Volatility has been the name of the game for the past year on Wall Street, and Gen Y investors are loving every minute of it. The online investment app Robinhood, which has become a safe haven for retail investors, added approximately 3 million new users in 2020.
With an average age of just 31, Robinhood’s user base often seeks to get rich quickly and rarely thinks about the long term. We know this is true because Robinhood’s leaderboard (ie the 100 safest stocks on the platform) is full of momentum stocks, rally plays on Reddit and penny stocks.
However, in the midst of this sea of javelin throws, Robinhood investors have managed three quality companies that value investors are bound to love. If you have cash on hand and are looking for inspiration, young investors are looking (and money) at these branded companies.
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ATT
For years, just mentioning ATT (NYSE: T) passing the context on to an investor would be a reason to put them to sleep. That’s because AT&T’s revenue growth has been average at a low single digit and its subsidiary DirecTV is constantly wiping out customers. But after absorbing all that bad news and adding two new catalysts, AT&T is exciting, once again.
Probably the biggest catalyst for AT&T is the continuous implementation of its 5G infrastructure. It’s been a decade since the last time we witnessed a major update in wireless download speeds. As AT&T and its peers begin the arduous process of expanding 5G coverage, you can bet that consumers and businesses will be upgrading their devices in the coming years to take advantage of these faster download speeds. This is great news for AT&T because the data is the bread and butter from the company’s high-end wireless segment.
Although DirecTV continues to lose from cutting cables, AT&T has an answer now – and its name is HBO Max. Launched in late May, HBO Max was initially met with a warm welcome. However, it added approximately 4 million new subscribers in a matter of weeks after the end of the third quarter.
In addition, WarnerMedia, an AT&T subsidiary, plans to release all of its new films on HBO Max in 2021 on the same day they hit theaters. That’s a big carrot hanging to increase subscriptions.
AT&T’s management is also becoming aggressive with the company’s outstanding debts. Share buybacks have been suspended and the company is seriously considering selling DirecTV. Any revenue collected will go towards paying debts.
Value investors can currently earn AT&T for about nine times the future profit and will be generously rewarded with an annual yield of 7.3% for their patience.
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AstraZeneca
Clinging to the 100th place in Robinhood’s ranking is the UK pharmaceutical stock AstraZeneca (NASDAQ: AZN). The company has been one of the first vaccines against coronavirus disease in 2019 (COVID-19). His vaccine was approved for emergency use in the UK in late December, which is mainly why it is on the radars of Robinhood investors.
Interestingly, it is not the COVID-19 vaccine that will drive AstraZeneca’s growth over the next decade. The company’s organic growth is being driven mainly by a trio of box office hits – Tagrisso, Imfinzi and Lynparza – which account for almost a third of total sales. In 2020, the company recorded sales growth in constant currency of 36% for Tagrisso, 39% for Imfinzi and 49% for Lynparza. With diagnostic equipment improving cancer detection, duration of use and pricing power are increasing.
AstraZeneca will also benefit from its largest acquisition in history. The purchase of $ 39 billion in cash and shares from Alexion Pharmaceuticals (NASDAQ: ALXN) it looks like an absolute theft. That’s because Alexion focuses on ultra-rare diseases. When he successfully develops a treatment for a small group of patients, he rarely faces any resistance from insurers and usually goes years without any competitive threats.
In addition, Alexion developed Ultomiris, a state-of-the-art treatment designed to replace the current Soliris blockbuster. Administered only every eight weeks, as opposed to every two weeks with Soliris, Ultomiris will block Alexion’s billions in revenue and cash flow for another decade.
Boasting a price-earnings-growth ratio (PEG index) of around 1, AstraZeneca is the perfect cure for what afflicts investors of value.
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ExxonMobil
Things have not been very good last year for oil stocks, and that includes the normally resilient gas giant and integrated oil ExxonMobil (NYSE: XOM). The coronavirus pandemic led to a historic drop in crude oil demand and a brief period when West Texas Intermediate crude oil futures were traded in heavily negative territory. Although the road back to wealth is not an easy one, ExxonMobil has all the tools necessary to repair the ship.
One of the big reasons why ExxonMobil has performed better in the long term is the company’s diversified operating model. While it is no secret that upstream drilling operations are what feed the juiciest margins and profits, ExxonMobil also has its downstream refining and chemical operations that it can rely on when oil prices fall.
Downstream companies benefit from lower input costs and the expectation that consumption will increase with oil products at attractive prices. Perhaps unsurprisingly, the company’s chemical operations generated its biggest quarterly gains in two years during the fourth quarter.
ExxonMobil also has levers that you can use to improve your financial situation. For example, in the wake of the unprecedented pandemic, he reduced capital expenditure plans from $ 30 billion to $ 33 billion in 2020 and ended up spending just $ 21 billion.
CapEx this year is expected to fall further, to a range of $ 16 billion to $ 19 billion. The company also generated $ 3 billion in structural reductions in 2020 and plans to squeeze in an additional $ 3 billion by 2023. These cost reductions ensure that ExxonMobil’s main dividend and 6.7% yield is safe.
However, this cost-cutting activity is not keeping the company from moving forward on key projects. For example, ExxonMobil is pursuing its Payara development in the Guyana sea. In 2024, this expansion could increase production by up to 220,000 barrels of oil per day.
ExxonMobil may not be very interesting right now, but it is only 22% above its book value and valued at 11 or 12 times the expected earnings for 2024.