3 NASDAQ Stocks To Consider Buying – Part 3
Tech stocks have been on a roll this year.
On June 8th, 2020, the NASDAQ Composite stock market index traded above the 10,000-point mark for the first time ever.
This surge is due to great earnings reported from members of NASDAQ… The likes of Amazon, Apple, Microsoft, Facebook, and other tech giants in recent weeks.
This is a huge recovery in recent weeks…
The index hit its previous high of 9,817.18 on February 19th, 2020.
Then fell in Mid-March when the market crashed to its recent low of 6,861 due to the coronavirus. This is a fall of 30.1% in a month.
Since that point, the index is now up 51.5% from its recent low to its new all-time high of 10,402 as of this writing on July 6th, 2020.
The NASDAQ is even positive for the year now. As of today, it’s up 12.9% for the entirety of 2020.
This is quite the rollercoaster ride, as you can see in the image below.
Why is this?
Because the NASDAQ is a tech heavy index… Meaning many of the companies that list on the NASDAQ are tech companies.
The index fell in March due to the concerns of the coronavirus as it began to sweep the world. But recovered fast after companies in this index – namely the tech giants mentioned above – showed stellar earnings in recent weeks.
Why do these companies have great earnings? Most of the rest of the companies in the world fall into 3 categories right now with this coronavirus crisis ongoing…
1. They’re seeing results below normal.
2. Are showing horrible results.
3. Some are even facing bankruptcy.
Because people are relying more than ever on technology to survive and work during these crazy coronavirus times.
This is why the NASDAQ keeps breaking all-time highs over the last month or so… These companies are doing great despite what we’re dealing with.
But you can still find stocks in this index that are selling at good to cheap values that will perform well in the coming years and decades.
About a month ago, I showed you Stock #1 that you should look at buying from the NASDAQ index… Even with the market at its all-time high.
Then a couple weeks later I showed you Stock #2 to consider as the NASDAQ reaches its all-time highs.
Today, I tell you about stock #3.
Let’s get to it…
Disclaimer – The stocks below we believe in enough to tell you about but the 3 stocks below ARE NOT official recommendations. Due to potential legal issues we can’t officially recommend them to you. But these should be a good place to begin your search.
Electronic Arts (EA)
If you’re a video gamer you know what this logo is as you grew up with its games and may still play them to this day.
If you’re not a gamer though you probably don’t recognize this logo.
Electronic Arts (EA) is a creator, designer, and distributor of video games.
Some of its huge franchises are as follows…
• Madden NFL Football
• FIFA Soccer
• Apex Legends
• The Sims
• Mass Effect
• And more.
EA is one of the largest and best-known video game creators in the world. And they’ve been in business now since 1982.
But frankly why should you care about any of this if you’re not into video games?
Because its also a great performing stock.
From September 22nd, 1989 EA when it IPO’d, its stocks gone up from $0.50 per share to $133.60 per share as of this writing.
This is a rise of 266.3X or 26,630% in just under 31 years now.
If you would have invested $10,000 in its stock back in 1989 it would now be worth just under $2.7 million.
Congratulations you got rich from video games.
Video games have been big business for years now. And are continuing to grow over time…
In 1989 the entire video game market worldwide sold an estimated $19.9 billion in products. Estimates vary today, but most peg that the entire video game industry is produced sales north of $135 billion worldwide in 2019.
And by 2022 the business of video games is projected to reach almost $200 billion in annual sales.
This enormous growth helped drive video games stocks like EA’s through the proverbial roof over the same period.
Another factor with video games in the short term is the coronavirus.
With more and more adults and kids staying home now due to the virus. Combined with the launch of the next generation of gaming consoles later this year. And video game sales will continue accelerating.
Another factor helping EA grow so much in value over time is that it’s one of the best run video game companies in the world. And its enormously profitable.
Over the last decade EA produced an average 14% operating margin every year over the last 10 years. I look for any company to produce above 10% margins on a consistent basis to consider a stock for investment.
But this isn’t the full story.
From 2015 to today EA’s focused more on profitability through cutting costs and in those 6 years its operating profit margin ballooned to 23.5% per year on average.
Operating profit is the amount of profit a company produces from its operations… And is after subtracting costs to do business and research and development of new games… Which EA invests in enormously.
It also produces a ton of cash too…
Its FCF/Sales margin averaged 19.6% per year every year for the last decade… I look for anything above 5% on a consistent basis to consider an investment.
Again, this is great, but it doesn’t show the full story of EA…
The lowering in costs from 2015 to today boosted its FCF/Sales margin to 27.1% per year on average.
Free cash flow or FCF is the amount of money that’s left over after all costs to run the company now and to grow it. This number is also after paying taxes too.
Think of FCF as the ultimate profitability of a company. Because its money the company makes after paying all its bills.
Both operating profits and free cash flow production at these levels is fantastic and it puts EA into the great company category. I estimate that far fewer than 5% of all companies on Earth consistently generate margins above my minimum thresholds above.
And EA shatters these.
High margins help drive the company’s value and share prices higher over time. And they’re also important because they show EA produces enough profits and cash to continue funding operations and growth into the future to stay ahead of its competitors.
These enormous profits also make EA’s a super safe investment as well.
With all this you figured EA stock would be expensive right now… But it’s not.
As of this writing, its selling at a P/E of 13 and a P/CF of 22.
I look for potential investments to sell below 20 on both metrics. And while EA is above the P/CF it’s not over this by a massive amount.
These show the company is at best undervalued by a large margin. And at worst about fairly valued today.
And these mean even more safety for EA as an investment.
EA will be around for decades to come – no matter what the economic situation becomes.
And it will make you money both today and well into the future because of the things outlined above.
If you’re investing now, look at adding EA to your research pile.
And use the following links to some of our recent articles to learn other ways to protect yourself and your investments in these uncertain times.
Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.