There’s little question that 2020 is one of the craziest years we’ll ever see as investors. The iconic Dow Jones Industrial Average (DJINDICES:^DJI) shed more than a third of its value in a matter of weeks during the first quarter, then subsequently spent nine months rallying to all-time highs. When the curtain closed on 2020, the Dow Jones had advanced by 7%. Not too shabby, all things considered.
However, successful investors don’t get caught up in past performances of indexes or equities. They’re concerned with the future and knowing where to park their money to generate wealth over the long run. As we move headlong into 2021, the following three Dow stocks stand out as screaming buys.
In a year that saw cloud-based software-as-a-service (SaaS) stocks skyrocket into the stratosphere, one brand-name company still offers incredible value: salesforce.com (NYSE:CRM).
Salesforce is the leading global provider of cloud-based customer relationship management (CRM) software. CRM software is used by consumer-facing businesses to manage customer information, log service and product issues, manage marketing campaigns, and prospect for new/add-on sales. Logically, CRM software makes sense for the retail and service industries. But we’re seeing over time is that more than half of all CRM software revenue globally is derived from outside retail and service. This includes healthcare, information technology, finance, and manufacturing, among other sectors and industries. The addressable market for CRM software is huge, and it just keeps growing.
Back in May, research and advisory firm GartnerÂ released a report estimating that salesforce controlled 18.3% of the global CRM market at the end of 2019. That’s almost as much share as the No.’s 2, 3, and 4 CRM companies put together. Salesforce has established itself as the go-to for this rapidly growing segment of the SaaS stock space.Â
What’s more, salesforce is in the process of acquiring Slack TechnologiesÂ for $27.7 billion in cash and stock. The allure of this deal is that it allows salesforce to use enterprise-focused communications platform Slack as a jumping off point to promote Salesforce Customer 360.Â
Considering that multiple SaaS stocks are valued at 20 or more times forward revenue, salesforce is a veritable steal at roughly 8 times forward sales. That’s what we call a screaming buy!
Walgreens Boots Alliance
Investors would also be wise to consider adding pharmacy giant Walgreens Boots Alliance (NASDAQ:WBA) to their portfolio.
As you may have noticed, Walgreens was one of the worst Dow stocks in 2020. The company was pressured by increasing competition from online pharmacies, and decreased foot traffic into its stores and clinics because of the coronavirus disease 2019 (COVID-19). However, Walgreens has a long-term growth plan that’s already in action, and it should begin paying dividends in 2021.
To begin with, Walgreens is aiming to streamline its operations. The company should meet its goal of reducing annual expenditures by $2 billion prior to its 2022 goal. At the same time, it’s aggressively reinvesting in digitization, with an emphasis on promoting direct-to-consumer sales. Though e-commerce represents only a small portion of current sales, it should continue growing at a healthy double-digit pace.
Equally exciting, Walgreens partnered with VillageMD to roll out up to 700 full-service clinics at its stores around the United States. Whereas other large pharmacy chains have clinics capable of treating simple ailments, the Walgreens-VillageMD partnership should allow patients to receive a wider range of care. The expectation is this will improve foot traffic, encourage repeat business, and lead to a seamless uptick in demand for its higher-margin pharmacy segment.
The icing on the cake, at least in 2021, is that Walgreens should benefit from the U.S. COVID-19 vaccination campaign. Getting millions of new people in its stores gives the company an opportunity to build on its loyal base of shoppers.
At less than 8 times forward-year earnings per share, Walgreens is attractively priced for value investors.
Buying Visa is a simple bet that U.S. and global gross domestic product (GDP) will grow over time. Visa is a company that generates revenue based on the amount of gross payments that traverse its network. An expanding U.S. and global economy almost always leads to higher levels of business and consumer spending. Even though recessions are a natural part of the economic cycle, periods of expansion tend to last for multiple years, as opposed to a few months or a couple of quarters for recessions. Buying Visa stock allows patient investors to take advantage of this surefire expansion of U.S. and global GDP.
It’s a point I’ve beaten the drum on numerous times before, but it’s important to note that Visa strictly processes payments and does not act as a lender. Yes, it’s missing out on the potential to generate interest income during those aforementioned multiyear economic expansions. However, the company is also avoiding the rise in credit delinquencies that occurs during inevitable economic contractions and recessions. Not having to charge off loans or set aside capital for future credit losses is why Visa so quickly rebounds from recessions and keeps its profit margin at or above 50%.
I’d also imagine that consumers are going to spend liberally once the COVID-19 pandemic is put into the rearview mirror. That could be quite the catalyst for Visa, which held approximately 53% of U.S. credit card network purchase volume, as of 2018.
Look for Visa to continue to deliver double-digit revenue and earnings growth moving forward.