The stock market had a good year 2020, with the S&P 500 up 16.3%. Cryptocurrency bitcoin, on the other hand, rose more than 300% for the year. In the last month alone, the price of Bitcoin has more than doubled.
But The incredible rise of bitcoin may mean that a fall is imminent. With that in mind, we asked three Motley Fool contributors about their top stock picks that haven’t seen big hikes in 2020 and seem undervalued right now. They came back with Corteva (NYSE: CTVA), General Electric (NYSE: GE), and Dow (NYSE: DOW). Here’s why they think these stocks have a better outlook than bitcoin.
Harvester of joy
Lee samaha (Corteva): The world will always need more food, and farmers will always need to improve crop yields and protect their crops. This is where Corteva comes in. Born from the break-up of DowDuPont, it is a game about long-term demand for food crops and also an emerging stock of value.
The agro-scientific company generates around 59% of its turnover in seeds (of which 68% in corn and 21% in soybeans) and 41% in crop protection (51% in herbicides and 27% in insecticides). Long-term demand for high-yielding seeds is assured given the need to feed a growing population and increase the profitability of farmers. For example, corn yields in the United States have increased from about 108 bushels per acre in 1990 to about 176 bushels per acre in 2020. This is a remarkable achievement that shows just how high-yielding seeds, such as those of Corteva, are invaluable to farmers around the world. Additionally, if a crop is to be harvested, it will need protection.
Corteva has aroused interest an activist hedge fund, Starboard Value, whose arguments in favor of buying the stock are based on Corteva’s potential to improve its profit margins to the level of its peers. In fact, Corteva is advancing on this front with earnings before interest, depreciation, and amortization margin hitting 16.8% in the first nine months, compared to 16.2% in the same period last year.
Trading at 24 times next year’s estimated earnings, Corteva’s end markets are relatively stable and the potential for margin expansion is substantial. It’s not glamorous stock, but Corteva’s earnings growth potential is significant, and it’s the kind of overlooked stock investors should consider right now.
A general idea for recharging
Scott Levine (General Electric): Bitcoin’s recent performance has likely made long-term holders feel justified – and much richer. Those who have been hesitant to buy the cryptocurrency, however, are probably reluctant to start investing now, doubtful that there is more growth on the horizon. Lucky for them, there are plenty of investment opportunities that offer much more reasonable valuations, like General Electric.
With a fall of more than 3% in 2020, GE shares have significantly underperformed the market. Over the past month, GE shares have risen by around 3.5%, but I think the market is underestimating the company’s potential in 2021 and beyond. Therefore, investors can buy the stock on the cheap, as the stocks are trading at 14.8 times operating cash flow – a significant discount from their five-year average multiple of 21.1.
Granted, many bears believe that GE will continue to stagnate in 2021. But if they fear the company will thrive, investors prepared to take a contrarian approach should heed Warren Buffett’s advice and be greedy when others are afraid. . While it is highly unlikely that GE’s aviation business will fully recover in 2021, the company’s renewable energy business is likely to benefit from the recent stimulus bill who sent a lot renewable energy stocks have skyrocketed in recent weeks. An industry leader in the manufacture of wind turbines, GE will surely benefit from legislation that benefits the wind industry: a one-year extension of the production tax credit for wind projects whose construction begins in 2021 and a 30% tax credit for offshore wind projects. which will begin construction within the next five years. In addition to wind power, GE could benefit from the more than $ 2 billion allocated to modernization of the grid.
While GE is far from regaining its former glory of generating annual free cash flow of $ 26 billion as in 2010, the company has made progress in rebounding from the decline in its cash flow in the middle of the last decade. .
There may be a rocky road for GE in the short term, but the back – including $ 262 billion for the aviation segment and $ 384 billion for electricity and renewables – suggests that its products and solutions remain in demand. And as the business is now on a stronger financial base, I think GE represents an exciting opportunity for patient investors who are willing to look at the company in a new light – not just a shadow of itself.
A reliable cash dispenser
Jean Bromels (Dow): I’m not going to lie to you: Bitcoin could continue its meteoric rise. It could, as some bitcoin bulls have suggested, be valued at $ 250,000 by the end of 2023. However, it is also very possible that its value will plunge and those who buy now may see their investments go downhill. evaporate. After all, volatile bitcoin has no profits, no cash flow, and no business model to evaluate – it’s worth what people think it’s worth.
I’m not saying you shouldn’t buy bitcoin at these prices. But if you do, you should probably balance that risk with a company whose business model has stood the test of time, generates reliable cash flow, and seems undervalued at the moment. One of those companies is Dow Chemical. It is one of the other spin-off companies of DowDuPont. However, while Corteva retained the agribusiness portfolio of the conglomerate, Dow retained the “performance chemicals” side of the business.
Performance chemicals are essentially chemicals that are not sold on their own, but are used as parts of other products or processes. Think lubricants for industrial machinery, automotive coatings, or packaging for pharmaceuticals. This diversified portfolio has enabled Dow to generate liquidity on a reliable basis. Even at the height of the pandemic, in the second quarter of 2020, it generated over $ 1 billion in cash flow. He uses that money to pay a generous dividend, currently earning 4.8%.
Despite this reliability, Dow underperformed the entire market in 2020, even with its dividend taken into account. Wall Street appears to have been concerned about the pandemic’s effect on auto manufacturing and sales, Dow’s big markets for chemicals. However, we have already seen these markets start to recover, which is why I think Dow will outperform in 2021.
This article represents the opinion of the author, 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.