A new month is upon us, which gives long-term investors a chance to review their portfolios. Broader markets are close to all-time highs, but there are still opportunities across sectors. Therefore, today I’ll discuss seven stocks to buy in May. They will appeal to a range of investors looking for either capital gains or dividend income.
Most financial planners highlight that retail investors should have a long-term time horizon, in which they continually add to their portfolios over the years. Such an approach would also include times when the market is volatile or even falling. Occasionally, I mention the Rule of 72, which helps investors calculate how quickly an investment doubles thanks to compounding. One can simply take the number 72 and divide it by the annual return percentage.
Let’s say an investment is expected to return 7% per year. So, 72/7 would be slightly over 10. Therefore, it would take about 10 years for the investment to double. The long-term average return of the S&P 500 index has been around 10% per year. Thus, long-term investing could lead to portfolios potentially doubling every seven years, if not sooner.
As part of diversified portfolios, most retail investors hold between 10 and 30 stocks. Increasingly many also buy exchange-traded funds (ETFs) that focus on indices or various themes, such as electric vehicles (EVs), real estate investment trusts (REITs), cybersecurity or specific countries. With our economy expected to recover even further in 2021, many stocks and ETFs are likely to see increased capital inflows.
With that information, here are our seven stocks to buy in the coming weeks:
- Altria (NYSE:MO)
- Cloudera (NYSE:CLDR)
- Editas Medicine (NASDAQ:EDIT)
- KraneShares CSI China Internet ETF (NYSEARCA:KWEB)
- Roku (NASDAQ:ROKU)
- Tencent Music Entertainment Group (NYSE:TME)
- VanEck Vectors Low Carbon Energy ETF (NYSEARCA:SMOG)
Stocks to Buy: Altria (MO)
52-week range: $35.02 – $52.59
Dividend yield: 7.3%
Year-to-date (YTD) change: 15.5%
Our first choice for today is one of the leading tobacco names worldwide. The Richmond, Virginia-based Altria Group is also known as the owner of Philip Morris USA. The group’s segments include smokable products, smokeless products and wine. Altria holds the top spot in cigarettes and smokeless tobacco stateside.
Its Marlboro brand is the leading cigarette brand in the U.S. with more than a 40% market share. Altria also owns a 10% stake in alcohol producer Anheuser-Busch InBev (NYSE:BUD) and a 45% stake in cannabis-producer Cronos (NASDAQ:CRON).
According to Altria’s most recent earnings report, net revenue was $6.3 billion, a 4.9% year-over-year (YoY) increase. GAAP net earnings were $1.9 billion, compared to a net loss of $1.8 billion in the prior year period. Furthermore, adjusted diluted earnings per share (EPS) was 99 cents, showing a 2% drop from the prior year quarter.
CEO Billy Gifford cited, “Our tobacco businesses were resilient and we made steady progress toward our 10-year Vision to responsibly transition adult smokers to a noncombustible future. … Our plans for the year ahead include accelerating investments in support of our 10-year Vision, which we expect to fund through the continued financial strength of our tobacco businesses.”
Altria stock’s forward price-to-earnings (P/E) and price-to-sales (P/S) ratios are 10.35 and 4.23, respectively. Investing in a tobacco company might not meet the objective of all market participants. However, those who are ready to commit capital into MO stock could regard any decline toward $45 as a good opportunity to buy shares.
52-week range: $7.56 – $19.35
YTD change: -7.4%
Palo Alto, California-based Cloudera provides enterprise software for cloud platforms for data management, analytics and machine learning. Around 60% of revenues are U.S.-based. Management is working to move most services to a cloud-based subscription model, which would mean annualized recurring revenue (ARR) — a delight to Wall Street’s ears.
In early March, Cloudera released Q4 and fiscal year 2021 metrics. Revenue was $226.6 million, an increase of 7% YoY. Additionally, subscription revenue was $206.8 million, up 14% from the fourth quarter of fiscal 2020. ARR grew 10% YoY.
