After a relentless run-up over the past year, the stock market started to cool off in April. Increasingly, investors are growing preoccupied about various macroeconomic concerns. For example, persistently elevated levels of inflation are casting doubt on the Federal Reserve’s planned 2024 rate cuts. Meanwhile, geopolitical tensions in the Middle East threaten to cause a rising price spiral in oil and other commodities. Understandably, investors are reducing their risk exposures.
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However, there are still compelling stocks to buy today. These are five great opportunities for May 2024. All of these companies are selling near their 52-week lows. While the market may be unpredictable, buying these quality companies at value prices should make for favorable long-term returns:
— VeriSign Inc. (ticker: VRSN)
— Walgreens Boots Alliance Inc. (WBA)
— MarketAxess Holdings Inc. (MKTX)
— Diageo PLC (DEO)
— Capri Holdings Ltd. (CPRI)
VeriSign Inc. (VRSN)
Investors have long gravitated toward business models that utilize so-called toll roads assets, generally referring to fixed infrastructure such as bridges, ports and railroads. However, there’s an underappreciated internet toll road that investors can buy today near its five-year low. That would be VeriSign, which operates the internet’s backbone, serving as a leading website registry.
VeriSign has the exclusive license to operate .com and .net web domains. It charges approximately $9 per year for each website using those domains. The company has inflation protection; it gets to raise prices about 8% per year. It has operated these licenses since the 1990s and presumably should have an indefinite operating period for these assets. Shares have sold off this year on weakness in the Chinese market. However, this should benefit VeriSign’s long-term shareholders as the company uses its cash flow to fund an aggressive share repurchase program. These repurchases will earn a higher return on investment given the currently depressed share price.
After a 24% decline in the last year, shares trade for an eminently reasonable 21 times earnings.
Walgreens Boots Alliance Inc. (WBA)
Walgreens is one of the large pharmacy companies in the U.S. It also operates the Boots division in the U.K. The company is known as a blue-chip stock, and until recently was part of the Dow Jones Industrial Average. However, it has fallen on hard times over the past decade with shares plunging to levels not seen in many years. Walgreens was also forced to cut its dividend given its challenging financial outlook. The company has struggled to adapt to changes in the health care market since the pandemic, particularly as it relates to vertical integration in adjacent fields like health insurance.
But many people are not comfortable with the idea of buying prescription drugs online and are likely to continue to rely on their neighborhood pharmacy for many years to come. Walgreens now has a new management team, and it is cutting costs while considering other strategic moves. Down a staggering 46% in the last year and trading at just eight times forward earnings, shares should be set for a considerable rebound going forward as sentiment recovers.
[READ: 10 Best Growth Stocks to Buy for 2024]
MarketAxess Holdings Inc. (MKTX)
MarketAxess is a financial services company that operates a digital bond-trading platform. Bonds and fixed income were the last major financial market to transition to digital trading. Stocks, options and futures are easier to trade digitally. By contrast, bonds tend to be less standardized financial instruments; there can be particular clauses and covenants which make each bond unique. As such, investors stuck to over-the-phone trading for the bond market longer than for stocks.
MarketAxess, however, is increasingly driving digital fixed-income trading adoption, and it has posted a tremendous long-term compound annual growth rate in its earnings as a result. Earnings per share has ballooned from $1.20 per share in 2011 to $6.85 per share in 2023. Furthermore, the pandemic caused some trading rooms to suspend operations, further increasing digital trading. That said, growth has slowed post-pandemic, and this has led to a massive sell-off with MarketAxess shares losing more than half their value from the peak.
Price action aside, nothing has changed with the long-term value proposition around the business. In short, fixed income will continue to become a more digitized marketplace, and MarketAxess will reap the rewards.
Diageo PLC (DEO)
Diageo is one of the world’s largest spirits companies. It owns world-famous brands such as Johnnie Walker, Smirnoff, Tanqueray, Ciroc, Baileys and Guinness beer. While Diageo was formed from a 1997 merger, its roots trace back to 1759 when the Guinness brewery began operations. That speaks to why Diageo is such an attractive investment: Humans have consumed alcoholic beverages for millennia, and that is unlikely to change anytime soon. Alcohol consumption tends to be stable regardless of political or economic changes. And brands have enormous sticking power within the spirits industry. Investors now have the opportunity to buy this venerable franchise at a deep discount. DEO stock has receded over the past five years, with shares trading down nearly 20% over that time span.
A combination of high interest rates, pandemic-related disruptions and fears around GLP-1 weight loss drugs have all hurt sentiment. As a result, this normally highly valued stock is currently available for less than 15 times forward earnings.
Capri Holdings Ltd. (CPRI)
Capri Holdings is an apparel company that sells upscale clothing, footwear and accessories around the world. It operates three primary brands: Versace, Michael Kors and Jimmy Choo. Capri’s collection of different brands and product lines gives it significant scale and market power when dealing with retailers and distributors.
That last point leads to why there is opportunity today. Tapestry Inc. (TPR), a rival apparel company that operates Coach and Kate Spade, is planning to acquire Capri. The Federal Trade Commission has sued, however, saying the deal would be anti-competitive. Capri shares have dropped almost 30% year to date on this uncertainty.
As things stand today, Capri is selling around $35 per share, while the buyout offer from Tapestry is a full $57 per share. If its acquisition offer gets regulatory approval, that would create a windfall gain for Capri shareholders. And if the Tapestry deal fails, Capri is down to less than 10 times forward earnings today, offering a solid entry point for the standalone company.
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5 of the Best Stocks to Buy Now originally appeared on usnews.com
Update 05/01/24: This story was previously published at an earlier date and has been updated with new information.
