5 Best Stocks to Buy for Q4 and Beyond

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The best stocks to buy as we enter Q4 are companies that have a bright future regardless of the macroeconomic picture and regardless of past performance.

best stocks to buy now quarterly review and outlookIt’s easy to say a high flier is the best-looking stock right this minute … a little harder is determining whether it will continue to run.

Similarly, it’s hard to believe in a stock that has been battered for months, but who’s to say some of these picks aren’t diamonds in the rough?

That’s why the five best stocks to buy now, in my opinion, span a wide range in performance — from one pick that has lost more than 40% year-to-date to another that has gained more than 60%. They also span a wide array of industries, from apparel to healthcare to technology.

So, which stocks should excel in Q4 and beyond? Take a look at my five picks for the best stocks to buy now.

Best Stocks to Buy for Q4 and Beyond — Groupon (GRPN)

best stocks to buy now grpn stockSector: Internet Retail
Market Cap: $4.5 billion
YTD Performance: -44%

Let’s start here: I personally own shares of Groupon (GRPN) stock, so I am biased on this particular company as one of the best stocks to buy now.

But let me explain why I bought shares in my personal portfolio at around $6.50, and why I think you should too:

Groupon fell off a cliff to start 2014, before bouncing around at $6 or so for most of the summer. However, this negativity has largely been priced in with a forward price-to-earnings ratio of about 33 for this stock. Also, Groupon has about $870 million in cash in the bank — roughly 20% of its entire market value — and zero debt. If you back out that cash, then, the forward P/E actually falls to 26 or so.

Furthermore, Groupon has met or topped market expectations for four straight quarters — and that FY2015 forecast of 20 cents a share could actually be a lowball estimate that is handily topped.

Groupon recently was upgraded to “sector perform” at RBC, which may sound uninspiring but is an important development after flopping from previous highs. Revenue has moved higher year-over-year in the last eight quarters, thanks to a shift to selling actual products via its Groupon Goods arm instead of just daily deals, and could continue to pay off in the long term.

There are risks here — and again, in full disclosure, I am long GRPN stock, so please do your own research here and don’t just take one shareholder’s word for it.

But I think the potential for a profitable swing trade, buying under $7 and riding to about $8.50 for a quick 20% gain, is highly likely in GRPN stock over the next six to 12 months.

Best Stocks to Buy for Q4 and Beyond — Teva Pharmaceutical (TEVA)

TEVASector: Pharmaceuticals
Market Cap: $49.2 billion
YTD Performance: +33%

I love healthcare broadly as a recession-proof play, since folks will cut back on all manner of spending before they stop taking the drugs and treatments that improve their lives.

And of all the picks out there in the sector, I like generic drugmaker Teva (TEVA) best of all.

I called out Teva as one of the best blue chip stocks a little while back, because a combination of growth and stability makes generic drugmaker TEVA an ideal investment. Rather than worry about big spending on research and marketing, a company like Teva waits until a big pharma company has has run its course with a patented medication, then steps in and makes the same drug for cheaper.

The margins are thinner, but you can make up for this with scale. As a result Teva has a remarkably low beta of 0.6 — meaning it “wiggles” much less than the market at large – and can support a nice dividend of 2.6%.

Furthermore, that dividend has tripled in just six years, from 10 cents per share quarterly at the end of 2008 to 34 cents quarterly right now. And even despite that big dividend growth, payouts are less than 30% of earnings.

In addition to this stable dividend and healthcare focus, emerging markets hold big growth potential. Teva has been making a play to buy India drugmaker Cipla for $6 billion as a way to bolster sales in this region, and as more patients in Latin America and Asia get access to modern medications it will mean big business for generics companies like Teva that move in.

A stable dividend player with growth potential is a great long-term holding in any portfolio. And with TEVA trading at less than 11 times forward earnings right now, the price is right to add this generic drugmaker to your holdings.

Best Stocks to Buy for Q4 and Beyond — Cisco (CSCO)

best stocks to buy now, csco stockSector: Enterprise Technology
Market Cap: $127.7 billion
YTD Performance: +12%

Cisco (CSCO) has endured a lot of criticism since its fall from grace in 2007, and more recently in its failures to eclipse 2010 highs of around $28 per share.

But while CSCO revenue has been challenged in the last few years, there are reasons to be optimistic about 2014.

