Most investors see big stock market declines all wrong. They come from a place of fear when they should discern opportunity. Big selloffs, and the rallies that follow, provide clarity, asserts Jon Markman, growth stock expert, tech sector specialist and editor of Strategic Advantage.
The dominant investment theme since 2009 has been digital transformation. Currently tech stocks are undergoing simple, modest mean reversion.
Shares rose too quickly in 2020 as the global pandemic forced enterprises all over the world to digitize their operations quickly. Now tech shares are pulling back a touch in response. Valuation is a pendulum that’s self-correcting.
There has been a silver lining, though. Many cyclical businesses are leaner. Their operations have been infused with digital goodness. The best are becoming technology companies.
Data analytics is now foundational. New products are conceptualized and tested virtually in powerful simulations to reduce costs. Supply chains and inventories have been streamlined with software tools. Call centers, communication suites and customer relationship management run seamlessly in the cloud.
More importantly, stodgy cyclical companies are being revalued by investors as tech companies. Here are four we like; indeed all of these stocks are buyable right now.
General Motors (GM) is investing $27 billion to move its fleet by 2035 to electric propulsion. Ultium, a modular battery and electric motor platform, will form the foundation of all future cars, crossovers and trucks.
Despite the big hit to free cash flow, shares have risen 42% in 2021. Investors are betting the Detroit company is beginning a new phase that will support nontraditional service businesses models like ride hailing and vehicle subscriptions.
The shares are a bargain at only 9.5x forward earnings and 0.7x sales. Based on expected sales growth alone the stock should trade to $115 over the next 18 months, up 94% from current levels.
Ford (F) is on a similar trajectory. Managers announced in February a rapid $29 billion transition to electric vehicles. The new Mach-e, an all-electric Mustang SUV, is winning rave reviews in the industry press. And an electric F-150 is set to hit streets in 2022.
Investors are buying into the idea Ford can capture a little of the magic that made Tesla (TSLA) shares a big winner in 2020. Ford shares trade at only 8.7x forward earnings and 0.4x sales.
As investors look forward to surging EV sales these financial metrics are certain to expand aggressively. I see the stock reaching $39 in 18 months, a gain of 214% from the current price of $13.37.
Caterpillar (CAT) is a digital transformation pioneer. The company rolled out its first autonomous mining trucks in 1996. Managers changed course in 2017. They invested heavily in predictive analytics software to help customers reduce downtime.
The strategy has been a game-changer for construction and mining companies and a huge competitive advantage for Caterpillar. Shares trade at 21.7x forward earnings and 2.9x sales.
The company is expected to earn $7.99 per share in 2021 and $10.35 by 2022. Based on modest multiple expansion the stock could reach $335 in 18 months, a gain of 46% from the current price of $229.
Teledyne (TDY) is a conglomerate with interests in instrumentation, digital imaging, aerospace and engineered systems. The Thousand Oaks, Calif.-based company supplies integral components for automotive, security systems, consumer electronics and the defense sector.
As the economy improves and more devices become digital, manufacturers are clamoring for Teledyne products. The company has grown earnings per share for two decades at a compound average growth rate of 22.9%.
Fresh cash flow on the books is $548 million. Shares trade at 30.5x forward earnings and 4.7x sales. The stock should rally to $520 within 18 months, a gain of 31% from current levels.
