In the last week the Internal Revenue Service (IRS) has issued more than 68 million refunds. Further, in the last few weeks, the IRS has distributed more than 161 million payments for the third stimulus check. In general, it’s very tempting to go on a consumption spree. However, I like the idea of allocating some portion of your tax refund to investment in equities. There are several attractive stocks to buy, and long-term investment in these names can help in making your wallet heavy.
Today, we will discuss seven stocks to buy with your tax refund. I have selected four growth stocks from different sectors. These stocks have significant upside potential over the next few years. Further, I have selected three stocks that are from relatively mature industries. While these companies are still investing in growth and innovation, dividend income is another key reason to select these stocks.
Let’s take a deeper look into these stocks to buy for the next few years:
- Coinbase Global (NASDAQ:COIN)
- Teladoc Health (NYSE:TDOC)
- Square (NYSE:SQ)
- Twist Bioscience (NASDAQ:TWST)
- Lockheed Martin (NYSE:LMT)
- Apple (NASDAQ:AAPL)
- Walmart (NYSE:WMT)
Stocks to Buy: Coinbase Global (COIN)
Cryptocurrencies are still at an early adoption stage, and COIN is possibly among the best bet in the crypto space. COIN stock has cooled off after hitting highs of $429 on listing. I believe that current levels are attractive for fresh exposure to the stock using your tax refund.
From a growth perspective, the company reported verified users of 43 million for fiscal year 2020. Verified users are expected to increase to 56 million by the first quarter of 2021. Importantly, monthly transacting users were 2.8 million as of December 2020. Transacting users are expected to increase to 6.1 million by Q1 2021. Clearly, this is an indication of rapid adoption of crypto.
Another important point is that for the current year, the company has guided for revenue of $1.8 billion. Further, adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) is guided at $1.1 billion. The business seems to be a potential cash-flow machine in the coming years.
Following the success of the initial public offering (IPO), the company expects to further ramp up marketing efforts. As transacting users swell, the company is positioned to deliver healthy growth. COIN stock is therefore worth holding in your long-term portfolio. The crypto space is likely to be significantly bigger in the next decade.
Teladoc Health (TDOC)
Teladoc stock is another name among stocks to buy from an industry that’s at an early growth stage. In February 2021, TDOC stock had surged to an all-time high of $308. After a sharp correction, the stock seems to be in consolidation mode around $175.
This seems like a good accumulation opportunity. Analyst estimates point to a price target of $245.93 for the stock. This would imply an upside of 40.5% from current levels.
The pandemic has resulted in a strong growth in virtual healthcare, and this change is likely to be permanent. It’s expected that by FY2027, the virtual healthcare market will be worth $122 billion. Teladoc Health is well-positioned to benefit from positive industry tailwinds.
The company is already on a high-growth trajectory. For FY2020, the company reported top-line growth of 98% on a year-on-year basis. For the year, top-line growth is guided at 80.5%. Further, adjusted EBITDA is expected at $265 million.
It’s also worth noting that in FY2019, paid members were 36.7 million. Last year, the number of paid members were 51.8 million. For the year, the company has guided for paid membership of 53 million (mid-range). The key point is that as paid membership increases, revenue and cash-flow visibility will improve.
In the next five years, Teladoc Health is likely to generate robust operating and free cash flows. Therefore, TDOC stock is worth considering and is a possible core portfolio stock.
Square (SQ)
Another big trend that’s worth following is the growing adoption of digital wallets. Last year, the global use of mobile wallets exceeded cash for the first time for in-store payments. As adoption of digital wallets continues at a healthy pace, SQ stock is among the top stocks to buy.
Square has witnessed strong growth in the number of active Cash App users. That’s a key reason for SQ stock remaining resilient at higher levels. As of FY2020, the Cash App reported 36 million monthly active customers. Further, more than 80 million people have transacted with Cash App, and these are potential active users in the coming years.
Excluding Bitcoin (CCC:BTC-USD) revenue, Cash App generated $344 million in subscription and service-based revenue for Q4 2020. This was higher by 113% on a year-over-year basis. With high gross margins, the Cash App can be a money spinner. Even at 100% growth for the current year, the Cash App subscription and services revenue (annualized) is likely over $2 billion.
Bitcoin revenue from Cash App is also likely to witness robust growth. Just for January 2021, more than one million customers purchased Bitcoin for the first time. In addition, the company’s seller ecosystem has continued to report steady growth in the last two quarters. It’s another business segment with a big addressable market in the United States.
