Today, we can see that the pandemic is beginning to decline and economies around the world are starting to gradually recover. This is evidenced by the growing activity indicators in the manufacturing and non-manufacturing sectors, the growth in consumption, and as a result, the growth of consumer price indices (inflation).
Meanwhile, the American regulator is in no hurry to move to a restrictive monetary policy, i.e. to raise the key rate and wind down the quantitative easing (QE) program. As a result, we see continued growth in American stock markets.
Over the past month, the Dow Jones Industrial Average has crossed the 34,500 mark, the NASDAQ Composite is testing its all-time highs again at 14,000 points, and the S&P 500 has almost reached 4250 points.
Therefore, when selecting stocks for inclusion in a portfolio, we recommend paying close attention to the main macroeconomic metrics, namely debt burden, growth in revenue, net profit, and profitability. Let’s take a look at several companies that may be of interest to investors and show good capitalization growth dynamics. Here are the best long-term stocks to buy.
1. 3M Company
Business: An American chemical corporation active in the industries, worker safety, health care, and consumer goods.
Capitalization: $93 billion.
Dividend Yield: 2.62% on average over 5 years
The ratio of all liabilities to all assets of the company in 2020 was 72.8%; for 2019 – 77.4%; for 2018 – 73.2%; for 2017 – 69.5%. The debt load is not very high (below 80%), which means that the risks of investing in this company are low.
The company’s assets at the end of 2020 amounted to 47.3 billion and share capital of $12.9 billion. This means that the market value is almost 2 times the share capital of the company.
Growth of the company’s revenue for 2019 – 2020 was only 0.1%. At the same time, the company’s net profit increased by almost 18%!
For 2018 – 2019, revenue growth rates were negative.
For 2017 – 2018, revenue growth was 3.5%.
The company’s revenue growth rate is not very high.
Company price multiples:
P/E = 21.41
P/S = 3.56 (industry 1.82)
P/BV = 8.89 (industry-wide 3.03)
P/S and P/B ratios are higher than in the industry, but P / E is slightly lower, which means that it is too early to talk about a strong overestimation of stocks.
The 5-year average operating margin is 22.23% (in the industry 6.92%).
ROE = 48.54%; ROA = 13.64%
The company has very high profitability and margins. This is a positive factor.
The company is currently considering a partnership with Pegatron to develop a new virtual reality headset. That is why long-term growth of the company’s stocks is highly likely to happen.
2. Advanced Micro Devices (AMD)
Business: American manufacturer of integrated microcircuit electronics, one of the largest manufacturers of central processing units, graphics processors and adapters, motherboards and chipsets for them, also supplies RAM and solid-state drives under the Radeon brand.
Capitalization: $95.73 billion
Dividend yield: the company does not pay dividends
The ratio of all liabilities to all assets of the company in 2020 was only 34.8%, for 2019 – 53%, and for 2018 – 72.2%. The debt burden is decreasing from year to year, which means that investors will look positively at the company’s shares since the risks are low.
The company’s assets at the end of 2020 amounted to $8.9 billion. The share capital was worth $5.8 billion.
Revenue growth rates for 2019-2020 accounted for a record 45%. A year earlier, for 2018-2019, revenue grew by only 4%. For 2017-2018, the company grew in revenue by 23.2%.
P/E = 40.56 (in the industry 38.35)
P/S = 10.3 (industry 4.4)
The average return on equity of the company is 19.29%, while the return on assets is below the industry average at 6.48% vs the industry average of 11.62%.
Now, we can see that despite the obvious overestimation of the industry multiples, we are dealing with a “growth” company as the company is consistently showing high revenue growth rates, which means that inclusion of these shares in the portfolio is possible. It is especially best to increase the share of these securities in a portfolio in the event of a correction where the price may fall to around $60.
Business: Chinese company providing web services, the main business of which is the search engine of the same name and the leader among Chinese search engines. Ranked fourth in the global search engine market with a share of 1.06%. Headquartered in Beijing, and registered in the Cayman Islands.
Capitalization: $75.72 billion
Dividend yield: the company does not pay dividends.
The ratio of all liabilities to all assets for 2020 was 45%, i.e. the company’s debt burden is very low, which means that the risks of investing in this company are minimal.
The company’s assets in the most recent reporting period amounted to RMB 332.7 billion. As a result, over the past year, the company’s revenue did not grow, amounting to 107 billion yuan, while in 2019 revenue amounted to 107.4 billion. However, the company significantly “added” in net profit where the growth was more than 1,000%!
Key multiples of the company are significantly lower than in the industry: P/E = 21.52 compared to the industry the indicator of 42.16, and P/S = 4.63 vs 7.75 in the industry. Here, it should be noted that for service companies, to which Baidu belongs, price-sales is one of the most important coefficients.
The return on equity (ROE) of the company averaged 12.2% over 5 years, while in the industry ROE = 24.68%.
Despite the “zero” dividend policy, the company’s shares are still of some interest if you want to buy and hold.
4. Goldman Sachs Group Inc
Business: one of the world’s largest investment banks, which is a financial conglomerate, known as “The Firm” among financiers, is engaged in investment banking, securities trading, investment management, and other financial services.
Capitalization: $112.78 billion
Dividend Yield: 5%
The ratio of all liabilities to all assets in 2020 was 91.7%. The debt of the company, like all banks, is quite high. However, for financial conglomerates, this is not critical when making an investment decision.
The company’s assets in 2020 amounted to $1.2 trillion, which means that the market value of the business is almost 10 times lower than the value of its assets. For investors, this is definitely a positive factor.
For 2019-2020, the company’s revenue increased by 2.6%. Over the past periods, the growth rate of revenue was also positive. In 2018-2019, revenue increased by 3.3%, and in 2017-2018, growth rates exceeded 20%.
The return on equity of the company (ROE) is at the level of the industry and averages 10.76% over 5 years.
In terms of P/E multiples, the company is ahead of the industry. Goldman’s P/E is 13.25, while in the industry in which the company operates, this ratio is close to 20. This means that the company’s shares may be undervalued compared to the industry.
Business: American multinational corporation, reorganized on October 15, 2015 into the international conglomerate Alphabet Inc. Alphabet is a holding company investing in Internet search, cloud computing, and advertising technologies.
Capitalization: $1.52 trillion
Dividend yield: the company does not pay dividends.
The company has a fairly low debt burden. The ratio of all liabilities to all assets in 2020 was only 30.5%. A year earlier, the same indicator was 26.9%.
The company’s assets as of February 2020, which was the end of the reporting period, amounted to $319.6 billion. The share capital was worth $222.5 billion.
In 2020, the company’s revenue grew by 12.8%. For 2018-2019, revenue increased by 18.3%. The growth rate of the company’s financial results is quite high, which means that investors will be interested in acquiring Google shares.
P/E = 36.95 vs the industry at 42.16
P/S = 8.35 vs the industry at 7.75
P/BV = 6.84 vs an industry-wide 5.67
Thus, the multiples are practically at the level of industry values.
Company’s profitability: ROE = 17.49% on average over 5 years and ROA = 13.31% compared to the industry average of 11.56%.
Unfortunately, the company does not pay dividends, but this is offset by a fairly strong growth in capitalization.
The stocks that we have highlighted above are of certain interest to investors to buy for the long-term. Some of these companies’ stocks are referred to as value stocks, i.e. stocks of companies that pay dividends but show modest revenue growth. Other companies are more likely to be classified as growth stocks because they have potential for increasing revenues and value in the future due to the financial results of their activities.