Among pharmaceutical stocks, AstraZeneca (NASDAQ:AZN) is likely to be among the next trillion-dollar companies. It’s worth noting that in the last five years, AZN stock has trended higher by 104%. I believe that in the next five years, the stock is poised for a bigger rally.
The first reason is valuation. AZN stock trades at a forward price-earnings ratio of 20.2. The stock also offers an attractive dividend yield of 2.6%. With visibility for sustained upside in cash flows, the stock is undervalued.
The second reason to be bullish is the drug pipeline. Currently, AstraZeneca has 178 projects in the pipeline. The late-stage pipeline is attractive with the company expecting to initiate 30 phase three trials. Of these, the company believes that 10 candidates are potential blockbuster drugs. This sets the stage for healthy earnings growth and cash flow acceleration. To put things into perspective, the company has guided for low double-digit revenue growth CAGR through 2025. Even beyond this period, AstraZeneca expects to deliver an industry-leading growth rate.
JPMorgan Chase (JPM)
a man sitting on a chair, typing on a laptop while cash falls from the ceiling
a man sitting on a chair, typing on a laptop while cash falls from the ceiling
Source: Shutterstock
In general, banking stocks have been trading at an attractive valuation. JPMorgan Chase (NYSE:JPM) is possibly the best bet in the sector where several smaller banks are facing potential collapse. At a forward price-earnings ratio of 9.6, JPM stock looks massively undervalued. The stock also offers an attractive dividend yield of 2.89%.
In terms of positives, JPMorgan Chase has seen an improvement in net interest income margin. With rising interest rates, the core banking division has benefitted. For Q1 2023, the banking and wealth management division revenue increased by 67% on a year-on-year basis to $10 billion. A higher deposit margin was the key reason for growth.
An important point to note is that it’s unlikely that there will be further rate hikes. A deep slowdown or recession is likely to prompt policymakers to pursue action that boosts credit growth. JPMorgan will be well-positioned to benefit. Also, for Q1 2023, JPMorgan reported a 4% year-on-year decline in market revenue to $8.4 billion. While fixed-income market revenue was flat, equity market revenue declined by 12% on a year-on-year basis. If market conditions improve in 2024, the outlook for this segment will be better.
Exxon Mobil (XOM)
Man in blue formal wear tuxedo standing as money 'rains' on him, isolated on red vivid background.
Man in blue formal wear tuxedo standing as money 'rains' on him, isolated on red vivid background.
Source: Shutterstock
Exxon Mobil (NYSE:XOM) is another potential name among the next trillion-dollar companies. I expect XOM stock to deliver 100% to 150% total returns in the next five years. This seems realistic since the stock trades at an attractive forward price-earnings ratio of 10.3. Additionally, the dividend yield of 3.47% is attractive.
For Q1 2023, Exxon Mobil reported an operating cash flow of $16.3 billion. This implies an annualized OCF potential of $65 billion. Given the cash flows, dividends are secure and Exxon is positioned to invest aggressively in the coming years. Exxon also reported net-debt-to-capital of 4% as of Q1. With an investment-grade balance sheet, there is ample flexibility for potential acquisitions.
In terms of business specifics, I remain bullish on the company’s upstream segment. Guyana and Permian are likely to be cash flow machines backed by low break-even assets. While oil has declined in the recent past, the recession factor seems to be discounted. Production cuts by OPEC and its allies will ensure that realized oil price remains attractive.
Walmart (WMT)
Source: Shutterstock
Over the last five years, Walmart (NYSE:WMT) has delivered capital gains of 77%. If we add in its dividends, the total returns would be higher. I can say with some conviction that WMT stock returns will be higher in the next five years and Walmart will be among the next trillion-dollar companies.
A big catalyst for Walmart — the company expects 65% of its stores to be serviced by automation by 2026. Further, 55% of the fulfillment center volume will move through automated facilities. This will result in unit cost averages improving by 20%. Therefore, Walmart is positioned for EBITDA margin expansion and cash flow upside in the coming years. I must add that as inflationary pressures wane, the company will be positioned to benefit.
With an omnichannel sales presence and international expansion, Walmart is also positioned for steady revenue growth. The company has guided for 4% sales growth over the next five years. This would add $130 billion in sales. Operating leverage will also contribute to margin expansion. With these ambitious targets, WMT stock is an attractive pick.
On the date of publication, Faisal Humayun did not hold (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.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.
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