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10 Stocks to Buy Regardless of Q3 Earnings

The long-term consensus for all of these companies is excellent 

Source: Shutterstock

If you’re looking for stocks to buy based on the earnings reports of companies who have already reported in the third quarter, you can already write off Twitter (NYSE:TWTR) and Boeing (NYSE:BA). 

FactSet Research (NYSE:FDS) analyst John Butters projects that the S&P 500 earnings in the third quarter will fall by 4.7%, the third consecutive year-over-year earnings decline from the index, and the first time since Q2 2016. 

While Twitter was able to grow its monetizable daily active users in the quarter, it faces several headwinds that could persist into 2020. As for Boeing, the giant elephant in the room remains the 737 Max, which the company expects will get regulatory approval to return to service by the end of 2019, but has caused major declines in the company’s revenue and profits. 

Although both Twitter and Boeing’s earnings reports had holes so big you could drive a truck through them, it doesn’t necessarily mean that you shouldn’t consider owning their stocks for the long haul. Here are 10 stocks to buy regardless of Q3 earnings. 

Stocks to Buy: Diamondback Energy (FANG)

Stocks to Buy: Diamondback Energy (FANG)
Source: Pavel Kapysh / Shutterstock.com

Although I’m not a big fan of energy stocks, I’ve tried to include at least one stock from several different industries. That’s why Diamondback Energy (NYSE:FANG) made the cut. 

If you invested $10,000 in FANG five years ago, today you’d have $13,094.90. That sounds bad until you consider that the same investment in its oil & gas exploration and production peers would have resulted in a loss of $4,406.52 over the same period. The grass is always greener.

At the beginning of October, Diamondback’s COO, Michael Hollis abruptly resigned from the company after eight years, the last four as head of operations. Before joining Diamondback, Hollis worked for Chesapeake Energy (NYSE:CHK).

While Hollis was wise to leave Chesapeake when he did — its stock was above $20, 10 times where it’s currently trading — no one is irreplaceable. 

Down 15% year-to-date including dividends through Oct. 28, FANG provides great value despite lower oil prices.  

Lululemon (LULU)

Stocks to Buy: Lululemon (LULU)
Source: Richard Frazier / Shutterstock.com

I asked myself in May: “Can Nike (NYSE:NKE) hit $185 in the next five years?”

My answer: “If I owned Nike stock, I’d be concerned that Lululemon (NASDAQ:LULU) will soon generate more revenue from the men’s market as a percentage of its overall sales than NKE does from the women’s market,” I wrote May 23. 

Don’t get me wrong. I like Nike and what it has been able to do with its Swoosh logo. However, it is Lululemon that made wearing sportswear an everyday event. Not Nike. 

In August 2016, I stated that Lululemon stock would be one of the best performing S&P 500 stocks over the next 10 years. To date, it’s up 40% compared to 11.5% for the S&P 500. 

For me, it all came down to the men’s market. If it could deliver growth in this area, it would have no trouble being one of the index’s shining stars. 

Bloomberg Intelligence recently named LULU one of the 50 companies to watch in 2020 out of 2,000 possible choices. 

“Innovation is driving results, as is Lululemon’s ‘power of three’ push focusing on men’s, digital, and international businesses,” stated Bloomberg’s Poonam Goyal Oct. 22. 

CEO Calvin McDonald is just getting started.

Nike (NKE)

Stocks to Buy: Nike (NKE)
Source: TY Lim / Shutterstock.com

While Lululemon has done a great job taking the battle to its bigger opponent, there’s no question that Nike still has what it takes to ring up sales on the register. 

On Oct. 22, Nike announced that long-time CEO Mark Parker would move upstairs on Jan. 13 into the Executive Chairman’s role after 13 years as chief executive

“To be clear, I’m not going anywhere,” Parker said. “I’m not sick. There are no issues I’m not sharing. I strongly believe the best way for us to evolve and grow as a company is to bring in a phenomenal talent to join our team who has long been part of the Nike family.”