Cisco earnings recently beat forecasts, showing that profits are doing OK even amid top-line troubles, and the company announced another round of layoffs to boost efficiency and margins going forward. Furthermore, we are on the verge of what could be a big uptick in business spending on IT infrastructure across the end of 2014 and into 2015. As the enterprise tech spending picture improves alongside the broader economy, that will mean growth for Cisco.

Besides, CSCO isn’t going anywhere. It is paying a 3.1% dividend, good for 19 cents a share per quarter. That’s up three-fold since it started paying 6 cents a quarter in its first-ever dividend back in 2011, too.

With a dividend that’s less than half of profits, there’s room for increases going forward as well. About $52 billion in the bank to backstop the dividend and operations can’t hurt, either.

Oh yeah, and before you back out that cash Cisco enjoys a forward price-to-earnings ratio of 11 — much cheaper than the earnings multiple of about 19 for the Nasdaq at large. Furthermore, less all that cash, CSCO is valued at just 6.5 times 2015 earnings.

You have to be OK with the fact that smaller companies are always trying to horn in on CSCO … but it’s entrenched enough to be stable, and Cisco has upside as business spending improves in the long-term. I’d buy now at these levels before the stock starts to run.

Best Stocks to Buy for Q4 and Beyond — Under Armour (UA)

best stocks to buy now, underarmour stockSector: Apparel
Market Cap: $14.9 billion
YTD Performance: +60%

Under Armour Inc (UA) is a force on Wall Street. Shares of the performance apparel company are up an amazing 60% year-to-date in 2014, and up about 200% since early 2013 accounting for a UA stock split earlier in 2014.

Critics will point to the fact that Under Armour stock is still dwarfed by Nike (NKE), which has a market cap of more than $68 billion to just $15 billion for UA, and is a bit overvalued with a forward P/E north of 55.

But investors are paying big premiums for growth in the stock market right now, and Under Armour stock continues to prove that it’s a powerful engine of both top-line growth and earnings expansion in an otherwise difficult environment.

Under Armour stock just posted its 17th consecutive quarter of 20%-plus revenue growth, a simply amazing feat. If that wasn’t enough, back in July, management also raised guidance for FY2014 … for the third time this year. The forecast is now for a 28% to 29% revenue increase, up from an already brisk 24% to 25% range. When you beat this consistently and still consistently raise targets, that says a lot.

Athletic apparel sales have nowhere to go but up, so even if UA doesn’t claw much market share from Nike, it’s still participating in a growing marketplace. And unlike high fashion, athletic apparel isn’t driven as much by fads as it is quality gear that lasts and helps athletes perform their best. Big endorsements from high-profile athletes and organizations, including a partnership with football program at Notre Dame, shows Under Armour has staying power and can go toe-to-toe with Nike.

And given its great performance and continued impressive guidance, the sky is the limit in 2015 for UA stock.

Best Stocks to Buy for Q4 and Beyond — Google (GOOG)

best stocks to buy now, google stockSector: Internet
Market Cap: $393.2 billion
YTD Performance: +5%

Google (GOOG) has underperformed year-to-date, but is actually up 12% since its May lows and is going strong as we enter the fourth quarter.

Sure, earnings have been a mixed bag with revenue and profits rising … but the pace of that expansion is slowing down. After all, online advertising rates have been caught in a free-fall, and ad sales account for 92% of Google’s total revenue as of last quarter.

But GOOG has been making up for declining rates with volume, and is increasingly effective at monetizing the mobile market.

And let’s not forget that Google dominates the global smartphone market; as of Q2, Google Android had a simply amazing 85% market share. While the platform is open source (for now) it’s worth noting that Android does funnel users to Google’s app store and content-delivery marketplace. And the more phones that have Android running on them, the more money Google can skim off the top of these mobile purchases worldwide.

Beyond ads and Android, Google also has a nearly unlimited bag of tricks. It’s Google Fiber internet service continues to gain traction in select cities, and looks to provide a reliable revenue stream through subscriptions. There’s also Google Glass, efforts to create self-driving cars and even a smart contact lens that will measure your blood sugar.

The core business is strong, the research has big potential, and Google stock is pretty fairly valued at just 19 times forward earnings — or, when you back out the massive $61.2 billion in cash, about 12 times FY2015 earnings forecasts.

Never bet against an internet giant and innovator like Google. And consider now a good time to buy in, since shares have been a big sluggish as of late before the next leg up.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he was long GRPN. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP


Article printed from InvestorPlace Media, https://investorplace.com/2014/09/best-stocks-to-buy-q4/.

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