Volatility has been the name of the game on Wall Street for the past year, and millennial investors have loved every minute of it. Online investment app Robinhood, which has become a safe haven for private investors, added approximately 3 million new users in 2020.
With an average age of just 31, the Robinhood user base is often looking to get rich quick and rarely think long term. We know this is a fact because Robinhood’s leaderboard (i.e. the 100 most held stocks on the platform) is full of momentum stocks, Reddit rally games, and penny stocks.
Still, among this sea of dart throws, Robinhood investors have scooped up three quality companies that value investors will no doubt love. If you have money on hand and are looking for inspiration, young investors have their eyes (and money) on these brand name companies.
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AT&T
Just mention it for years AT&T (NYSE: T) passing on context to an investor would have been a reason to put them to sleep. That’s because AT & T’s revenue growth is averaging in the low-single digits and its subsidiary DirecTV is steadily bleeding customers. But after baking in all this bad news and adding two new catalysts, AT&T is exciting again.
Undoubtedly, the main catalyst for AT&T is the continuous rollout of its 5G infrastructure. It’s been a decade since we last witnessed a major upgrade to wireless download speeds. As AT&T and its colleagues embark on the painstaking process of expanding 5G coverage, rest assured that consumers and businesses will upgrade their devices in the years to come to take advantage of these faster download speeds. That’s great news for AT&T, as data is the bread and butter of the higher-margin wireless segment of the company.
While DirecTV keeps losing out on cutting cables, AT&T now has an answer – and the name is HBO Max. HBO Max launched at the end of May and was initially received lukewarm. However, it added about 4 million new subscribers within weeks of the end of the third quarter.
Furthermore, AT&T subsidiary WarnerMedia plans to release all of its new movies on HBO Max in 2021 on the same day they hit theaters. That’s a great dangling carrot to boost subscriptions.
AT & T’s management is also getting aggressive with the company’s outstanding debt. Share buybacks have been suspended and the company is seriously considering the sale of DirecTV. Any proceeds raised would be used to pay off the debt.
Value investors can currently bring in AT&T for about nine times future earnings, and they will be handsomely rewarded with an annual return of 7.3% for their patience.
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AstraZeneca
Clinging to the number 100 spot on Robinhood’s leaderboard is a UK pharmaceutical stock AstraZeneca (NASDAQ: AZN)The company is one of the forerunners of the 2019 coronavirus disease vaccine (COVID-19). The vaccine was approved for emergency use in the United Kingdom in late December, which is mainly why it has featured on Robinhood’s investor radars.
Interestingly, it is not the COVID-19 vaccine that will drive growth at AstraZeneca over the next ten years. The company’s organic growth is mainly fueled by three oncology blockbusters – Tagrisso, Imfinzi and Lynparza – which account for nearly a third of total sales. In 2020, the company posted constant currency sales growth of 36% for Tagrisso, 39% for Imfinzi and 49% for Lynparza. With diagnostic equipment that improves cancer detection, useful life and pricing power both increase.
AstraZeneca will also benefit from its largest acquisition in history. The $ 39 billion cash-and-stock buyout of Alexion Pharmaceuticals (NASDAQ: ALXN) looks like an absolute bargain. That’s because Alexion focuses on ultra rare diseases. When it successfully develops treatment for a small pool of patients, it rarely faces setbacks from insurers and usually goes for years without competitive threats.
Additionally, Alexion developed Ultomiris, a next-generation treatment designed to replace the current blockbuster Soliris. Ultomiris is managed only every eight weeks, unlike every two weeks at Soliris, and will hold Alexion’s billions in revenue and cash flow for another decade.
With a price-earnings-growth ratio (PEG ratio) of around 1, AstraZeneca is the perfect remedy for what ails value investors.
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ExxonMobil
The past year hasn’t been pretty for oil stocks, and neither has the normally resilient integrated oil and gas giant ExxonMobil (NYSE: XOM)The coronavirus pandemic led to a historic decline in crude oil demand and a brief period of time in which West Texas Intermediate crude oil futures traded in heavily negative territory. While the road back to wealth isn’t going to be easy, ExxonMobil has all the tools needed to set the ship right.
One of the main reasons ExxonMobil performed so well over the long term is the company’s diversified business model. While it’s no secret that upstream drilling operations are delivering the juiciest margins and profits, ExxonMobil also has downstream refining and chemicals operations on which to rely when crude oil prices fall.
Downstream companies are benefiting from lower input costs and the expectation that consumption will increase with gasoline products at attractive prices. Perhaps unsurprisingly, the company’s chemicals business generated its highest quarterly earnings in two years in the fourth quarter.
ExxonMobil also has levers it can attract to improve its financial situation. For example, in the wake of the unprecedented pandemic, it reduced its investment plans from $ 30 billion to $ 33 billion by 2020 and ultimately spent only $ 21 billion.
CapEx in the current year is expected to decline even more, reaching a range of $ 16 billion to $ 19 billion. The company also generated $ 3 billion in structural reductions in 2020 and plans to squeeze out an additional $ 3 billion by 2023. These cost reductions ensure that ExxonMobil’s top dividend and 6.7% return are secure.
However, this cost-effective activity does not hinder the company’s progress on major projects. For example, ExxonMobil continues to develop Payara off the coast of Guyana. By 2024, this expansion could increase production by up to 220,000 barrels of oil per day.
ExxonMobil may not be much to look at right now, but it is only 22% higher than its book value and valued at maybe 11 or 12 times its projected earnings for 2024.