You don’t need a spreadsheet to see these five companies are strong buys
Researching investment ideas can, at times, be very complicated. There are ratios to look at, cash flow, interest coverage, competitors, patents, margins, inventories and thousands of other metrics to consider.
Many investors have simply given up, and go for passive exchange-traded funds instead. These ETFs own ‘the market’ rather than trying to pick a winning individual company. But this is no fun.
How about instead we try and ‘dumb things down’ and look at five companies, or themes, with just some common sense? No cash-flow analysis, no current ratios, nothing complicated at all. Just a theme based on what’s happening in the real world and with these companies.
So, sit back, toss out that calculator, and read on.
Facebook (FB)
Facebook Inc. has more than two billion customers. With such a huge customer base, the company now can take a look around the world and see what it can sell to its (addicted) customers. This month it announced it was going to offer dating services, leaving that entire industry in a state of fear. Next month, maybe it will offer something else. The key here is that, effectively, Facebook could offer its customer base almost anything. Users are on the site daily, and the company knows everything about them. The company, despite its massive size, continues to grow at a very rapid pace, and our bet is that it just keeps on chugging along. Common sense says the shares, up 21 per cent in the past year even after the privacy scandal, have more room to run.
Nvidia (NVDA)
All the cool new technology in the world needs super-fast processors. Whether it is artificial intelligence, cryptocurrency mining, autonomous cars or virtual reality, the common thread for all is computer processing speed. There is not much point to a driverless car if it cannot manage the millions of inputs it needs to operate safely. Who is the world leader in graphics processors and software? Nvidia Corp., the best-performing stock in the semiconductor index and one of the hottest stocks in the world over the past five years. Nvidia makes a point of coming out with faster processors on a regular basis. Despite its legacy in the gaming sector, the future looks to be elsewhere. Common sense says Nvidia will keep moving with the growth of the technology sector.
Box Inc. (BOX)
Everything is moving to ‘the cloud’, but what good is this if you can’t analyze everything there? Moving data to the cloud makes sense for corporations, for accessibility and security. Data storage is doubling on a regular basis. But wouldn’t it be good if there was a way to analyze all that data you are storing?
Enter Box Inc., one of the hottest stocks of the past week, and up 49 per cent in a year. Box got a big push this year as investors latched onto the artificial intelligence side of its business, where clients not only pay Box to store data, but pay it more to analyze it. Common sense says this business is going to get bigger. Box revenue is expected to double from 2016 to 2019. We note that other data analytics companies, such as Cognos from Canada, have largely all been acquired by larger software entities.
Altria Group (MO)
Cigarette companies are destined to get into the marijuana business. Altria Group Inc. is having a tough year, with shares down 21 per cent year-to-date. It seems less people are smoking. That’s great for people, but bad for the company. So, common sense might suggest that cigarette companies find something new to invest in.
Maybe they should look around for a new, high-growth industry that is only just emerging due to legality changes. Maybe tobacco companies should look for a similar business to their own, but one that is set to grow much more rapidly? Common sense leads to the marijuana sector. So far, marijuana companies are falling all over themselves to merge and ‘bulk up’. But we bet it is just a matter of time before the tobacco companies come-a-calling, and scoop up some of the larger remaining players. It just makes sense.
Shopify (SHOP)
Online merchandising is here to stay: Been to a shopping mall lately? Neither have we. If we did go, we envision a dusty, tumble-weed type of apocalyptic scenario, with closed-out shops and one or two customers shuffling around. An exaggeration, perhaps, but with the rapid growth of online sales we think malls might be headed that way eventually. Sure, one could buy Amazon, but what about Shopify Inc. It has more than 600,000 customers, and is becoming the ‘go to’ provider of online merchant services. It continues to report strong numbers, and its stock is up 48 per cent this year. Common sense says business is going to stay good, with more and more companies and individuals rapidly shifting to online sales to try to stay competitive.
Peter Hodson, CFA, is Founder and Head of Research of 5i Research Inc., an independent research network providing conflict-free advice to individual investors (http://www.5iresearch.ca).