The historic Dow Jones Industrial Average and the benchmark S&P 500 both achieved fresh all-time highs on Monday, March 15. But, in actuality, these indices may only be getting started. Dow 40,000 and S&P 5,000 are both realistic targets under the Joe Biden administration. Although President Biden and his cabinet face a difficult task in restoring normalcy following the coronavirus pandemic, the recent passage of $1.9 trillion in fiscal stimulus, along with the Federal Reserve’s continued quantitative easing initiatives, should light a fire under the American economy. Businesses of all sizes should have no issue developing and expanding with such easy access to finance.
While this is usually good news for growth stocks, value stocks have historically outperformed growth stocks in the early stages of an economic rebound. The following four value stocks have the potential to double in a Biden bull market due to a convergence of events in the sails of publicly traded corporations.
Getty Images is the source of this image.
Facebook
I understand that considering high-growth social media business Facebook (NASDAQ:FB) as a value investment may seem strange, but it meets all of the criteria. It’s worth about 20 times forward-year earnings, with a forecast 25 percent sales growth rate in 2021, putting its price-to-earnings growth ratio (PEG ratio) below 1. A PEG ratio of less than one is usually indicative of a company that is undervalued.
With Biden in the White House, Facebook has all the tools it needs to double investors’ money, despite the almost constant worry that it may be split up by Congress. Last year, for example, it said that 42 percent of the worldwide population visited one of its owned assets at least once a month. That’s 2.8 billion monthly active visitors on Facebook, plus 500 million monthly unique visitors on Instagram and WhatsApp, both of which are owned by Facebook. Advertisers are pushing for advertising on Facebook’s platforms due to its overwhelming domination in the social media industry.
In the next four years, Facebook’s ability to accelerate should also be a growth driver. Despite the fact that both platforms rank among the top-five most-visited social sites in the world, WhatsApp and Facebook Messenger have only been modestly monetized to this time. When Facebook starts to monetize these assets, operating cash flow might skyrocket.
Getty Images is the source of this image.
Teva Pharmaceutical Industries is a company that produces pharmaceuticals.
Teva Pharmaceutical Industries (NYSE:TEVA), a manufacturer of both brand-name and generic drugs, is an ultra-value company, trading at around 4 times forward-year earnings.
Teva is so cheap because it’s the target of many lawsuits over suspected generic-drug price-fixing and its alleged role in fueling the opioid problem. The firm, on the other hand, has a secret weapon of its own.
Kare Schultz, a turnaround specialist, was hired as the company’s CEO in late 2017. He’s cut annual spending by around $3 billion and decreased the company’s net debt from over $34 billion to under $24 billion since taking charge. He’ll also serve as the company’s chief negotiator with federal regulators in the United States. Schultz is most likely looking for non-monetary or minor cash concessions as a solution. After all, by late 2023, he wants Teva’s net debt to be below $15 billion.
Higher brand-name list pricing will also help the company. With earlier efforts by Capitol Hill to address high brand-name medicine prices brushed aside, generic drug demand is expected to rise even more under the Biden administration.
Getty Images is the source of this image.
Mining with SSR
Despite a rocky patch in recent months, SSR Mining (NASDAQ:SSRM), the beautiful yellow metal and gold-mining stock, should fare well under the incoming government.
From a macro perspective, the Fed’s continuous quantitative easing efforts (i.e., monthly Treasury bond purchases aimed at lowering long-term yields) and the expanding money supply should put downward pressure on the currency and raise the price of physical gold. The Federal Reserve’s promise to keep interest rates near historic lows until 2023 is good news for gold stocks.
Last year, SSR Mining achieved a merger of equals with Alacer Gold of Turkey. Adding the Copler mine to its portfolio will nearly double its annual output while also greatly increasing its annual free cash flow. For at least the next five years, the business plans to generate between 700,000 and 800,000 gold-equivalent ounces, with an estimated $450 million in annual free cash flow in 2021 and 2022.
SSR Mining will begin paying a $0.05 quarterly dividend at the end of March, as one of the few gold equities with a high net cash position (about $457 million). SSR Mining is a solid candidate to double at slightly over 4 times this year’s cash flow per share.
Goodyear is the source of this image.
Goodyear Tire & Rubber Co., Inc.
Goodyear Tire & Rubber is another highly discounted bargain company that may quadruple in a Biden bull market (NASDAQ:GT). Even after its recent spike, the company’s stock may be purchased for around 11 times forward earnings.
The predicted recovery in the US and worldwide economies is the macro driver for the extremely cyclical Goodyear. When the US and global gross domestic product grow, firms and consumers are more likely to spend more. As a result, an increase in corporate and personal vehicle purchases is projected (i.e., more tires sold).
Rubber futures have also retraced almost 20% from their one-year high reached in January. This means lower input costs for Goodyear and maybe bigger margins when tire demand ramps up.
The company’s $2.8 billion cash-and-stock plan to buy rival Cooper Tire & Rubber has also been well received by Wall Street. The merger will boost Goodyear’s market share in the United States, expand its product line in the high-margin light truck and SUV sectors, nearly double its position in the fast-growing China tire market, and save the company $165 million over the next two years. To put it another way, Goodyear’s shareholders may be burning rubber for years to come.
This post is the author’s own view, which may differ from a Motley Fool premium advice service’s “official” recommendation position. We’re a mishmash! Questioning an investing theory, even our own, encourages us to think critically about investing and make decisions that will make us smarter, happier, and wealthier.
Continue reading
