The first quarter of 2023 was chock-full of wild twists, turns, and volatility as investors digest financial markets, fed policy, and myriad factors. With everything going on, it's easy to lose sight of what matters most -- which is achieving your long-term financial goals.
The path toward financial well-being starts with investing in quality companies that you understand and that suit your risk tolerance. So while Rivian Automotive (NASDAQ: RIVN), Vertex Pharmaceuticals (NASDAQ: VRTX), Warner Bros. Discovery (NASDAQ: WBD), Zscaler (NASDAQ: ZS), and Kinder Morgan (NYSE: KMI) all stand out as stocks worth considering now, each stock is going to appeal to different types of investors with various time horizons and interests.
Here's a breakdown of what makes each company a great buy in April so you can determine which stock may be best for you.
Rivian has fallen far enough
Daniel Foelber (Rivian Automotive): Rivian hasn't even spent 18 months on the public markets, and already the stock has made a name for itself for all the wrong reasons.
Rivian is one of if not the poster child of the 2021 initial public offering (IPO) cohort of booms and busts. Its meteoric ascent in November 2021 pole-vaulted its market cap to over $150 billion. Since then, it has been all downhill. Today, Rivian has a market cap of $11.7 billion. But the company finished 2022 with $12 billion in cash, equivalents, and restricted cash left on its balance sheet. Since then, it raised another $1.3 billion from bonds. But there's a catch.
Rivian only expects its end-of-2022 cash position to last through 2025. Since Rivian isn't profitable, it needs that cash to cover costs, drive efficiency, and bring the company closer to profitability. It expects to reach positive gross margins in 2024.
Value investors can't say the stock is free all because the cash exceeds the market cap. Rather, Rivian is telling investors that all that cash will be gone within the next three years. Now, it's a question of whether or not that cash will be put to good use.
There are some glaring red flags with Rivian. Its cash burn rate is jarring. And a lot of it has to do with the company prematurely extending its manufacturing capacity. An excessive manufacturing footprint adds unnecessary overhead and fixed costs, which amplifies losses. As Rivian grows production, it can reduce the relative burden of fixed costs and grow into its production footprint. But until then, the losses are going to look ugly.
Rivian has the unfortunate one-two punch of overpromising and underdelivering on its production targets paired with a lot of stock-based compensation, which dilutes the value of existing shareholders.
All told, the company has done a lot wrong in its short tenure as a public company. But it has done the most important thing right -- which is to make highly impressive products that have received nothing short of rave reviews from critics. The company's R1T electric pickup truck is in a league of its own. And the company's strategy of targeting electric pickups, SUVs, and delivery vans instead of the crowded electric sedan category is the right long-term decision.
It wouldn't be surprising if Rivian stock keeps moving lower in the short term. But given the extent of the sell-off and the sub-$12 billion market cap, now seems like the right time for risk-tolerant investors to consider the stock.
A solid pick in the midst of uncertainty
Keith Speights (Vertex Pharmaceuticals): Will the stock market soar or sink? I really don't know. Because of the uncertainty, my opinion is that the best investment choice in April is a stock that should perform well regardless of what happens with the economy or the broader market. That stock is Vertex Pharmaceuticals.
Vertex's business is practically immune to a recession. The company markets the only drugs that address the underlying cause of rare genetic disease cystic fibrosis (CF). These drugs are critical to thousands of patients worldwide. Vertex doesn't have to worry about tightening credit markets, either: It sits atop a cash stockpile of nearly $10.8 billion with a relatively small debt load of close to $900 million.
But Vertex isn't just a defensive play. The company has multiple catalysts that could drive its shares much higher. The anticipated regulatory approvals for exa-cel in rare blood disorders sickle cell disease and transfusion-dependent beta-thalassemia stand at the top of the list. Vertex believes that the CRISPR gene-editing therapy represents a multibillion-dollar sales opportunity.
Two other new drugs could be launched in the near term as well. Vertex is evaluating non-opioid pain drug VX-548 and a triple-combination therapy for treating CF in late-stage testing. The company thinks that both will be blockbusters if approved.
Over the longer term, Vertex's pipeline features several other promising candidates. One addresses a rare kidney disease that affects more patients than CF does. Another holds the potential to cure type 1 diabetes.
Vertex should hold up well if a market downturn comes. It should perform great if a new bull market begins. That's the kind of stock I think you can buy without any hesitation despite the current uncertainty.
Here's your ticket to blockbuster returns
Anders Bylund (Warner Bros. Discovery): Lights, camera, action! If you're looking for a blockbuster investment opportunity in April, Warner Bros. Discovery should fit the bill. The media giant is primed for shareholder-friendly success, and here's why.