Twist Bioscience (TWST)
TWST stock has been an outperformer, having surged by 319% in the last one-year period. I would still include the name among the stocks to buy with a long-term investment horizon.
Twist Bioscience is a growth story in the synthetic biology business. With innovation at the forefront, the growth story for the company is still at a nascent stage. To put things into perspective, the company believes that the synthetic biology market has an annual potential of $1.8 billion.
The company already has 2,200 customers in the synthetic biology and next genome sequencing segment. Even in the bio-pharma segment, the checkpoint inhibitor market is expected to touch $40 billion by FY2025. In a significant development, the company received U.S. Food and Drug Administration (FDA) emergency approval for next-generation sequencing of Covid-19 assay.
In terms of revenue growth, Twist reported revenue of $28.2 million for Q4 2020. On a year-over-year basis, revenue growth was 64%. I believe that growth is likely to accelerate in the coming years with customer additions and backlog growth.
Cathie Wood’s investments are worth following for investors interested in disruptive technology. TWST stock is among the top holdings in the ARK Genomic Revolution ETF (BATS:ARKG).
Lockheed Martin (LMT)
With an annual dividend of $10.40 and a current dividend yield of 2.79%, LMT stock is among the top income stocks to buy. Also, at a forward price-to-earnings (P/E) ratio of 14.01, the stock seems to be trading at attractive valuations.
For the first quarter of 2021, the company reported $16.3 billion in sales. Additionally, it reported cash from operations of $1.7 billion. For the full year, the company has increased the operating cash flow (OCF) guidance to $8.9 billion. Therefore, dividends are secure and can potentially increase as the backlog swells.
As a matter of fact, the company has provided an outlook for the next two years and the operating cash flow is guided at $9 billion. Currently, the company has an order backlog of $147 billion and this provides clear revenue visibility.
It’s important to note that for the current year, the company expects to generate revenue of $12 billion from the space segment. With growing interest and investment in this field, the company is well-positioned to benefit.
In terms of backlog growth, most NATO countries are short of the defense spending target. Countries are expected to spend 2% of their gross domestic product (GDP) on defense by FY2024. As spending ramps up in the next few years, I expect the company’s order backlog to remain robust.
Apple (AAPL)
AAPL stock trades at the same level as it did at the beginning of September 2020. I strongly believe that the stock is positioned for a breakout after an extended period of consolidation.
Further, considering the company’s cash glut, it’s very likely that dividends will continue to increase in the coming years. The stock therefore offers potential for capital gains in addition to dividend growth on a sustained basis.
For the first quarter of 2021, the company reported revenue of $111.4 billion, which was higher by 21% on a year-over-year basis. I like the fact that the company is increasingly diversified in terms of revenue. With strong momentum from the wearable and services segment, healthy top-line growth is likely to sustain.
Apple’s electric-car project might still be at an early stage. However, the segment is likely to attract attention and stock re-rating once there is more clarity on the timeline.
Recently, Apple announced that the company will be investing $430 billion in the United States over the next five years. These investments are likely to be in the field of silicon engineering and 5G technology. I will not be surprised if the company pursues inorganic growth to diversify its innovation-driven portfolio of products and services.
Overall, AAPL is among the top stocks to buy for the long term. Over the next five years, the company’s revenue and cash flows are likely to be significantly diversified.
Walmart (WMT)
WMT stock is another name that’s worth adding to your long-term portfolio. With the stock trading flat for more than six months, a breakout on the upside seems due. WMT stock also offers a healthy dividend of $2.20, which currently implies a dividend yield of 1.6%.
With the U.S. economy largely consumption-based, companies like Walmart are likely to continue stable growth. Further, as Walmart pursue omni-channel sales, growth is likely to accelerate along with potential cash flow upside. For Q4 2021, the company reported 69% growth in U.S. e-commerce sales.
In terms of shareholder return, Walmart reported $36.1 billion in operating cash flow and $25.8 billion in free cash flow for FY2021. This gives the company ample headroom to increase dividends and share repurchases.
It’s also worth noting that for the year, the company expects to invest $14 billion in building supply-chain capacity and automation. This is likely to help the company to cater to incremental demand and improve productivity.
Walmart also has presence in international markets that include China, India, Canada and the U.K. The Indian market is still at an early growth stage and provides ample scope for revenue upside.
Overall, the company’s business is an established cash-flow machine, and WMT stock looks attractive at current levels.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.
