As investors, markets continue to surprise us with new openings, earnings seasons and government interventions, especially during a time of crisis like this. Upto the third week of March, markets continued to fall drastically and the Dow Jones Industrial Average lost almost 35% of its value over a single month. However, with the same momentum the market has started to recover, due to a USD 2.2 trillion support stimulus from the US government and decreased growth in new Covid-19 cases. I believe that this recovery is going to be short lived, because there is no real reason for stocks to start rising. Most global economies are still on a lock-down, with a majority of the businesses shut, unemployment rates have reached drastically high rates in the US and even after economies open back up, a significant proportion of the global population will face a liquidity crunch from missed EMIs, Rental payments and loss of business.
Hence, I believe that investors will have a chance to enter on some long-term stocks as markets may slide of their current levels. So, if you have a little bit of extra liquidity and are willing to invest this money aside for the next 5-10 years, these are the stocks that I believe will be safe with a sustainable yield amid this crisis. I suggest you plan out a stuttering investment pattern by investing a % of your total desired portfolio in each of these companies whenever you notice a dip in their share price.
1. JP Morgan Chase - Current Market Price (CMP) USD 91
JP Morgan Chase is a 220 year old bank, that played a critical role in the development of the financial system in the United States. It is the largest bank in the US by market capitalization and the sixth largest bank in the world. Despite the remarkable size of this bank the company has been able to show remarkable growth both in earnings and revenues. The firm's main source of revenue comes from extensive financial services ranging from customer and corporate banking, to asset management and commercial consulting. Over the last few years JP Morgan has tried hard to incorporate technology in its services and has a forecast of spending USD 11.5 Billion on just the development of new technology. Currently the company's primary focus is on the emergence of digital payments in an effort to make them real-time and reliable.
Falling over the 33% over the past 3 months, it is clear that the banking industry will take a huge hit as consumers will miss EMIs and debt-repayments, while assets under management, will see a huge reduction in their value. Let's take a look at JP Morgan's financials to understand why it may still be a strong buy for the coming period.
Looking at the growth factor, the company has raised its annual revenues from USD 95 billion to USD 115 Billion over the last 5 years, which has also led to an annual 15% growth in net income. The firm is currently trading at a lucrative PE ratio of 10.7. The company is currently sitting on a healthy pile of cash reserves, which have been added to in Q1 2020 amid the concerns of a liquidity crunch this year. Additionally the company has been paying a healthy dividend with a current yield of 3.56%.
I believe looking at the size of this financial institutions, its future plans for the integration of technology in finance and its current growth in revenue and income statements, I believe that this company is a good buy for the long-term, especially at its current valuation.
2. Intuitive Surgical - Current Market Price (CMP) USD 511
Intuitive Surgical is a California based company, that holds an almost monopoly position in the market for advanced surgical robotic technologies. You might've seen that video of surgeons performing a surgery on a grape; in fact, the machine used was the DaVinci line of Intuitive Surgical! The company has installed over 5000 of the DaVinci robots with 3,500 of them in the US and the remaining 35% outside of the US. The stock had fallen around 38% at the epicenter of the bear market, however has gone back up with a return of -15% YTD. In the short run, I believe Intuitive Surgical will seem to face a slow demand, as hospitals across the world may be unwilling to spend USD 1.5-1.75 million for their top of the line machinery, especially due to low funding from governments. However, over the long-run I see this company's products to take over the healthcare industry. Primarily, because robotic surgeries have proved to be more precise than ever before, and this company falls right between the integration of technology with healthcare.
Additionally, Intuitive Surgical has attempted to acquire business across the technological healthcare industry, showing that the company is still growing. The company has not provided any dividend as of yet however I believe that this also represents the importance of reinvesting in the business.
Looking at the company's financials, it is currently trading at a PE ratio of 44. I believe that this number is quite high, looking at the short term market situation, however I also think that a correction will be seen shortly before cases in the US start to drop. If the PE ratio falls during this time then it would be a good time to enter into this company. Furthermore, the company has been showing some fantastic growth signals; it has almost doubled its revenue in the last 3 years and alongside this it has provided an annual net income growth of 23%. Also Intuitive Surgical is essentially debt free, and has a cash holding of USD 3 Billion. This means that the company can sustain for up-to 2 years without any output, a strong reserve amount for this stage.
To conclude, I believe that Intuitive Surgical has a great scope ahead of them over the long horizon, and with such a strong monopoly in a growing market, an investment in Intuitive Surgical should pay off.
3. Royal Bank of Canada - Current Market Price (CMP) USD 59
The Royal Bank of Canada is the largest bank in Canada by market capitalisation. The firm has a strong position in numerous aspects of banking, from personal and businesses banking to wealth management and insurance. Similar to the agenda for JP Morgan, RBC plans to spend USD 3.2 Billion on technological advancements through the incorporation of artificial intelligence and digital products to not only grow their customer base but also provide digital customers with a better mobile banking experience.
Additionally, being one of the largest companies in Canada it has created a market leading brand name, and alongside a growing Canadian market I see this stock being a part of this growth not only through changes in stock price but also dividends. The stock currently has a dividend yield of 5.38% with a not too high payout ratio (% of earnings spent on the dividend) of 46%.
Getting into the quantitative aspect of this company, the company has provided consistent EPS growth of 8% p.a and with a PE ratio of 9.4, that valuation seems reasonable. Additionally, along with the strong growth in income, the revenue of the firm is also rising consistently. Comparing the balance sheet and the assets of this company, the company has around CAD 80 billion in its cash reserves, while its expenses arise to around CAD 30 billion per year. This means that the bank can sustain its current position for the short run for over 2 years.
With the strong aspect for growth in this company, a lucrative and consistent dividend yield alongside a healthy balance sheet, I believe that this company can be a good investment for the long term.