May was a volatile month for markets, as new inflation data from the month prior rattled investors. The consumer price index rose 4.2% in April from the year before, reflecting the highest 12-month advance since 2008.
Combined with more data points on soaring housing prices, a clear picture began to emerge of an economy with rising prices — and that means businesses will have to pass them on to someone.
With interest rates still historically low and the U.S. economy still down millions of jobs from pre-pandemic highs, batting inflation would likely mean less stimulus or higher rates from the Federal Reserve, which in turn would slow or reverse job gains.
Those legitimate fears aside, the stock market managed to largely recover from an early swoon, with the S&P 500 finishing up 0.5% in May. Macroeconomic numbers aside, here are five of the best stocks to buy for June:
— Lowe’s Cos. (ticker: LOW)
— Goldman Sachs Group (GS)
— Pinduoduo (PDD)
— Cemex (CX)
Lowe’s Cos. (LOW)
Named by U.S. News as one of the 10 best stocks to buy for 2021, Lowe’s has lived up to its billing. Shares are up more than 22% year to date, as the booming housing market and strong demand for renovations continue unabated.
The home improvement retailer looked attractive entering 2021 due to the bullish housing market, but also by comparison to its much larger rival, Home Depot ( HD). Even after the 2021 rally in LOW stock, shares still trade at a discount to Home Depot on a forward price-earnings basis.
LOW trades for a forward P/E of around 16, while HD sits at a forward P/E of 21.5. And earnings per share (EPS) growth at Lowe’s over the next five years is expected to be double (21.1%) that of Home Depot (10.6%).
Goldman Sachs Group (GS)
One area that’s a clear beneficiary of the recent rise in inflation is the financial sector. Interest rates will rise with inflation, and that’s good for banks, which make more money as the spread between rates they pay on deposits and rates they charge on loans expands.
Goldman has a couple things going for it aside from being in the right sector. It trades for just nine times earnings despite analysts expecting almost 17% EPS growth annually over the next five years. That makes for a price-earnings growth ratio of just 0.55, indicating extreme value.
Plus, while many large banks pay high dividends, Goldman pays a very modest dividend of 1.4% and uses just 12% of earnings to do so, meaning it has ample room to raise its payout for years to come. At only roughly one-fourth the size of rival JPMorgan Chase & Co. ( JPM), the $124 billion Goldman Sachs still has tons of opportunity for market share expansion.
Chinese e-commerce company Pinduoduo might not be the most well-known company in its category among Western investors, with Alibaba Group Holding ( BABA) and JD.com ( JD) receiving most of the love over the years.
But sleep on Pinduoduo’s potential at your own peril; the stock could very well turn out to be a 10-bagger from current levels in the next 10 years, with tailwinds from the world’s fastest-growing large economy at its back, the rapidly growing Chinese middle class buoying demand and a mobile-based approach to commerce also making it notable.
Having recently overtaken JD.com as the second-most valuable Chinese e-commerce company, PDD could surpass BABA given enough time, especially with the latter’s increasingly fractured relationship with the Chinese Communist Party. Pinduoduo has already overtaken Alibaba by one metric: active buyers. Pinduoduo has 824 million to Alibaba’s 811 million.
First-quarter PDD revenue surged 239% year over year in the first quarter, illustrating the incredible momentum the business has right now.
Although by no means the sexiest stock on this list, Mexico’s Cemex, a $12 billion cement giant, earns its place as one of the best stocks to buy for June for a couple reasons. First, there’s a massive infrastructure bill coming down the pike on Capitol Hill — one that already looks likely to exceed $1 trillion even after Democrats and Republicans reach a compromise.
With roads, bridges and other infrastructure across the U.S. in dire need of upgrades, Cemex is poised to benefit from the rapid spike in government-driven demand, with cement and asphalt products destined to move quickly. On top of that, there’s a construction boom from the private industry as well, especially in residential, where a housing shortage is driving up prices.
Cemex is a momentum stock right now, up around 240% in the last year, but also simultaneously a value stock, trading for around 12 times forward earnings.
Investing is all about understanding risk and reward, two sides of the same coin. All too often the risk side is ignored or deemphasized, which leads to overpaying for certain assets, and at its worst, leads to outright mania.
In the case of Google parent Alphabet, a failure to properly gauge risk works in investors’ favor. That’s because Alphabet’s assets — Google’s ubiquitous search engine, its growing cloud computing arm, a suite of widely used consumer products, the YouTube platform, the Android operating system and other properties — are so widely integrated into daily digital life that the risk of financial ruin is, functionally speaking, practically zero.
And yet at 25.4 times forward earnings, GOOG stock — with all its staying power and expected five-year annualized EPS growth of 21% — commands only a small premium to the wider S&P 500, which trades for 22.6 times earnings.
Last quarter, the company reported revenue growth of 34%, which is remarkable for a business worth more than $1.6 trillion. YouTube continues to help the business diversify from its core search empire, with revenue growing 48.7% year over year to $6 billion in the first quarter. The company also authorized a repurchase of up to $50 billion in GOOG shares over time.
It’s tough not to like Alphabet as one of the best stocks to buy, not just for June, but for the long term as well.
More from U.S. News
Update 06/01/21: This story was published at an earlier date and has been updated with new information.