August was yet another good month for stock market investors, as the rally off of March nadirs continued.
The S&P 500 rose about 7% in the month alone, as a strong second-quarter earnings season, an accommodating Federal Reserve and the decline in the “second peak” of virus cases kept the ongoing bull rally moving.
Looking ahead, a five-stock group of stocks with strong tailwinds could make for an attractive portfolio.
Here are five of the best stocks to buy for September:
— Abbott Laboratories (ticker: ABT)
— Lowe’s (LOW)
— Dollar General (DG)
— Salesforce.com (CRM)
— Activision Blizzard (ATVI)
Abbott Laboratories (ticker: ABT)
Medical devices and diagnostics giant Abbott Labs looks like one of the top stocks to buy this month after the U.S. government granted the company emergency-use approval for its rapid virus tests. A day later, the feds also committed to buying 150 million of them for $750 million.
Abbott’s test sounds like it could be the most meaningful way to limit the disease’s spread; the company claims results can be ready within 15 minutes, they’re about 97% accurate and production will ramp up to 50 million tests at the beginning of October.
The company will also release a free mobile app that will allow people at workplaces and schools to display a digital badge showing that they tested negative and when.
Another one of the best stocks to buy for August is home improvement retailer Lowe’s, which is enjoying tailwinds from an unusually strong housing market and the stay-at-home phenomenon that has got millions of Americans stuck in one place — and wanting to improve their surroundings.
The closest analog to Lowe’s, The Home Depot ( HD), trades at much higher multiples than its peer. At the time of this writing, the price-earnings ratio for Lowe’s is 21 compared with Home Depot’s 26.
Plus, while both companies pay modest dividends, the Mooresville, North Carolina-based Lowe’s pays out just 29% of its earnings as dividends to Home Depot’s 52%, leaving a lot more room for dividend increases in the years ahead. While Home Depot’s 2.1% yield edges out the 1.5% yield of Lowe’s, fans of dividend growth over time may be better suited by what LOW stock has to offer.
Dollar General (DG)
Dollar General has had one of its best years ever from a same-store sales perspective. Last quarter, same-store net sales rose an incredible 24.4%, as the pandemic forced customers to shop at their neighborhood discount retailer to save money and obtain basic supplies.
Operating profits rose 80.5% last quarter to $1 billion and earnings per share (EPS) rose 89.1% to $3.12. While many other retailers are scaling back in these times, Dollar General is actually boosting the number of real estate projects planned for 2020.
In tough times, Dollar General is a discount retailer you can count on; 2019 was the 30th consecutive year of same-store sales growth, and 2020 is well on its way to being the 31st. The stock trades for a modest 21 times earnings.
Salesforce just got added to the Dow today, replacing 92-year-old component ExxonMobil ( XOM). That’s no coincidence. CRM stock has been on an absolute tear this year and is coming off a 26% post-earnings jump following a blowout quarter last week.
Salesforce isn’t just one of the best stocks to buy for September — it’s one of the best stocks to buy for the decades ahead. Its customer relationship management software has become ubiquitous across industries, and its appetite for savvy acquisitions has proven successful time and time again.
That said, CRM is one of the higher-flying stocks to buy for September, with shares up more than 65% year to date, and a meteoric P/E ratio of 103. The software-as-a-service company, however, has tons of room for future earnings growth with very low profit margins of 0.7%, leaving practically nowhere to go but up.
This potential to increase net margins over time is the same driver that’s caused stocks like Amazon.com ( AMZN) to soar over the years, and investors are willing to pay up for such massive growth potential. Even boosting net margins to a measly 1.4% would double CRM’s profits overnight, and there’s no reason to believe net margins can’t surge much higher than that over time.
Activision Blizzard (ATVI)
Last but not least, Activision Blizzard is one of the top gaming stocks in the world and rounds out the list of the top stocks to buy for September.
The video game industry has been on fire throughout 2020, as people stranded at home take to gaming to conquer their boredom and connect with other gamers across the world.
Analysts expect EPS growth of 24% annually over the next five years, and the portfolio of ATVI’s wildly popular, time-tested games ensure the company will be a player for years to come. Call of Duty, World of Warcraft, Diablo and Candy Crush are among Activision’s top games.
The number of users for the Activision segment, dominated by the Call of Duty franchise, rose from 37 million monthly active users (MAUs) in the year-ago quarter compared with 125 million MAUs in the second quarter ending on June 30.
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