June was another rough month for the stock market. While the indexes rose off their lowest levels by the end of the month, the preceding drop was enough to put the S&P 500 officially into bear market territory. Many investors are fearful, given the surge in interest rates, plunging consumer confidence, and continued uncertainty in geopolitics and energy markets. There are definitely a lot of things that could go wrong for the economy and corporate profits at the moment. On the other hand, many of these worries are already priced into equities, meaning that investors can get serious discounts on many leading companies during this bear market.
At current levels, here are five of the best stocks to buy for July and hold for the long run:
— Chevron Corp. (ticker: CVX)
— Toyota Motor Corp. (TM)
— Home Depot Inc. (HD)
— Stryker Corp. (SYK)
— Citigroup Inc. (C)
Chevron Corp. (CVX)
The energy sector is back in favor this year. And none other than Warren Buffett’s Berkshire Hathaway Inc. (BRK.B, BRK.A) has been putting more capital to work in leading energy companies. Earlier this year, Buffett elevated Chevron to Berkshire‘s fourth-largest overall holding. That makes a great deal of sense with the current inflationary environment, sky-high gas prices, and prolonged uncertainty around fuel sources coming from Russia and Eastern Europe.
In June, the energy sector finally had a correction, with Chevron stock falling roughly 16% for the month. This gives investors a second opportunity to join Buffett and buy into the massive integrated oil and gas player. Thanks to the recent pullback in the stock, Chevron’s dividend yield is also back up to roughly 4%.
Toyota Motor Corp. (TM)
Cyclical companies such as automobile manufacturers have sold off in recent months. Rising interest rates and a slowing economy could cause demand to fall after a particularly profitable 2021. But it’s not all bad news for Toyota. For one thing, easing supply chain issues should allow automakers to have a more dependable supply of semiconductor chips and other key inputs. For another, the surge in gasoline prices should give Toyota a leg up, as the company is known for selling a wide variety of fuel-efficient models. Additionally, the value of the Japanese yen has slumped over the past 18 months. This increases Japanese companies’ profitability, as they earn more in dollars, euros and other foreign currency.
Speaking of profits, Toyota shares are going for about 10 times earnings, giving investors an attractive entry point with shares near 52-week lows.
Home Depot Inc. (HD)
Analysts are panicking about the housing market. Soaring interest rates are certainly a headwind for firms such as mortgage underwriters and new home construction firms. However, traders may be throwing out the baby with the bathwater. Some companies related to housing, such as home improvement stores, should fare much better.
In the case of Home Depot, for example, much of its business is tied to home repair and remodeling, rather than new home construction. Additionally, during the pandemic, many people took up hobbies such as gardening that should require ongoing purchases. Higher interest rates alone won’t destroy the market for appliances, paint, carpets, lawn and garden care, and the various other goods that Home Depot sells. Home Depot stock generally sells at a fairly lofty price-earnings ratio. With shares down about 34% through late June, however, Home Depot is now selling for about 17 times earnings. That’s a deal.
Stryker Corp. (SYK)
Stryker is one of the world’s largest medical device companies. Product lines include joint implants, surgical instruments, and endoscopy and neurovascular devices. Unlike some rivals, Stryker isn’t just based around joint repair. This diversity should give Stryker the ability to manage through pricing pressures or short-term demand issues in any one line of medical devices. The pandemic hit the industry hard, as many people chose to delay elective surgeries. Shortages and supply chain concerns have started to weigh on firms like Stryker, as well.
That said, the longer-term prospects remain favorable given the aging demographics of the U.S. and Europe, along with rising health care expenses as a portion of global gross domestic product. Stryker stock is down about 26% this year as of June 29, due to short-term earnings concerns, leaving shares at just 21 times forward earnings. That’s a significant discount to where Stryker traditionally trades.
Citigroup Inc. (C)
Citigroup is one of the cheapest big banks in America. And it’s only gotten cheaper in 2022, with the stock falling about 23% for the year as of June 29. That decline has happened even as Warren Buffett has started loading up on Citigroup stock for Berkshire Hathaway.
The appeal should be obvious. Citi shares are trading for just 5.6 times earnings and offer a 4.4% dividend yield. Citigroup also has a book value of $90 per share. That means shares are trading at a massive discount, with the stock price under $50 at the end of June. Over time, Citigroup should be able to close the gap between market value and book value. Traders are disappointed that the Federal Reserve‘s Comprehensive Capital Analysis and Review tests are forcing Citigroup to hold more regulatory capital. Once that’s taken care of, however, Citigroup should be able to speed up its share buybacks and get the stock price moving in a more favorable direction.
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Update 06/30/22: This story was published at an earlier date and has been updated with new information.