Between the corporate culture issues that have plagued the company in recent years combined with recent allegations that Parker condoned doping by Nike athletes, it was time for him to move aside. 

Parker is a youthful 64 years of age, but that’s too old to be hanging around the gym. His successor, John Donahoe, at 59, isn’t much younger. However, five years is an eternity in the sports business.

Donahoe and Parker (it’s not as if he won’t be around the Nike campus) can work to find a real successor, someone in their mid-to-late 40s, who understands both the sports business and brick and mortar retail.  

Berkshire Hathaway (BRK.A, BRK.B)

Stocks to Buy: Berkshire Hathaway (BRK.A, BRK.B)
Source: Jonathan Weiss / Shutterstock.com

When I read articles about investment managers selling their stakes in Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) because Warren Buffett’s lost his touch, I just chuckle.  

The Motley Fool’s Sean Williams recently discussed how Wedgewood Partners CIO David Rolfe sold his firm’s $123-million position in Warren Buffett’s company in the third quarter, expressing dissatisfaction with some of the Oracle of Omaha’s moves. 

“Further, the efficacy of putting this cash pile to work (plus +$25 billion in annual operating cash flows in Omaha) will be paramount if Berkshire Hathaway is to once again regain their former status as a meaningful grower over just baseline U.S. GDP growth,” Rolfe’s Q3 letter to shareholders stated. 

With all due respect to Mr. Rolfe, I’d like to see how he would do investing more than $700 billion in total assets. It’s a lot easier to invest $2 billion than it is $700 billion.

Listen, I don’t think Warren Buffett’s perfect either. In June, I listed off seven ways to make Berkshire Hathaway stock more attractive. However, if you hold BRK until it’s liquidated once Buffett’s gone, I’m sure you’ll make out just fine. The company continues to be the biggest fund on the NYSE that’s trading at a discount. 

SVB Financial (SIVB)

Stocks to Buy: SVB Financial (SIVB)
Source: Shutterstock

SVB Financial (NASDAQ:SIVB), known as the bank for innovators and entrepreneurs, hasn’t had an easy time of it so far in 2019. SIVB has crossed above $220 on four occasions this year, only to retreat back to $210 or lower each time. 

A year ago in August, SIVB stock was trading above $325. I should know. In September 2018, I recommended SIVB as one of seven bank stocks to own for the long haul. It’s been on a downhill slide ever since. And it doesn’t look like things are going to get much better in the near-term.

On Oct. 24, after the markets closed, SIVB announced its Q3 2019 earnings. As expected, they weren’t as good as the second quarter, but on a per-share basis they were better than a year earlier — earnings per share were $5.15 a share, five cents higher than in the third quarter last year — suggesting that despite some short-term interest rate headwinds, the overall banking business is still in very good shape. 

It continues to be my favorite U.S. bank.  

Intuitive Surgical (ISRG)

Stocks to Buy: Intuitive Surgical (ISRG)
Source: michelmond / Shutterstock.com

Intuitive Surgical (NASDAQ:ISRG) is the maker of da Vinci robotic surgical systems. On Oct. 18, it reported healthy Q3 2019 results that saw revenues increase 23% to $1.13 billion with adjusted earnings of $3.43 a share, 46 cents higher than the consensus estimate and 21% higher than a year earlier. 

Some analysts aren’t so sure about the company’s ability to grow da Vinci sales. “On the one hand, we admire the company for having created a new growth vertical in medtech and demonstrating technology leadership,” Evercore ISI analyst Vijay Kumar said in a note to clients. “On the other hand, we think revenues are likely to decelerate from the stellar 2019 levels.”

If there’s a stock to buy on weakness, ISRG would be it. 

In 2016, I stated that ISRG’s cash cushion of $4.6 billion would insulate it from any cost-cutting from hospitals under the then newly-elected Trump administration. 

At the end of September it had $5.4 billion in cash, cash equivalents, and long-term investments. Just as I said in 2016, ISRG is going to be just fine no matter the economic or industry headwinds. 

