Although the official end of summer and the beginning of autumn are still 15 days away, with all schools back in session, all vacations taken and Labor Day now in the rear-view mirror, summer (and the summertime lull for the stock market) is essentially over.
That means it’s time for traders to begin the hunt for beaten-down stocks to buy in an effort to finish a rather miserable year for the market on a high note.
And there are certainly plenty of bargain-priced equities to pick from. As of the end of last week, the S&P 500 is down 10% from its July peak.
This isn’t to say the market is ready to rally straight-away from here and that its rising tide will carry all equities higher with it. It is to say, though, that we’re closer to a bottom than not, and it’s time to start making our shopping list of bargain stocks.
In no particular order, here are 10 stocks to buy before the market starts to rally in earnest again.
Stocks to Buy: General Motors (GM)
While the second quarter’s earnings season was lackluster and certain pieces of economic data look less than ideal (like China’s slowdown), nothing changes the fact that automobile sales in the U.S. are on pace to reach a record-breaking total this year, exceeding the the 17.4 million sold in 2000.
This puts General Motors (GM) on top of a list of solid stocks to buy before the smoke finishes clearing.
Granted, GM also relies heavily on the very Chinese economy that’s starting to stumble now, selling a record 1.95 million vehicles in that market through the first seven months of the year. After two months of market misery for Chinese stocks and a desperate Chinese government, though, look for the nation-state to get serious about its stimulus. That turnaround will take General Motors with it.
Best of all, GM shares are off a hefty 25% from their March peak.
Stocks to Buy: Citigroup (C)
For being one of the nation’s biggest and best-known banks, shares of Citigroup (C) have been oddly volatile since mid-2013 … and not particularly productive. Thanks to its recent pullback, C shares are right back where they were more than two years ago.
And yet, for those investors who truly think in the long-term, Citigroup has earned a spot on a list of stocks to buy in the near future.
Citigroup is in the midst of a much-needed revamp. At the same time, it’s entering a period that should be more fruitful for all banks — including Citigroup itself.
The external driver for better days is the prospect of higher interest rates. Although higher borrowing costs curb borrowing activity, higher interest rates widen margins on banks’ lending activity. Simultaneously, Citigroup is finally getting serious again about catering to most aspects of the equity/trading market.
Look for that four-point plan to start getting traction next year.
Stocks to Buy: Lockheed Martin (LMT)
“The United States has withdrawn from being the world’s policeman… (and countries that are hotspots) don’t have the U.S. protection anymore so what do you do? You have to arm yourself. Who do you call? You don’t call Russian arms dealers or even French. You go to Lockheed Martin, General Dynamics (GD) and you go to Northrop Grumman (NOC) maybe you go to Textron (TXT), Raytheon (RTN) is good too but Lockheed Martin has some particular financial characteristics that we love.”
Lockheed Martin also has a solid cash flow that has recently been bigger than its net income, and much of that cash flow is going right back to shareholders.
Stocks to Buy: HCP (HCP)
There’s one upside to the 25% decline that shares of healthcare facility REIT HCP (HCP) have suffered from their 2015 peak — it has pumped the dividend yield up to a healthy 6.3%, qualifying it as one of the better dividend stocks to buy sooner rather than later.
The bulk of the pullback was driven by the fact that its biggest tenant, HCR ManorCare, managed to whittle down its annual lease bill by $68 million.
Then again, the market may have overreacted. HCP earned $920 million on $2.26 billion in revenue last year, and it was a pretty typical year. There’s room to absorb the hit.
Stocks to Buy: Royal Caribbean Cruises (RCL)
Not every name on a list of stocks to buy this month made it to the list because it has been beaten down so badly. Some stocks have managed to shrug off the recent (and not-so-recent) marketwide weakness and keep on trucking.
Better still, some of these names remain poised to dish out more of the same for the foreseeable future.
Among the best of the best of those raw-strength picks is Royal Caribbean Cruises (RCL), and for good reason. As it turns out, indulgence hasn’t dried up in the least this year. The company is on pace to grow the top line by 3.9% this year, and is estimated to beef up its top line to the tune of 9.6% next year. Earnings are expected to soar next year, up 28% from this year’s projected profit of $4.70 per share to $6.03 per share in 2016.
What gives? RCL has made some significant capital expenditures — more ships, namely — of late, and is seeing the fruits of the labor.
