3 Top Stocks You Can Buy on Sale

Markets Motley Fool

The investing advice to "buy great companies and hold forever" seems a lot easier when the rest of the market isn't losing its head over short-term concerns. That seems to be the case right now for Kinder Morgan (NYSE: KMI), General Electric Company (NYSE: GE), and Cambrex Corporation (NYSE: CBM).

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The good news is that opportunistic investors able to put emotion aside and focus on fundamental strengths and trends in each industry can brush off the pessimism of Wall Street analysts. Here's why these three stocks are on sale -- and why you should consider buying them right now.

Shale Revolution 2.0 gaining speed

After slumping through the past few years of the collective industry hangover from Shale Revolution 1.0, few companies are as well positioned to benefit from Shale Revolution 2.0 as pipeline powerhouse Kinder Morgan. That's especially true after it reduced debt by $5.8 billion, or about 15%, since the third quarter of 2015.

A cleaner balance sheet provides more financial flexibility. The company just announced a solid second-quarter 2017 financial performance, authorized a $2 billion share-buyback program, and plans to increase the dividend 60% in 2018 and 25% per year through the end of 2020. A second coming for American shale could catalyze the stock's performance even further in the years ahead. 

Yet while lower-cost drilling has gone a long way to encourage production gains in America's Big Four shale plays, investors may be overlooking another enormous catalyst that is especially important for Kinder Morgan: liquefied natural gas exports.

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Consider that net LNG exports from the United States stood at 0.4 billion cubic feet per day (Bcf/d) in 2016. That will rise to 2.2 Bcf/d in 2017 and 4.0 Bcf/d in 2018, thanks almost entirely to Cheniere Energy's Sabine Pass facility. But that's just the beginning. By the end of 2019, the United States will have about 9 Bcf/d of LNG export capacity. Today, the United States exports 8 Bcf/d of natural gas total, mostly from land-based pipelines.  

Why is this a great opportunity for Kinder Morgan? Even if the company is only a marginal player in directly delivering natural gas to export terminals, simply having the country export an additional 9 Bcf/d of natural gas will cause a lot more movement within pipeline networks. It's impossible for the stock to lose.

Analysts seem to agree. The stock currently trades at 27 times forward earnings -- less than half the valuation calculated from trailing earnings. Take that out to 2019 and 2020, when Uncle Sam is slinging 9 Bcf/d of LNG around the globe, and the stock is even cheaper today for long-term investors. 

Your advantage over Wall Street

It's really difficult for me to convince myself that General Electric stock deserves a year-to-date decline of 19%. Wall Street has discarded the stock due to impatience with its strategy and is waiting for a strategic update from new CEO John Flannery, which has been promised by November. Luckily, you don't have to wait until then.

Mr. Market appears to have been overly concerned with trivial things. For instance, the impact of the Baker Hughes acquisition, which made General Electric the second largest oil-field services provider in the world. The merger was agreed to on the basis that crude oil would eventually be priced around $60 per barrel. That looks pretty unlikely now, but I think Wall Street is obsessing on a number that doesn't matter much in the end. The oil and gas industry could soon take off, and the addition of digital services from GE Digital could help the new company maintain its profitability in a lower-oil-price environment. 

Investors who dare to look further than oilfield services will see enormous growth opportunities in applying GE Digital and metal 3-D printing across the industrial portfolio, among other things. Simply put, when it rains, it pours, but this could be a once-in-a-lifetime opportunity to gobble up shares of a global leader.

Pharmaceutical drug manufacturer

The debate over drug pricing has become fatiguing. Drug prices are astronomically high and much, much higher than the costs incurred by pharmaceutical companies in R&D, manufacturing, marketing, and regulatory relations combined -- a quick look at operating margins for companies with approved drugs confirms that much.

Whether anything comes of the debate from a policy standpoint remains unknown, but investors can avoid the uncertainty altogether by investing in pieces of the industry that are more insulated from risk. Cambrex Corporation is a great example. The company manufactures drug ingredients for pharmaceutical companies that don't want to deal with the extra regulatory headaches -- and business is booming.

Revenue and operating income have grown 54% and 161% from 2013 to 2016, respectively. Management expects more of the same in 2017. In fact, it just increased its full-year 2017 guidance for adjusted EBITDA and free cash flow. Despite not releasing a single piece of bad news, Wall Street sent shares tumbling 14% in the days after the announcement of second-quarter 2017 earnings. 

After the last week, the returns of Cambrex Corporation stock now trail the S&P 500 in the past year, which is something that doesn't happen very often. Considering that it's growing revenue and operating income at 10% clips -- and will continue to do so for the foreseeable future -- the fact that it trades a just 18 times trailing earnings makes this one pretty cheap growth stock.

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Maxx Chatsko has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Kinder Morgan. The Motley Fool owns shares of General Electric. The Motley Fool has a disclosure policy.