First off, Warner Bros. Discovery is steaming ahead in the streaming industry. The company runs the popular HBO Max and Discovery+ platforms, soon to be merged into one giant streaming library. With 96 million streaming subscribers under its belt, the company is positioned to grow along with the global cord-cutting trend. Streaming is the future and the HBO parent has jammed a rhinestone-studded size 13 boot in the door to that opportunity.
But that's not all, folks. Warner Bros. Discovery also boasts a star-studded lineup of content production studios, including big-name brands like DC Comics, HBO, Food Network, and Cartoon Network. The two eponymous content creators -- Discovery Channel and Warner Bros. -- are also giants in their own right. This serious star power gives Warner Bros. Discovery a major advantage over rivals with less branding power.
Last but not least, the price is right. Warner Bros. Discovery is currently trading nearly 50% below its all-time high. The stock is changing hands at the modest valuation of 11 times free cash flow, or 15 times forward earnings estimates. It's a steal for savvy investors who want to get in on the action at a fair starting price.
So, what's the verdict? Warner Bros. Discovery is the real deal. With a flexible streaming strategy, a star-studded lineup of content, and a reasonable share price, this stock should deliver true blockbuster results for long-term shareholders. But that low stock price won't last forever, so it's high time to pick up some Warner Bros. Discovery shares on the cheap right now.
Don't miss your chance to join the big show!
A leader in zero-trust security
Trevor Jennewine (Zscaler): Zscaler runs the largest network security cloud in the world. Its security service edge (SSE) platform modernizes corporate networks by handling traffic inspection and zero-trust policy enforcement on the internet, rather than private data centers. That eliminates the need for costly on-premises security appliances, and it allows users to quickly and securely access private applications, cloud services, and other corporate resources from any device or location.
As the largest network security cloud, Zscaler captures more than 300 trillion security signals each day, and every data point makes its artificial intelligence engine a little smarter. According to management, Zscaler's unmatched scale means its SSE platform can secure corporate networks more effectively than other solutions, and that advantage has propelled the company to the forefront of the cybersecurity industry. IT consultancy Gartner has recognized Zscaler as a leader for 11 consecutive years.
Despite facing economic headwinds, Zscaler delivered solid financial results in the most recent quarter. Revenue increased 52% to $388 million and free cash flow jumped 114% to $63 million. As a caveat, billings growth decelerated sharply, portending a slowdown in revenue growth in future quarters. But Zscaler should be able to reaccelerate growth as economic conditions improve and business spending rebounds.
Gartner estimates that enterprise penetration of SSE platforms will reach 80% by 2025, up from 20% in 2021. That means modernizing the corporate network and implementing zero-trust security is a key priority for many organizations, and Zscaler is perfectly positioned to benefit from that trend. Management puts its addressable market at $72 billion.
Currently, shares trade at 11.7 times sales, a discount to the three-year average of 36.5 times sales. That's why this stock is worth buying in April.
A stock for turbulent times
Neha Chamaria (Kinder Morgan): After being all the rage in 2022, it's been a turbulent ride for oil stocks so far this year. Some believe the worst is ahead after the collapse of some regional banks in the U.S. has stoked fears of a recession. As unnerving as the uncertainty can be, these are also the times when investors in energy may want to bulk up their portfolios with stocks that can produce reliable returns even in a weak oil-price environment. Kinder Morgan is one such stock you'd want to buy this month.
Kinder Morgan is an energy infrastructure play with the largest natural gas transmission network in the U.S. It is also the largest independent transporter of refined products like gasoline, diesel, and jet fuel. That means Kinder Morgan primarily stores and transports natural gas and refined products for a fee. Here's the thing: It provides services under multi-year contracts, and therefore generates almost all of its cash flows under hedged, take-or-pay, or fee-based contracts. This stability in its cash flows largely insulates Kinder Morgan from commodity price fluctuations.
Kinder Morgan has come a long way since cutting its dividend in 2016. The energy giant has paid down massive amounts of debt and revamped its business aggressively since, and also started increasing dividends every year from 2018 onwards. That dividend growth has added considerably to shareholder returns over the years, with the stock currently yielding a solid 6.6%.
With Kinder Morgan now also tapping the huge liquified natural gas market, this oil and gas stock makes for a compelling bet right now.
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Anders Bylund has no position in any of the stocks mentioned. Daniel Foelber has positions in Rivian Automotive and has the following options: long January 2024 $17.50 calls on Rivian Automotive, short April 2023 $14 calls on Rivian Automotive, short January 2024 $20 calls on Rivian Automotive, and short January 2024 $22.50 calls on Rivian Automotive. Keith Speights has positions in Vertex Pharmaceuticals. Neha Chamaria has no position in any of the stocks mentioned. Trevor Jennewine has positions in Zscaler. The Motley Fool has positions in and recommends Kinder Morgan, Vertex Pharmaceuticals, Warner Bros. Discovery, and Zscaler. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.