7 Companies to Invest In Ahead of Q4 for Long-term Returns

companies to Invest in - 7 Companies to Invest In Ahead of Q4 for Long-term Returns

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The start of the fourth quarter could prove more volatile and unpredictable than in any year before. Despite a monster rally in stocks since the markets bottomed back in March, investors have plenty of uncertainty ahead.

If markets fall further, it will discourage investors who can’t stomach red ink on their monthly investing statements. Plus, the U.S. elections are only a month away. Whichever party wins, stocks will respond strongly either way.

With that in mind, here are 7 companies to invest in and forget about:

  • Consolidated Edison (NYSE:ED)
  • Coca-Cola (NYSE:KO)
  • LyondellBasell Industries (NYSE:LYB)
  • The Trade Desk (NASDAQ:TTD)
  • Intel (NASDAQ:INTC)
  • Microsoft (NASDAQ:MSFT)

These companies may have one or more characteristics that make them a smart buy in our current market environment. Some have a high margin of safety, others a respectable dividend yield, or they have strong growth prospects for years ahead.

Consolidated Edison (ED)

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Stuck in a trading range between $70 and $75 with a dividend in the 4% range, Consolidated Edison is a buy and forget stock. The company is installing 17 weather stations across New York to help it understand climate trends. This will provide the company with useful data as it plans future investments. Project NYC Micronet will monitor weather conditions that might help it detect potential power outages ahead.

In the second quarter, ConEd posted earnings of 57 cents a share. Given the heightened interest in a sustainable environment, the company highlighted its carbon foot reduction of ~51% since 2005. Its plans to spend $3 billion a year in the next three years for infrastructure upgrades will raise its resiliency and reliability. To support New York’s goals of a low-carbon, clean energy future, the company is the second-biggest solar power producer.

But investors are ignoring ED stock over that same strong commitment to reducing its carbon footprint. Its electric vehicle fleet may cost more in the near-term, but smaller negative impact on the environment will attract ESG investors, beyond slashing fuel costs.

Strong Profitability Profile of Con Ed

Strong Profitability Profile of Con Ed

Data courtesy of Stock Rover

As shown about, the company’s gross margin is almost double that of the average S&P 500 company. Strong net margins suggest this company will rewarded investors.


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At around half the market cap of Dell Technologies (NYSE:DELL), HPQ stock is just too cheap to ignore. The stock pays a dividend and trades at a forward P/E in the high single digits. In Q3 of 2020, HP posted results that exceeded expectations.

HP posted diluted earnings per share of 52 cents. The company previously expected it would earn 35 to 41 cents per share. Revenue fell 2.1% year-on-year but that didn’t stop the firm from increasing shareholder returns. It bought back stock and paid out dividends worth $1.2 billion in the quarter.

In a 5-year discounted cash flow EBITDA exit model, assume the following metrics:

Metrics Range Conclusion
Discount Rate 10.0% – 9.0% 9.50%
Terminal EBITDA Multiple 6.7x – 8.7x 7.7x
Fair Value $18.49 – $23.03 $20.72

Model courtesy of finbox

HP only needs to grow revenue in the range of 1% to 3% annually. As shown above, the fair value is $20.72.

The PC upgrade cycle is HP’s biggest opportunity. The PC installed base is 700 million units that require a refresh. Kevin Frost, GM of Consumer Businesses at HP, said he did not see a demand shift on the low-end. The average selling price for PC is up sequentially. Consumers need computers that can handle streaming video. When working at home, they need good computers that will cost over $700.

Any drop in HP shares creates another entry point for investors. The PC refresh cycle will continue for more quarters, benefiting shareholders.

Coca-Cola (KO)

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Coca-Cola didn’t move anywhere for much of the year, excepting the market-wide March sell-off. The company isn’t just a pop drink supplier, but entering new markets that could seriously expand its revenue.

In the first half of 2021, Coca-Cola will enter the U.S. hard seltzer market. The seltzer sales market is worth $3 billion. So as consumer tastes shift, the company must change with it and adapt. If it succeeds, KO stock will perform better for the rest of the year and rise in 2021 and beyond.

Coca-Cola has several categories: ready-to-drink-tea and flavored sparkling or juice. James Quincey said that coffee is its third-tier category. It has the vision of scaling the business and growing margins.

