7 Stocks To Buy To Bet on Underappreciated CEOs
InvestorPlace - Stock Market News, Stock Advice & Trading Tips We hear plenty of stories about overpaid CEOs. Here are seven stocks to buy whose C...
If you’re looking for stocks to buy as a bet on an underappreciated chief executive officer, Apple (NASDAQ:AAPL) won’t be on the list.
Fortune reported at the end of August on CEO Tim Cook’s getting a $750 million stock award — the executive’s 10th and final prize — as part of the compensation package he received when he took over from Steve Jobs as the top dog in Cupertino.
While there is no question Cook has turned Apple into a gem of a company — with stock performance to boot — he could hardly be considered underappreciated.
Not by a longshot.
CEOs such as Palantir Technologies (NYSE:PLTR) CEO Alex Karp arguably earned too much in 2020. A billion dollars is an obscene amount of money to be paid in a single year, even if most of it is in stock awards rather than actual cash payments.
Then there are the CEOs who get paid good but not great amounts of money but still deliver for shareholders. Which are those? Here are seven stocks to buy that fit the bill:
- Roku (NASDAQ:ROKU)
- Seagen (NASDAQ:SGEN)
- Nvidia (NASDAQ:NVDA)
- Cowen (NASDAQ:COWN)
- Bristol-Myers Squibb (NYSE:BMY)
- DocuSign (NASDAQ:DOCU)
- Nasdaq (NASDAQ:NDAQ)
Stocks to Buy: Roku (ROKU)
In 2020, Roku CEO and founder Anthony Wood was paid $15.4 million, approximately 58x the median employee’s annual total compensation. That consisted of $1.2 million in salary, $14.1 million in ROKU stock options awards, and $40,805 for other compensation.
Back in December 2018, I suggested that delivering four consecutive profitable quarters would help ROKU stock. The reason I said that was because I’d spent most of 2018 touting what a great company and stock it was. Yet, it was down 47% on the year.
Well, despite the fact it’s yet to string together four profitable quarters, Roku’s trailing 12-month (TTM) free cash flow (FCF) continues to improve. It’s $180 million today. I have no doubt it will be $1 billion in a year from now.
“[I]f Roku’s assertion that all TV will be streamed and so too will TV advertising, a prediction I tend to agree with, the future price of its stock will be much higher than $77.57,” I wrote on Dec. 3, 2018.
Today, ROKU stock is almost 5x higher.
InvestorPlace’s Dana Blankenhorn wrote in August that it’s time to bet on CEO Wood. I couldn’t agree more. I believe Wood to be a brilliant tactician and chief executive. Regardless of the stock’s sputtering performance in 2021, long-term, Roku remains an excellent buy.
I don’t know if you could say Wood is underappreciated, but he’s certainly delivered for shareholders over the years. He will continue to do so, in my opinion.
In 2020, Seagen CEO Clay Siegall was paid $16.5 million, approximately 75x the median employee’s annual total compensation. That consisted of $1.0 million in salary, $13.9 million in SGEN stock and options awards, $1.6 million in cash bonuses, and $17,127 for other compensation.
Formerly known as Seattle Genetics, the biotech develops and commercializes cancer therapies. Seagen reported its Q2 2021 results at the end of July. On the top line, it had $388.5 million in sales, 39.7% higher than a year earlier. However, on the bottom line, it had a loss from operations of $89.6 million, 4.7% less than in Q2 2020.
For the full year in 2021, the company expects sales of its top therapy medicine, Adcetris, to generate sales of $687.5 million at the midpoint of its guidance. It expects overall sales to be well over $1.3 billion. However, it will remain unprofitable.
“Seagen is poised to add a fourth product, tisotumab vedotin, which has an FDA action date in October 2021 and we expect continued progress across our earlier-stage oncology pipeline,” CEO Clay Siegall stated in the company’s Q2 2021 press release.
Stocks to Buy: Nvidia (NVDA)
In 2020, Nvidia CEO and founder Jen-Hsun Huang was paid $19.3 million, approximately 89x the median employee’s annual total compensation. That consisted of $1.0 million in salary, $15.3 million in NVDA stock awards, $3.0 million in cash bonuses, and $19,266 for other compensation.
In my latest article about Nvidia, I wondered if it could join the trillion-dollar club by Halloween 2022 — companies with a market capitalization greater than $1 trillion — I concluded that it would most likely do so a year later in 2023.
Any way you slice it, however, CEO Jen-Hsun Huang continues to deliver for shareholders. And while it’s easy to be cynical about a CEO’s success in the middle of several secular growth trends, it’s not easy to command an organization that’s expected to achieve great results.
It’s not unlike a manager of a sports dynasty getting overlooked for the job done because of all the talent on the team.
However, at the end of the day, you still have to deliver. As far back as 2018, I said Huang was one of the best CEOs in any sector of the American economy. Three years later, nothing’s changed. I still feel this way.