Non-GAAP net income was $50.5 million, compared to $11 million last year. Furthermore, non-GAAP diluted net income per share for the fourth quarter of fiscal 2021 was $0.15 per share, compared to $0.04 per share for the fourth quarter of fiscal 2020
CEO Rob Bearden said, “Cloudera Data Platform demonstrated significant momentum in the quarter. Customers migrating to CDP increased from about 10% of our customer base at the time we reported Q3 to more than 15% of our customer base today. Most impressively, ARR from CDP now exceeds $60 million of total ARR. The adoption of CDP for hybrid data cloud and data lifecycle use cases is what will drive future growth and we’re very happy with this progress to date.”
In the past several weeks, CLDR shares have come under pressure. Forward P/E and P/S ratios are 33.22 and 4.4, respectively. In April 2017, Cloudera went public at $15 per share. Despite the recent weakness, the group will likely create shareholder value for many quarters in the future. Potential investors could consider buying the dips.
Stocks to Buy: Editas Medicine (EDIT)
52-week range: $21.41 – $99.95
YTD change: -45.6%
Of the names I’m discussing today, Cambridge, Massachusetts-based Editas Medicine is possibly the most speculative name. The gene-editing group aims to correct disease-causing genes. Its focus is developing a proprietary genome-editing platform based on clustered, regularly interspaced short palindromic repeats (CRISPR). The CRISPR-associated protein 9 (Cas9 technology) technology will allow for editing DNA to “fix” or correct genetic abnormalities by replacing with a non-defective gene.
In 2020, the Nobel Prize in Chemistry was awarded to scientists Emmanuelle Charpentier and Jennifer A. Doudna, who “have discovered one of gene technology’s sharpest tools: the CRISPR/Cas9 genetic scissors.” In other words, we are likely to hear about the technology increasingly more often.
Editas Medicine released FY20 Q4 and full-year results in late February. For the three months ended Dec. 31, 2020, net loss was $62.5 million (or $1 per share), compared to $37.8 million (or 74 cents per share) for the same period in the previous year. Furthermore, the company ended 2020 with cash of $512 million and raised an additional $250 million in early 2021.
“Editas has a once-in-a-generation technology enabling us to develop transformational medicines. Entering 2021, we are advancing the landmark Brilliance trial, the first ever in vivo gene editing program and we look forward to reporting clinical data later this year,” remarked CEO James C. Mullen.
The technology is still evolving, and the long-term validity of the CRISPR technology will likely take considerable time to establish. As a result, potential investors need to appreciate that the potential success of EDIT’s clinical trials will determine the success of the shares.
EDIT stock currently hovers around $38 per share, a fraction of its record high of $99.95 last May. If you find an outright investment in Editas Medicine to be too risky, you might consider buying an ETF that holds the shares. Examples would include the Global X Genomics & Biotechnology ETF (NASDAQ:GNOM), the ROBO Global Healthcare Technology & Innovation ETF (NYSE:HTEC) or the FlexShares Morningstar US Market Factors Tilt Index Fund (BATS:TILT).
KraneShares CSI China Internet ETF (KWEB)
52-week range: $45.50 – $104.94
Dividend yield: 0.28%
YTD change: 1.9%
Expense ratio: 0.73%, or $73 on a $10,000 investment annually
Next in line is an ETF that invests in the companies whose revenue mainly comes from China, the most populous nation in the world. The fund gives access to Chinese firms whose primary businesses are either online or in internet-related sectors. Many of these forms have been dubbed the Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), Facebook (NASDAQ:FB), Twitter (NYSE:TWTR) or eBay (NASDAQ:EBAY) of China.
KWEB, which holds 45 stocks, tracks the CSI Overseas China Internet USD index. The fund started trading in July 2014, and net assets stand at $4.2 billion. Tencent (OTCMKTS:TCEHY), Alibaba (NYSE:BABA), Meituan (OTCMKTS:MPNGF), Pinduoduo (NASDAQ:PDD), Baidu (NASDAQ:BIDU) and Bilibili (NASDAQ:BILI) lead the stocks in the roster.
