After one of the fiercest bear market declines in history, the stock market looks unstoppable. Since bottoming out 13 months ago, technology Nasdaq Composite more than doubled, while the benchmark S&P 500 approaches a gain of almost 90%. As crazy as it sounds, things might just start under the Biden administration.
Although President Joe Biden has inherited an economy that has been battered by the pandemic, there are two monster catalysts in its sails: an accommodating monetary policy from the country’s central bank and multiple rounds of fiscal stimulus, which are used to boost economic growth. Things couldn’t be more perfect for stocks.
If a Biden bull market takes shape over the next four years, investors will want to own stakes in companies that offer seemingly guaranteed returns. The following five foolproof actions fit the mold as winners in a Biden bull market.
Few companies offer growth, value, and play-and-forget appeal as much as social media platforms. Facebook (NASDAQ: FB). Despite ongoing concern that Facebook could face some sort of regulatory backlash for its dominance of the social media space, those concerns are largely overshadowed by the benefits associated with a rebound in the economy under the Biden administration.
As some of you may already know, Facebook is an advertising-driven business. About 98% of the $ 86 billion in revenue generated last year came from advertising. Advertising spending tends to grow at a steady rate when the economy is expanding. In the case of Facebook, it has the added catalyst of having over 42% of the world’s population visiting one of its owned sites at least once a month, starting in the fourth quarter. The sheer reach that Facebook can deliver to advertisers makes its platform too appealing for businesses to forget.
What’s really amazing is that Facebook is still relatively early in its growth trajectory. Of the $ 84.2 billion in advertising revenue generated in 2020, almost all came from his eponymous site and Instagram. Despite being two of the most visited social platforms in the world, neither WhatsApp nor Facebook Messenger has yet been truly monetized. When that happens in the years to come, Facebook is expected to see its sales, profits, and cash flow skyrocket.
Another sure-fire investment with Biden in the White House is the stock of electric utilities NextEra Energy (NYSE: NEE).
What sets NextEra apart in a generally slow-growing (aka boring) industry is the company’s focus on renewable energy sources, such as wind and solar. Investing in these projects has been costly, but it has led the company to cut costs of power generation and increase its adjusted earnings per share at a high single-digit rate for more than a decade. In some context, most electric utilities are growing by a low single-digit percentage annually.
With Biden in the White House and Democrats tightly controlling Congress, Washington has a real chance to push through some form of green energy / climate change reform. While it’s too early to tell what a final bill might look like, NextEra Energy may have more of an incentive to go green through tax credits or other benefits.
Plus, it doesn’t hurt that the company offers basic services. Whether it’s a recession or a booming bull market, consumers need electricity and / or natural gas. This makes NextEra a regular producer in most economic environments.
Green thumb industries
Speaking of “going green,” the US marijuana industry is expected to make great strides under the Biden administration whether or not federal legalization or decriminalization takes place. As long as the status quo persists – that is, the DOJ maintains its hands-off approach to state-level regulation – multi-state operator Green thumb industries (OTC: GTBIF) will prosper.
Green Thumb used a combination of acquisitions and good old-fashioned organic growth to expand its presence. At the end of March, the company had 56 operational dispensaries and enough licenses in its back pocket to open 41 more outlets. With a presence in a dozen states, Green Thumb has focused on markets that have annual potential of $ 1 billion and / or offer limited licensing. In particular, it bought its way into Illinois, which hit over $ 1 billion in statewide weed sales in 2020, and Nevada, which is expected to lead the country in terms of spending on cannabis per capita by the middle of the decade.
Equally exciting is Green Thumb’s product line. About two-thirds of the company’s sales come from by-products, such as edibles, vapors and oils. Derivatives have higher prices, juicier margins, and are much less susceptible to oversupply than dried cannabis flower. They are Green Thumb’s ticket to recurring profitability in 2021 (and beyond).
Innovation is also expected to be showcased in the healthcare sector during a Biden presidency. This is what makes the developer of robotic surgical systems Intuitive surgery (NASDAQ: ISRG) such a foolproof purchase.
Last week, Intuitive Surgical released its first quarter operating results, which, as usual, were excellent. One of the reasons it’s such a successful business is the dominance of its da Vinci surgical system. Since 2000, the company has placed 6,142 of its systems worldwide in hospitals and surgical centers. While that doesn’t appear to be a huge number, it does knock its competition out of the water on a combined basis.
The intuitive surgical operating model is also conducive to improving margins over time. In its early years, most of the company’s income came from the sale of its expensive systems. The only problem is that these systems are expensive to build and do not produce high margins. Over time, the company’s revenue mix has changed, with 71.5% of all first quarter sales coming from instruments and accessories sold with every procedure or maintenance performed on its machines. The more da Vinci systems installed, the more the needle oscillates in favor of these higher margin segments.
With da Vinci still scratching the surface of a number of soft tissue surgical indications, sustainable double-digit growth throughout the decade is a real possibility.
One last foolproof stock to add for a Biden bull market is the cybersecurity stock Okta (NASDAQ: OKTA). As companies move their data online and in the cloud, protecting that data is no longer optional. This means that third-party vendors like Okta are being used more than ever.
What sets Okta apart from much of its competition is the fact that its identity verification platform is cloud native and is powered by artificial intelligence. In simpler terms, this means that Okta’s solutions are more agile than on-premises solutions and become smarter over time to recognize and respond to threats. In short, Okta’s suite of services can be a cheaper, but more effective, long-term cybersecurity solution for businesses.
Okta is also expected to benefit hugely from its impending acquisition of Auth0 for around $ 6.5 billion. With the deal, Okta puts one of its biggest competitors under its umbrella, with Auth0 likely opening the door for the merged company to enter the European market.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.