This has been a big month for Wall Street. Last week, Pfizer and BioNTech released the results of the phase 3 study for their coronavirus disease 2019 (COVID-19) vaccine BNT162b2, which showed an efficacy rate of over 90%. That blew vaccine effectiveness expectations out of the water and gave real hope that there may be light at the end of the tunnel.
After multiple days of ballot counting, Democratic Party challenger Joe Biden was elected as the 46th President of the United States. Even if Congress remains split, with Democrats controlling the House and the Senate led by Republicans, we’re bound to see at least some policy shifts moving forward.
But the big takeaway from Biden’s election is the likelihood of an extended bull market under his presidency. Interest rates should remain exceptionally low for years to come, and the peak corporate tax rate is unlikely to rise with a split Congress. It also doesn’t hurt that Democratic presidents have overseen an average annual stock market gain of 10.6% since 1945.
Though nothing is guaranteed in the stock market, there’s a good chance we could see the broader market indexes hit new highs under a Biden presidency. In my view, that makes the following five stocks must-owns with Biden in the White House.
Healthcare innovation is going to take center stage in the years to come, which makes surgical system developer Intuitive Surgical (NASDAQ:ISRG) a company you’ll want to own.
As of the end of September, Intuitive Surgical had installed 5,865 of its da Vinci surgical systems around the world, with most located in the United States. This might not sound like a lot of installed systems over 20 years, but it dwarfs the competition on a combined basis. The company has become the clear go-to for surgical systems, and has developed priceless rapport with hospitals and surgical centers around the country.
Of course, the best aspect of Intuitive Surgical is its razor-and-blades business model. In its early years, the company generated most of its revenue from selling its da Vinci systems. These systems brought in plenty of revenue, but only mediocre margins. But instruments and accessories sold with each soft tissue procedure, as well as the servicing of its systems, have gradually grown into a larger percentage of total sales. Since these are considerably higher-margin segments, Intuitive Surgical’s operating margins should rise as the company’s installed base of systems grows.
One of the clearest shifts between a Biden and Donald Trump presidency is going to be the renewed focus on renewable energy sources. Thankfully, electric utility stock NextEra Energy (NYSE:NEE) is ahead of the curve.
Though the utility industry is generally slow-growing and often boring, NextEra is different. For more than a decade, NextEra’s compound annual growth rate has been in the high single digits, with the company’s big-time investments in green energy projects driving this growth. No utility is generating more capacity from solar and wind energy than NextEra. This means it’s front-running any potential clean-energy mandates from Capitol Hill and producing some of the lowest-cost electricity in the country.
Additionally, don’t overlook how impactful the Federal Reserve’s dovish monetary policy can be for the company. NextEra often finances its green energy projects with debt. Considering the Fed’s efforts to keep lending rates near historic lows, NextEra is incentivized to aggressively tackle new clean energy projects and to consider converting fossil-fuel-powered plants to cleaner energy sources.
A bull market almost always means a steady uptick in consumption, and that should be very good news for payment processing giant Visa (NYSE:V).
Buying into a stock like Visa is akin to placing a bet where the numbers are heavily in your favor. Visa is a cyclical company, which means that it does well when the U.S. and global economy are expanding. Although recessions are inevitable, they’re often measured in months, whereas economic expansions last many years. It’s a numbers game, and the “buy Visa” bet has historically been a winner.
Visa also happens to be the kingpin payment facilitator in the United States. In 2018, it controlled over 53% of credit card-based network purchase volume. That’s a more than 9-percentage-point improvement from the depths of the Great Recession.
As one final note, investors should know that Visa isn’t a lender. By focusing solely on processing cashless transactions, Visa avoids the direct pain felt during recessions and economic contractions when loan delinquencies rise. That’s a big reason why Visa’s profit margin is often 50% or higher.
Palo Alto Networks
Even with an effective COVID-19 vaccine, traditional office environments or consumer buying habits won’t return to their pre-pandemic state. The business and retail world have had a taste of online and cloud-focused convenience, and it’s here to stay. That’s what makes a cybersecurity stock like Palo Alto Networks (NYSE:PANW) a must-own in a Biden bull market.
Cloud protection has become a basic-need service in recent years, which means subscription-based providers (i.e., Palo Alto) can expect consistent, transparent revenue. The subscription model within the cybersecurity space also reduces client churn.
More specific to Palo Alto Networks, it’s been executing a business transformation that’s de-emphasizing physical firewall products in favor of subscription protection services. As you can imagine, this is expected to lead to more consistent revenue recognition and considerably better margins over the long run.
Palo Alto has also not been shy about making bolt-on acquisitions to broaden its product portfolio and appeal to more small and medium-sized businesses. Sacrificing very near-term margins to gobble up a larger share of the cloud-protection market should be a smart decision.
Have I mentioned how important consumption is to the U.S. economy? With Biden likely to oversee an economic rebound from the coronavirus-induced recession, e-commerce juggernaut Amazon (NASDAQ:AMZN) becomes an absolute must-own stock.
Keeping with the recurring theme on this list of market share dominance, Amazon controls an estimated 38.7% of online sales in the U.S., according to eMarketer. Next year, this will expand to nearly 40%. For some context, Amazon’s share of U.S. e-commerce is about 33 percentage points higher than its next-closest competitor. Even with retail margins not being much to write home about, the company’s marketplace keeps consumers loyal to the Amazon brand. It’s also signed up over 150 million people worldwide to a Prime membership.
As I’ve previously discussed, Amazon should see continued rapid growth of its cloud-infrastructure segment, Amazon Web Services (AWS). AWS has logged back-to-back quarters of 29% year-on-year sales growth, and has an annual run-rate of over $46 billion in sales. AWS has substantially higher margins than the retail- and ad-based revenue Amazon brings in. Like Intuitive Surgical, Amazon should see its operating cash flow propel higher as cloud infrastructure grows into a greater percentage of total sales.