That heavy spending from Royal Caribbean Cruises hasn’t come without its criticisms; while it boosts earnings, it crimps cash flow. Still, it has been money well spent, and RCL can put the brakes on anytime it wants to should the global economy hit a true headwind.
Stocks to Buy: Viacom (VIAB)
Yes, the rise of streaming television from services like Netflix (NFLX) and Hulu has been chipping away (and continues to chip away) at traditional cable television channels like the ones Viacom (VIAB) offers. And yes, Dish Network (DISH) is apt to lowball Viacom when it renews its contract with the company … assuming it doesn’t drop Viacom channels altogether.
Ergo, VIAB doesn’t seem like it belongs on a list of stocks to buy to finish the year on a bullish note.
With the stock down more than 50% since its July 2014 peak, though, the worst-case scenarios have already been priced in … and then some.
It’s not a trade for the faint of heart. The media as well as most retail investors love to hate media stocks right now, and VIAB has been their favorite punching bag. From a contrarian perspective, though, Viacom shares have likely already hit bottom.
Stocks to Buy: Discover Financial Services (DFS)
Being a non-bank credit card provider hasn’t crimped Discover Financial Services (DFS) in the least. In fact, if anything, while Capital One Financial (COF), American Express Company (AXP) have been duking it out with the other usual suspects, their distraction has let DFS continue to chip away at their market position.
Case in point? J.D. Power has named Discover Financial Services this year’s best credit card company in terms of customer satisfaction. This satisfaction has translated into solid fiscal results too. Last year’s revenue of $8.48 billion is on pace to reach $8.82 billion this year and grow to $9.18 billion next year. Earnings are projected to grow accordingly.
It’s not leaps and bounds, but it’s solid for a saturated, competitive market.
The reason DFS stands out as one of the top stocks to buy in a crowded field, however, is its value. The forward-looking P/E of 9.4 is one of the lowest in the industry, and the company has had little trouble meeting earnings expectations.
Stocks to Buy: Gilead Sciences (GILD)
Biotech stocks as a whole have been on a tear over the past few years, including Gilead Sciences (GILD). Unlike many of its peers, however, GILD not only earned its rally, but has plenty more gas left in the tank to keep dishing out the same.
Yes, the relatively recent introduction of uber-expensive hepatitis C drugs Sovaldi and Harvoni are poised to drive — and widen — strong profits for the foreseeable future.
What really puts Gilead Sciences on a list of stocks to buy in the wake of its 16% pullback since late June, however, is the fact it has 10 drugs currently in phase 3 trials or already under consideration by the FDA.
That’s a nice setup for big-time revenue growth.
Stocks to Buy: Micron Technology (MU)
Micron Technology (MU)? Isn’t the PC industry still deteriorating, and as such aren’t any companies that make PC parts supposed to be excluded from a list of stocks to buy?
That’s the superficial premise. In reality, though, by the time an investment/trading theme becomes common knowledge (and the implosion of the PC market has reached this status), that trend has usually all but run its course.
The kicker is the fact that analysts now officially hate MU … seriously. Robert Baird downgraded it from an outperform to a neutral in August, as did Bank of America and Wedbush.
With plenty of room for upgrades and upward target revisions on a stock trading at a mere 7.6 times 2016’s projected earnings, MU may have little downside left to give. It may well be all upside from here, especially if Gartner is right about 2016 being the year PC shipments finally start to stabilize and even recover and new, low-cost Windows 10-OEM devices hit the market.
Stocks to Buy: D.R. Horton (DHI)
While the economy may look and feel like it’s stalling — in light of Q2’s lackluster earnings and China’s new headwind — it hasn’t become a problem for home-construction yet. In fact, July’s 1.21 million housing starts hit an eight-year high, and the permits trend is just as bullish even if July wasn’t a record-breaker.
Translation: Investors looking for overlooked and underestimated stocks to buy should put homebuilders on their shopping list. And, at the top of that list should be D.R. Horton (DHI).
The proof is in the numbers. D.R. Horton is expected to ramp up its revenue this year from 2014’s $7.8 billion to $10.45 billion this year to $11.84 billion next year. Per-share earnings are projected to grow from $1.50 to $2.02 to $2.34, respectively.
But rising rates could put the kibosh on that trend in a hurry? It’s possible, though not plausible. Most observers are only looking for the Fed Funds rate to rise from 0.25% to 0.5% in the foreseeable future; a move to 0.75% anytime still remains in doubt. Borrowers should be able to stomach that modest rise in interest rates.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.