In 2020, Cowen CEO Jeffrey Solomon was paid $19.0 million, approximately 93x the median employee’s annual total compensation. That consisted of $1.0 million in salary, $3.2 million in COWN stock awards, $13.0 million in cash bonuses, and $1.8 million for other compensation.
When I was putting this list together, I didn’t think a financial services company like Cowan would make the cut, but it has, for a good reason: It’s got an excellent business.
The company’s CEO has been in the top job since 2017. He joined Cowen Investment Management in 1994, rising through the ranks until his appointment in 2017.
Cowen’s slogan is “Simpler, Fewer, Deeper.”
Simpler means it is constantly simplifying its business to more easily identify areas it should press for growth. Fewer means getting rid of business areas that don’t drive margins. And, Deeper means doubling down on its areas of strength also to boost margins.
While the company has the usual businesses such as investment banking, investment management, capital markets, and research, I find Cowen’s private investments intriguing. It generated approximately $3.4 million in revenue in the second quarter, a tiny fraction of its $458.8 million in overall business. However, it accounted for 12% of the company’s shareholder equity.
Take a closer look under the hood. I think you’ll like what you see.
Stocks to Buy: Bristol Myers Squibb (BMY)
In 2020, Bristol Myers Squibb CEO Giovanni Caforio was paid $20.2 million, approximately 137x the median employee’s annual total compensation. That consisted of $1.7 million in salary, $13.5 million in BMY stock awards, $4.2 million in cash bonuses, and $804,937 for other compensation.
Of all the stocks to buy on this list, I’m sure this selection will receive the biggest disagreement from InvestorPlace readers. I get it. On Caforio’s watch, BMY stock has underperformed the entire U.S. market by more than 60% over the past three years. You could have bought a U.S. total market ETF and been way ahead of the game.
Interestingly, however, is the fact that the drug company is growing at a very healthy pace while generating significant FCF. In the TTM, its FCF is $11.7 billion for an FCF margin of 26.4% and an FCF yield of 8%. I consider anything 8% or greater to be in value territory.
In the second quarter, excluding currency, Bristol Myers grew sales by 13% year-over-year and non-GAAP earnings per share by 18% to $1.93. Its three biggest drugs in terms of revenues in the second quarter were Revlimid at $3.20 billion, Eliquis at $2.79 billion, and Opdivo at $1.91 billion. All three had double-digit sales growth, with Eliquis leading the way, up 29%.
However, it is fair to point out that a good chunk of the company’s annualized three-year revenue growth resulted from its $74 billion acquisition of Celgene in January 2019 and MyoKardia for $13 billion in October 2020.
In 2020, DocuSign CEO Daniel Springer was paid $19.8 million, approximately 116x the median employee’s annual total compensation. That consisted of $350,000 in salary, $18.9 million in DOCU stock awards, $498,750 in cash bonuses, and $16,730 for other compensation.
The CEO joined DocuSign in January 2017. Springer was hired after a lengthy search for a new chief executive. Springer was recruited to the job because of his experience taking companies public.
DocuSign went public in April 2018, 16 months after Springer’s hiring. The company sold 21.7 million shares at $29. Today, those shares are trading close to $300.
In July 2020, I picked DocuSign and six other stocks I thought would keep moving higher for the next five or 10 years.
“I consider Docusign to be the modern-day equivalent of Adobe (NASDAQ:ADBE). And that’s a compliment,” I wrote about DocuSign at the time. It’s up 54% since.
On Sept. 2, DocuSign reported sales and earnings that beat analyst expectations. And it raised its full-year revenue outlook to at least $2.08 billion, up from $2.03 billion previously.
One area Springer would like to improve is its international business. The CEO told ZDNet that international sales need to make up more than 22% of its overall revenue.
I’m sure the company will figure it out. DocuSign’s a keeper.
Stocks to Buy: Nasdaq (NDAQ)
In 2020, Nasdaq CEO Adena Friedman was paid $15.7 million, approximately 126x the median employee’s annual total compensation. That consisted of $1.2 million in salary, $10.4 million in NDAQ stock awards, $4.1 million in cash bonuses, and $152,000 for other compensation.
Adena Friedman became CEO of Nasdaq in January 2017. She became the first woman to lead a major U.S. stock exchange operator. The CEO worked at Nasdaq until 2011, when she left to be the CFO of Carlyle Group (NASDAQ:CG), an alternative asset manager. She returned in 2014 to head up Nasdaq’s global corporate and technology solutions.
I’ve written about and recommended NDAQ stock on several occasions in the past, in part because she’s a woman but also because she does an excellent job running the company.
“Friedman, like most female CEOs, would prefer to be known as a great leader, period, but understands that she’s a role model for other women considering a run at the C-Suite,” I wrote in November 2018.
“… Humility is the sign of a great leader. Since taking the top job, Friedman’s shown that she can be both a great leader and a role model for women.”
I continue to believe Nasdaq shareholders are lucky to have her.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
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