In the past 12 months, the fund is up 64%. Furthermore, it hit an all-time high on Feb. 17. The names in the fund are likely to create shareholder value in the coming years, too. However, a decline below $75 would improve the margin of safety.
Stocks to Buy: Roku (ROKU)
52-week range: $100.19 – $486.72
YTD change: 9.98%
San Jose, California-based technology giant Roku is one of the most important streaming platforms stateside. Its digital media players enable the playing of content from any provider on any device, and users can personalize content selection. Roku generates revenue from advertising, distribution fees, hardware sales, operating system (OS) licensing and subscription sales. Product categories include advertising, Roku TVs and streaming players.
The pandemic meant millions of people had to stay home, looking for entertainment online. Roku announced fourth-quarter and full-year 2020 results in February. For both periods, it achieved record revenue and gross profit. Total revenue was $650 million in Q4, representing an increase of 58% YoY. Additionally, the company posted a $65.2 million net profit for the quarter, whereas Wall Street had expected a loss.
CEO Anthony Wood said, “Streaming is a huge global opportunity. We’re still in pretty early days. [G]iven the fact that there’s 1 billion broadband households in the world, and they’re all going to watch their TV through streaming someday … it’s an area we’re going to keep investing in.”
In the past year, Roku shares generated returns of 192%. Those investors who pay attention to technical charts would notice that the stock is overbought. Although it could continue to trade at these high levels for a while more, short-term profit-taking could easily be around the corner. A decline toward $340 would mean a better entry point for buy-and-hold investors.
Tencent Music Entertainment Group (TME)
52-week range: $10.30 – $32.25
YTD change: 1.7%
Tencent Music Entertainment is an online music entertainment platform in China. Its main platform includes QQ Music, Kugou Music, Kuwo Music, WeSing, Kugou Live and Kuwo Live. InvestorPlace.com readers are well familiar with its parent group Tencent, which dominates online social media and gaming segments in China.
Tencent reported fourth-quarter and full-year 2020 results on March 22. Quarterly revenue increased by 14.3% YoY to $1.28 billion. Net profit for the fourth quarter was $183 million, a 15% increase YoY. As of Dec. 31, 2020, the combined balance of cash and term deposits amounted to $4.44 billion.
CEO Cussion Pang cited, “Our fourth quarter results were underpinned by strong performance in online music services, which registered outstanding year-over-year revenue growth of 42% from subscriptions and over 100% from advertising. … Our initial investment in long-form audio started to pay off with 15% long-form audio penetration of our user base in the fourth quarter of 2020, up from 6% for the same period last year.”
TME stock’s forward P/E and P/S ratios are 31.15 and 7.1, respectively. The company’s user base of 600 million is likely to keep growing through the coming quarters. A further decline toward $17 would make the stock attractive for long-term buyers.
Stocks to Buy: VanEck Vectors Low Carbon Energy ETF (SMOG)
52-week range: $66.65 – $195.55
Dividend yield: 0.07%
YTD change: -3.55%
Expense ratio: 0.62%
Our final discussion centers around another fund, namely the VanEck Vectors Low Carbon Energy ETF. It invests in low-carbon energy companies primarily engaged in alternative energy, such as power derived from biofuels (for example, ethanol), wind, solar, hydro and geothermal sources. The fund started trading in May 2007 and currently has over $420 million in net assets.
In terms of sectoral allocation, information technology (IT) and industrials lead the names in the fund, each with around 30% of the pie. Next are consumer discretionary stocks, with almost 20%. SMOG currently holds 64 stocks and the top-10 names make up over 60% of the fund. Among the leading names in the fund are Eaton (NYSE:ETN), Tesla (NASDAQ:TSLA) and Nio (NYSE:NIO).
Over the past 12 months, the ETF returned 141.5% and saw a record high in January. Potential investors who are bullish on the low-carbon theme could consider buying the dips.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.