The stock market had a strong month of May. Tech stocks led the way, with investors piling into companies that have exposure to artificial intelligence. The AI revolution certainly carries plenty of promise, but investors could rightfully question some of the lofty valuations on these cutting-edge technology companies after their massive rallies.
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The good news, however, is that plenty of quality stocks remain available at a significant discount heading into June. These five best stocks to buy now, for example, are all down at least 20% year to date and have a strong chance of making a recovery in the back half of 2023:
— JD.com Inc. (ticker: JD)
— U.S. Bancorp (USB)
— Warner Music Group Corp. (WMG)
— MetLife Inc. (MET)
— Epam Systems Inc. (EPAM)
JD.com Inc. (ticker: JD)
JD.com is one of China’s leading e-commerce companies. It came to prominence thanks to its focus on selling authentic trustworthy products, which proved to be a notable distinguishing feature in that market. In recent years, JD.com has also invested heavily in next-generation logistics such as the firm’s delivery drones.
Between 2018 and 2022, JD.com grew revenues from $67 billion to $152 billion. Despite the uncertainties from the current macroeconomic environment and continued pandemic-related economic disruptions in China, JD is expected to grow both revenue and earnings in 2023 and analysts see the firm returning to double-digit growth in 2024.
Despite this, the price of JD stock has collapsed, falling more than two-thirds from its 2021 peak, and shares are down about 40% year to date through the end of May. At this price, JD.com has become a tremendous value with the stock going for about 13 times forward earnings.
U.S. Bancorp (USB)
U.S. Bancorp is one of America’s largest regional banks. It operates in 26 states, primarily in the West and Midwest. U.S. Bancorp has been tremendously successful over the past 15 years, generating some of the highest returns on equity in its peer group. Much of this outperformance has come thanks to the bank’s unique business mix. While the firm has a large retail business, it is also involved in payments, merchant acquiring, and trusts and asset management, among others. Despite all the positives, USB stock hasn’t been spared amid the current rout in the banking sector.
Shares are down about 40% in the past 12 months alone. With this massive decline, USB stock is now going for less than 10 times earnings while offering a 6.3% dividend yield. For investors looking for a deep value income stock today, U.S. Bancorp is a tremendous opportunity.
Warner Music Group Corp. (WMG)
Warner Music Group is one of the world’s top record labels. It is home to best-selling artists such as Ed Sheeran, Coldplay, The Red Hot Chili Peppers and Linkin Park. The case for the music labels is simple: Streaming services such as Spotify Technology SA (SPOT) saved the industry. After years of declining revenues amid rampant piracy, streaming has turned things around. Now, music revenues are soaring once again.
The advent of social media networks such as TikTok has made it easier than ever for new artists to gain traction and older acts to find an audience with the next generation of consumers. In recent years, song catalogs have started selling for tremendous sums, giving further credence to the idea that Warner’s intellectual property has a great deal of value in the new music landscape. The media sector has sold off in 2023 amid worries that a recession will hit revenues. That’s understandable, but with WMG stock down 29.4% in 2023 through the end of May, there’s a bargain here today.
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MetLife Inc. (MET)
MetLife is a leading American life insurance company. Traditionally, investors have owned companies like MetLife due to their stability and generous dividends
. However, things have taken a turn toward the unexpected in 2023. Amid the banking crisis, investors have dumped insurance companies as well due to their perceived exposure to changing interest rates.
It is true that insurers like MetLife have mark-to-market losses on their fixed-income portfolios, just as has been seen with various banks. However, there is a key difference between insurers and banks. Depositors can pull their funds from banks virtually overnight, whereas insurance policies are locked in for many years. Long story short, there won’t be a deposit run at MetLife. And with interest rates this high, MetLife can invest new policy premiums at far higher rates, which will improve future profitability. With MET stock down 30.4% in 2023 through the end of May, shares go for less than seven times forward earnings and offer a 4% dividend yield.
Epam Systems Inc. (EPAM)
Epam is a consulting company that found its edge by outsourcing high-skilled IT work to emerging markets. This is a form of labor arbitrage; Epam’s strategy of hiring affordable engineers in countries like Poland while charging high prices for services has made its investors a fortune. Epam stock is up more than 1,500% since its listing. However, the company has hit a major roadblock. That’s because Epam relied heavily on IT professionals located in Russia and Ukraine; geopolitical developments have sidelined much of the company’s workforce. However, the market is overestimating the severity of the problem.
Epam has now located 70% of its workforce outside of Eastern Europe, and it has managed to maintain its contracts and keep year-over-year revenue growth positive despite the upheaval. Epam shares are down by about two-thirds from their 2021 peak. Analysts see the earnings growth rate returning to the high teens next year.
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5 of the Best Stocks to Buy Now originally appeared on usnews.com
Update 06/01/23: This story was previously published at an earlier date and has been updated with new information.