Cummins (CMI)

Just around the corner where I live in Halifax, Nova Scotia is a Canadian military base. During Tropical Storm Dorian, when almost all of the province lost power, the base’s Cummins (NYSE:CMI) generator was humming away, helping the military assist the provincial government and hydro authorities in a province-wide cleanup. 

I couldn’t tell you which Cummins unit is installed at the base, but it was impressive to see the buzz of activity while the rest of us sat around without power twiddling our thumbs. 

Although the company expects its sales for fiscal 2019 to be flat to a year ago at $23.8 billion, and at the low end of its previous guidance, EBITDA should be around $3.9 billion or 16.5% of its overall sales. That’s 190 basis points than a year earlier. 

Trading at just 12.7x its forward P/E and yielding a reasonably healthy 3%, CMI stock is definitely one of those stocks you can count on over the long haul.  

Rollins (ROL)

In May 2016, I put together a retirement portfolio of 10 stocks that I thought would continue to outperform the S&P 500. One of those stocks was Rollins (NYSE:ROL), the champion of pest control. 

The investment thesis for Rollins is simple: it generates tremendous recurring revenue while retaining a majority of its customers over the long haul. There’s nothing complex about the business, but the Rollins family, who control more than 50% of its stock, are such good operators that they make it look easy. 

Over the past 15 years, Rollins stock has generated an annualized total return of 18.2%, almost double the entire U.S. market. 

Rollins might not be an elegant business, but its services aren’t something you want to put off for too long, providing it with a relatively captive audience. 

Alphabet (GOOGL)

Stocks to Buy: Alphabet (GOOGL)
Source: rvlsoft / Shutterstock.com

I’d been thinking about choosing Amazon (NASDAQ:AMZN) over Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), but a recent article I wrote about “My Love-Hate Relationship With Amazon Stock” has me rethinking my previously held opinion that Jeff Bezos could do no wrong. 

As a result, I’ve passed the baton to the folks at Alphabet whose penchant for generating oodles of free cash flow — for every dollar of sales, it has 15 cents of free cash flow — combined with just $4.1 billion in long-term debt, makes it an excellent candidate to buy back lots of its stock. 

When it comes to the FAANG stocks these days, my preference leans toward Alphabet and Apple (NASDAQ:AAPL) and away from Facebook (NASDAQ:FB), Amazon, and Netflix (NASDAQ:NFLX). 

In September, I suggested that the company’s “other bets,” which includes Waymo, the company’s self-driving business, is the key to its future success.

A business that makes or saves people time and money will always be in demand in the 24/7, 365-day world in which we live,” I wrote Sept. 9. 

“By continuing to invest in its other bets, it’s got a much better chance of developing the next great idea that will change the world. And that, more than anything, will influence the GOOGL stock price.”

In the meantime enjoy the ride. 

Apple (AAPL)

Stocks to Buy: Apple (AAPL)
Source: mama_mia / Shutterstock.com

In the previous slide about Berkshire Hathaway, I mention some of investment manager David Rolfe’s criticisms of Warren Buffett’s investments. Kraft Heinz (NASDAQ:KHC) is a big one, something I’ve also been critical of in past articles.

However, if you’re going to point out his failures, you also have to point out his successes. Of all the investments Buffett has made in publicly-traded stocks in recent years, the decision to load up on Apple has likely been his best. In January, I wrote about the seven reasons Buffett’s bet on Apple is a good one.  

Ever since Tim Cook took over the CEO’s job in August 2011, there have been plenty of critics about the way he pivoted from hardware and iPhones to services such as Apple TV+, Apple Arcade, Apple Music, iTunes, etc.  

Unlike Buffett’s bet on IBM (NYSE:IBM), Buffett can see that Apple’s runway to growth is still alive and well. It might not sell as many iPhones in the future, but it doesn’t have to under its rejigged business model.

He might not be Steve Jobs, but this Tim Cook version is still pretty darn good.

At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2019/10/10-stocks-to-buy-regardless-of-q3-earnings/.

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