When Wall Street loses its nerve, momentum swings to value stocks, as they are often seen as a defensive reservoir of predictable cash flow. But once that swing away from growth happens, value stocks can stay in control and make investors real money for years.
Take the recent big bear market for example. We saw some of the most drastic drops since the 2000 dot-com crash and the 2008 credit crush. This is the perfect time to be investing in value stocks during the downturn so when it recovers, you can bank some massive profits.
While I love the disruptive power of a great growth stock in its season, when the winds blow the other direction, value runs the board.
What’s the secret? Value stocks are really undervalued. They’re cheap relative to various financial metrics, bringing them closer to an absolute floor in terms of the price at which they’ll ultimately attract buyers. Most have a lot of intrinsic assets and strong balance sheets that they can draw on in challenging circumstances that would ruin a less-well-capitalized and more speculative enterprise. The fact that some pay dividends is a bonus. Growth comes and goes. Sooner or later, undervalued stocks always rally to reach a fair value. When that happens, we want to be there. Here is the biggest value pick on my screen right now.
This company is making money hand over fist in the hottest sector on the planet: Artificial Intelligence (AI).
That’s because AI isn’t just a game changer; it’s the game changer. It’s set to create a whole new batch of millionaires.
AI is like having a radar that sees into the future. It’s where AI, machine learning and predictive modeling meet — and automation automates itself in just minutes. For example, AI will allow retailers to anticipate demand, optimize pricing, systematize warehouse and store operations, and automate checkout and delivery by drone. In the utility sector, AI will allow power producers to project supply and demand, optimize preventive maintenance and pricing, tailor usage to customer preferences, and even reduce the need to add new power plants.
AI will also improve product design, automate assembly lines, improve delivery times and forecast sales and maintenance in the manufacturing sector.
AI will cut costs and save lives by automating diagnostic tests, identifying risk groups, predicting disease, adapting treatments to patients, and streamlining hospital operations. In the transportation sector, AI has already led to not just the driverless car but the connected car, improving performance, reducing fuel mileage, and self-repairing as well. This is why Apple, Alphabet, Baidu, Microsoft and Amazon are investing heavily in this technology. Insiders are calling this the greatest profit opportunity of the century.
No. 1 Stock of 2021: Cognizant Technology Solutions Corporation (CTSH)
Cognizant Technology Solutions Corp. (CTSH) is at the forefront of developing commercial AI technology.
The company was recently recognized as an AI Consultancies leader in the Asia Pacific region by Forrester Research, a leading global research and advisory firm. Cognizant views every client as being on a data modernization and applied AI journey, meaning it believes that AI will eventually be applied in every aspect of life. Its approach to delivering massive value for its clients, reducing costs and improving profits, rests on three pillars: optimizing data and business intelligence assets; modernizing the data and analytics ecosystem; and leveraging automation.
One aspect that the company focuses on is transforming business processes and customer experience across the domains of operations intelligence, such as workforce, call centers, IT and supply chains.
Cognizant provides solid case studies of pharmaceutical, health care and financial services to clients. But the real sizzle here is the way this $40 billion company applies its AI insights to shift the rules around work and where it happens.Need to send thousands of employees home to keep your organization running during a pandemic? Cognizant knows how to pivot your human resources, even if it means pushing tasks across borders or bringing people in from all over the world.This is the future of work. And Cognizant and its artificial intelligence occupy the center of that conversation. Work from home is not going away. The global labor marketplace is not going away. Pandemics only accelerate the trend.
And here’s the value angle: while Cognizant is growing its profit just as fast as pure technology giants like Microsoft, Alphabet or Apple, every percentage point of annual expansion is cheaper here than what you’ll find in Big Tech.Cognizant currently trades around 18X anticipated 2021 earnings, or a little cheaper thanthe market as a whole. Unlike the market as a whole, it justifies that valuation with 10% annualized earnings growth.
Microsoft and Apple aren’t growing any faster, but you’ll pay 24-30X earnings for the privilege of owning either of those gigantic stocks. Yes, they have the potential to bring in a lot more profit 12 months from now than they did in the pandemic year, but in the long run Cognizant is moving at exactly the same speed.Alphabet has been even worse. That trillion-dollar titan has been investing so heavily in its own AI programs that profit growth has sputtered in recent years. And yet that stock commands the same price-per-earnings valuation as its Big Tech peers. Why pay so much more when Cognizant is growing just as fast . . . with a lot more room to stretch?
As you can see from the chart, CTSH’s stock price suffered in the last few years as the trade war closed U.S. companies to workers from overseas. Now that the political wheel has turned again, the stock has rebounded to its early 2018 high. I think there’s a lot more upside left to capture. After all, the fundamental metrics indicate the stock price was undervalued to begin with, and nearly three years later the company is poised to resume its growth where it left off.