We’re all quick to analyze stocks to buy at face value without ever considering how they generate revenue. But that’s a critical oversight. Not only is it important for investors to understand how their holdings make revenue in the present, it’s also important for investors to know how they plan to do so in the future. If you don’t consider where all the money is coming from now, you may be holding onto a stock and thinking it’s a winner without entirely understanding the trajectory of the underlying company.
For this list, I’ve identified a few stocks to buy that have recently pivoted into lucrative markets — and that will most likely expand into those very same markets moving forward. These names own different sizes of footholds in those “sub-markets.” That said, I’ve looked at all of them out of isolation and have ensured they are feasible conviction plays.
So, without further ado, let’s look at how these promising names rake in revenue. Here are the four picks I’ve found:
Stocks to Buy: Ford (F)
First up on this list of stocks to buy, Ford has experienced a fantastic year with more than 120% in stock gains year-to-date (YTD). Adding to its recent cyclical support is the electric vehicle (EV) hype. Ford’s E-Transit is sold out. Meanwhile, the F-150 Lightning has over 160,000 reservations.
The market is clearly pricing in the automotive side of the company here. However, it has yet to discover Ford’s credit segment, which produced around 8% of the firm’s revenue in its latest financial quarter.
This automotive giant openly admits that it provides high-yielding loans to consumers with less than perfect credit scores. However, although this may sound bad, it’s actually a massive value-add for Ford. The segment contributes to a vertically integrated model where sales commence at excess speed and transaction costs are reduced with repossessions being resold through the company’s own second-hand division.
F stock is undervalued relative to its peers. The stock is trading at trailing price-earnings (P/E) and trailing price-sales (P/S) discounts of 25.2% and 55.8%, respectively. That leads me to believe there’s scope for stock gains, especially when considering the current economic tailwinds.
Carvana (CVNA)
Carvana’s “vending machine” business model has proven to be a massive success of late. The next pick on this list of stocks to buy, the company is a pioneer in the integrated online vehicle sales department. It has gained significant recognition from buyers for its user-friendly platform.
Carvana has similar parallels to Ford. How so? Well, it generates revenue from loan origination as well. The company doesn’t openly state the size of its credit department and includes it under other revenue in its financial statements. However, investors should consider Carvana’s easy-to-pass credit facility as a massive value-add to the company’s core business sales.
In a world where quantitative easing seems to be the norm, companies like Carvana — offering integrated credit facilities — will undoubtedly benefit.
From a valuation vantage point, CVNA stock’s growth metrics stand out. Reinvestment is evident considering year-over-year (YOY) capital expenditure (capex) growth of 102.7%. This figure is well accommodated by earnings growth, conveyed by nearly 124% revenue growth.
Stocks to Buy: Barrick Gold (GOLD)
Being the second-largest gold producer on the planet isn’t an easy feat. Barrick Gold is managed by South African CEO Mark Bristow and the company is running as smooth as silk at the moment. However, many don’t realize that roughly 10% of this mining house’s production is actually generated from copper exploits.
Given this fact, there’s a lot of scope for Barrick to pivot into the copper space at some point in order to facilitate EV demand. Although the firm has invested heavily in recent times, it’s also embarking on increasing production from its copper mines in Zambia, Chile and Saudi Arabia.
GOLD stock is currently undervalued with a P/E discount to the other gold miners. If Barrick ends up adding more copper to its production cycle, we’ll be looking at one of the optimal materials stocks to buy.
Embraer (ERJ)
Last up on this list of stocks to buy is ERJ stock. Those who follow Embraer will know how sleek and attractive this Brazilian company’s private jets are. Embraer has delivered 54 executive jets YTD. However, many still don’t know that the company has also delivered a significant amount of commercial jets.
How many? Year-to-date, Embraer has delivered 32 commercial jets and anticipates commercial deliveries of 45 to 50 by the end of 2021. In addition, the company has taken order of three of its E175 jets from a Nigerian airline, Overland Airways. This amounts to $897 million worth of revenue, which will probably be recognized in the fourth quarter of this year.
Embraer is undervalued relative to its normalized five-year average. ERJ stock is trading at a trailing P/S discount of nearly 82% and a price-cash flow discount of 73.2%. This means that the current stock price is still well below Embraer’s financial growth.
On the date of publication, Steve Booyens held long positions in GOLD. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Steve Booyens co-founded Pearl Gray Equity and Research in 2020 and has been responsible for equity research and PR ever since. Before founding the firm, Steve spent time working in various finance roles in London and South Africa, and his articles are published on various reputable web pages such as Seeking Alpha, Benzinga, Gurufocus, and Yahoo Finance. Steve’s content for InvestorPlace includes stock recommendations, with occasional articles on crowdfunding, cryptocurrency, and ESG.
