, Palo Alto is looking to develop cloud-centric security tools in-house and has been periodically making integrated acquisitions designed to expand its portfolio of solutions, as well as attract more small and medium-sized businesses. The Palo Alto management team has made it clear that spending aggressively now, even at the expense of the company’s short-term results, is a smart move to secure long-term cloud protection market share. .
As the icing on the cake, Palo Alto Networks is also in the process of shifting its revenue generation from physical firewall protection products to subscriptions and services. Subscriptions are a higher margin service that should lead to less revenue accrual. My expectation is that Palo Alto can grow between 15% and 20% annually during this decade.
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Exelixis
Another obvious stock that has the potential to enrich investors is the cancer-focused drug developer. Exelixis (NASDAQ: EXEL).
Exelixis’ golden ticket is Cabometyx, the company’s leading drug that has been approved to treat first- and second-line renal cell carcinoma (CRC), as well as advanced hepatocellular carcinoma. Cabometyx has had little trouble gobbling market share in CRC and remains the only second-line indication leading to a statistically significant improvement in objective response rate, progression-free survival, and overall survival. These two indications alone should put Cabometyx at more than $ 1 billion in annual revenue by 2021.
But what’s exciting about Exelixis is Cabometyx’s label expansion opportunities. Earlier this year, Exelixis and Bristol Myers Squibb announced that the Cabometyx CheckMate-9ER late-stage trial in combination with Opdivo cancer immunotherapy had met its primary endpoint in first-line CRC. Rather than fight Opdivo, Exelixis has found a way to partner with its main top-of-the-line RCC competitor for additional market share.
Plus, Exelixis is making money off of its high-margin (and expensive) cancer therapy. Cost of goods accounts for only 4-5% of net product sales, and the company is generating large amounts of cash flow, even with research and development on track to reach $ 500 million in 2020. By the end of the year, Exelixis expects to have between $ 1.5 billion and $ 1.6 billion in cash and investments, which would equal between 21% and 22% of its current market capitalization.
With so much cash on hand and its cash flow protected for years to come, Exelixis could become an acquirer or, perhaps, an acquisition target.
Image source: Square.
Square
Lastly, although fintech stocks Square (NYSE: SQ) Having more than tripled from its March 2020 lows, the war on cash appears to be one of the most lucrative trends to invest in this decade.
Square is a company that startups and small merchants are likely to know well. For years, he has provided point-of-sale devices, sales analytics, and loan solutions to companies looking to get their businesses off the ground.
But what you might not know about Square is that it is also becoming a huge problem for larger merchants. During the first and second quarters affected by the coronavirus, 52% of the gross payment volume (GPV) was derived from the largest sellers (that is, those with at least $ 125,000 in annualized GPV). Given that the US is a consumer-driven economy, a greater presence with larger merchants should lead to an acceleration of fee-based revenue.
As an added bonus, Square should benefit from the perception that cash is a harbinger of germs. This pandemic has really downplayed the use of cash and pushed consumers to use plastic or mobile payments. This plays directly into the ongoing war against cash.
On the other hand, it’s not the seller ecosystem that is likely to be Square’s biggest profit driver going forward. Cash App, the company’s peer-to-peer payment platform, has seen stellar growth over the past 2.5 years. The number of monthly active users (MAUs) more than tripled from 7 million to 24 million between the end of 2017 and the end of 2019, and Square announced that subscriptions hit an all-time high in March and April this year, leading to 30 million MAU by June 2020.
The Cash app enables Square to earn money in a variety of ways, including through merchant fees, expedited transfer fees from Cash app users, and bitcoin exchange.
I wouldn’t be surprised if Square’s annual revenue (across all segments) grew more than tenfold this decade. It is an obvious action to buy that will make many investors rich in the long run.
