While July ended up being good to the stock market, last month wasn’t without its kinks. Inflationary pressures continued to rouse concern, and the swift rise of the Delta variant of COVID-19 caused the worst one-day sell-off the markets had seen since October.
Buoyed by the beginning of a strong corporate earnings season, equities still finished the month with gains, with the S&P 500 rising 2.3% in July.
Keeping in mind that stocks are trading at historically elevated levels, here are five of the best stocks to buy for August:
— United Rentals Inc. (ticker: URI)
— BJ’s Wholesale Club Holdings Inc. (BJ)
— CVS Health Corp. (CVS)
— The Walt Disney Co. (DIS)
— Facebook Inc. (FB)
United Rentals Inc. (URI)
The Stamford, Connecticut-based United Rentals leases all sorts of equipment to customers, from power tools and pressure washers to forklifts and generators. Even after rallying by more than 50% to start the year, the stock trades for a reasonable 26 times earnings, a significant discount to the S&P 500 price-earnings ratio of 35. Although the company’s second-quarter earnings per share missed expectations, United Rentals raised guidance for full-year revenue and adjusted earnings before interest, taxes, depreciation and amortization, a key measure of profitability.
With construction and industrial activities heating up again, United Rentals is poised to benefit. Construction is 54% of its business, with the remainder of end users coming from a wide variety of industries including manufacturing, oil and gas, and biotech.
A long-term track record of consistent growth bolsters URI’s claim as one of the best stocks to buy: Compound annualized revenue growth between 2010 and 2020 clocked in at an impressive 14.3%.
BJ’s Wholesale Club Holdings Inc. (BJ)
Named as one of U.S. News’ 10 best stocks to buy for 2021, warehouse club retailer BJ’s simply looked far too cheap when the year began, especially when compared to rival Costco Wholesale Corp. ( COST). With economic uncertainty still high in the U.S and the rest of the world, this year seemed an appropriate time for consumers to penny-pinch and shop in bulk.
Early 2021 was certainly an appropriate time to buy the stock, and shares are up 33% through July, vs. the 14% gain by Costco stock. BJ’s, however, still looks like one of the best stocks to buy for August, as the multiple discount to Costco is still wide: BJ trades for 17 times earnings, while COST goes for roughly 40 times earnings.
Last quarter, BJ’s revenue rose just 1.7% year over year, which isn’t setting any records, but earnings per share beat expectations. The company intends to accelerate growth in the U.S., with plans to open six new domestic stores this fiscal year.
CVS Health Corp. (CVS)
CVS has the largest footprint of any drugstore chain in the U.S., with more than 9,900 locations, and as such has predictably been a pivotal player in the pandemic. That means its status as a distribution center for vaccines and testing served as a magnet for customers, who filled their prescriptions and made retail purchases at the chain. CVS trades at less than 15 times earnings and offers a 2.4% dividend yield, making it one of the more conservative stocks to buy for August. The first quarter was a strong one for CVS, which beat both revenue and adjusted EPS expectations while also raising guidance for full-year EPS. Shares are up about 21% year to date, and CVS is due to report second-quarter earnings Aug. 4.
The Walt Disney Co. (DIS)
It’s no secret that Disney‘s transformation into a streaming giant with the debut of Disney+ has been an unqualified success, giving the stock a catalyst it lacked before 2019. The entertainment giant hit 103.6 million subscribers in April, less than 18 months after launching. By comparison, Netflix Inc. ( NFLX) has been painstakingly expanding its streaming capabilities since 2007, with growth slowing to a trickle.
Streaming growth aside, the next catalyst for DIS shares will be the reopening of the company’s famed parks: Walt Disney World Resort, Shanghai Disney Resort, Disneyland Resort, Disneyland Paris and Hong Kong Disneyland Resort are all open once again. With so many people ready to get out and about but not yet able to travel freely internationally, expect business to start coming back with a vengeance.
Investors will get a look at how the rebound in its parks division is faring when Disney reports earnings, scheduled for after markets close Aug. 12.
Facebook Inc. (FB)
Like BJ’s, Facebook was selected as one of the 10 best stocks to buy by U.S. News at the beginning of the year. Well, as the saying goes, “If it ain’t broke, don’t fix it.” Up 30% thus far in 2021, the social media giant — whose properties include its eponymous Facebook platform, the photo-sharing app Instagram, and popular messaging apps WhatsApp and Facebook Messenger — enters August on somewhat of a low note after slipping slightly in late July following its second-quarter earnings report.
Investors were disappointed that daily active users in the U.S. and Canada dropped slightly from a year ago, while daily active users in Europe fell slightly from the first quarter. Despite this, the company demolished both earnings and revenue expectations, with revenue and net income rising 56% and 101% year over year, respectively. While growth is likely to decelerate in the second half of the year as Facebook faces more difficult year-ago comps, the company is firing on all cylinders, and CEO Mark Zuckerberg’s long-term vision to create a “metaverse,” or virtual world where people can interact with others digitally, may sound a bit too similar to “Ready Player One” but could be a large market opportunity nonetheless.
Another bullish catalyst: As a company that is consistently at the forefront of artificial intelligence, Facebook is using machine learning to create visual search for Instagram, allowing users to shop for similar items by simply clicking on an image. Such a feature could do wonders for Facebook’s nascent e-commerce business.
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