LyondellBasell Industries N.V. (LYB)

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Paying a quarterly dividend of $1.05 a share, LyondellBasell is a petrochemical producer operating in Europe and the U.S. Though the company posted sales declines, earnings rose in the second quarter ended June 30, 2020.

LYB stock didn’t react much when the company experienced a drop in revenue due to Covid-19 restrictions. Looking ahead, the lift in restrictions should lead to a rebound in LyondellBasell’s business. The automotive industry needs gasoline, polymers, and diesel, but so too does the food packaging and health care sectors.

The company raised operating rates and prices when Asian demand for North American polyethylene rose.

As shown below, LYB sustained a high value score over the last few years:

LYB's value is 96/100.

LYB’s value is 96/100.

Data Courtesy of Stock Rover

Growth peaked three years ago but if revenue grows from higher demand, its P/E will go up as the stock price rises.

On Tipranks, the company has some notable analysts bullish on the stock. J.P Morgan has an $88 price target. Since the stock trades at a price-to-earnings (P/E) in the 10 times range, the stock is inexpensive despite the half-year long run-up.

The Trade Desk (TTD)

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In the expensive stocks category, The Trade Desk provides a technology platform for ad buyers. Its cloud-based platform satisfies investors seeking exposure to the fast-growing online ad market. It provides a self-service platform to agencies. By picking from over 500 billion digital ads daily, it gives its agencies a proprietary advantage.

In full-year 2019, revenue grew 39% to $661 million (slide 40). Although the Covid-19 panic led to a business decline of 12.9% Y/Y, TTD forecast Q3 growth at least doubling from Q2. In anticipation of the company exceeding estimates and expanding its total addressable market, the stock is attractive for the long-term.

Given the unfavorable valuations, investors may want to let the selling pressure pull shares lower. The stock is less risky to hold if it dips by 10-15% from current levels. Similarly, a 5-year DCF EBITDA Exit model supports the idea of waiting for a slight pullback first.

Intel (INTC)

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After admitting that its next-generation computer chip will face further delays, Intel stock plunged from $0 to a low of below $50 in late July. Moving nowhere in the last two months, Intel’s business is still benefiting from the strong personal computer and laptop sales growth. The pandemic forced corporations to buy computers for work-at-home staff. Customers spending more time online at home need to upgrade, too.

Although Intel faces tremendous competition from Advanced Micro Devices (NASDAQ:AMD), Intel has a better performance-to-heat output on its notebooks. So while AMD may have a compelling Ryzen 7 4700U chipset, companies like Lenovo (OTCMKTS:LNVGY) aren’t advertising them. Instead, Intel-powered computers get more screen real estate on the online storefront.

At a P/E in the high single digits, Intel stock is inexpensive and therefore carries less market risk. AMD’s forward P/E is around 50 times, compared to around 11 times for Intel. And markets discounted Intel’s Mobileye unit completely.

That unit is a global leader in developing vision technology for Advanced Driver Assistance Systems. It posted quarterly revenue of over $200 million last year. So as cars get more technology per unit, the unit will keep growing.

On simplywall.st, based on a discount to future cash flow, Intel stock is worth $76.00. Conversely, Wall Street analysts have an average price target of $56.00 (according to Tipranks).

Microsoft (MSFT)

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Microsoft’s suite of cloud software continues to drive growth. Markets bet on Zoom Video’s (NASDAQ:ZM) strength as an online meeting tool. But Microsoft could take on that market with one small change.

Microsoft Teams is an instant messenger, online video meeting solution and a work calendar. It also has shared file spaces. Though users must have a company profile, Microsoft could easily take the consumer market by removing that one rule. If it were to do so, the addressable market for the app would explode. The software giant may upsell Office 365 to consumers who use Teams. Or it may create an ad-supported version of the app.

On September 22, Microsoft launched a preview to Azure Communications Services. This allows developers to add video, voice, chat and text messaging across the platform. In effect, it will compete with Twilio (NASDAQ:TWLO) and Slack (NYSE:WORK). Instead of buying two expensive tech stocks, investors may buy Microsoft shares instead.

In a 5Y DCF Revenue Exit, readers may assume future revenue growth rates. So, at a terminal revenue multiple of 7.5 times, MSFT stock is worth ~$220.00.

Disclosure: On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Article printed from InvestorPlace Media, https://investorplace.com/2020/10/7-companies-to-invest-in-for-the-rest-of-2020/.

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