Volatility is on the rise, putting the pressure on many high growth stocks. As we all get ready to welcome summer days that more closely resemble our pre-pandemic lives, the markets are rotating away from the growth stocks it favored during lockdowns and quarantines, especially tech shares.
For instance, the tech-heavy NASDAQ 100 index is down more than 4% since the start of May. As a result, many retail investors are wondering which sectors and stocks might be do well in the remaining days of the quarter.
The ongoing Covid-19 pandemic remains the most crucial market factor. Last year, that meant buying businesses that benefited from trends resulting from the pandemic and the lockdown (such as digitalization, health care, renewable energy or work-from-home). However, many of this year’s leading stocks are those most likely to benefit from a recovering economy and a ‘return to normalcy.’
With that information, here are seven hot stocks to buy:
- Align Technology (NASDAQ:ALGN)
- Ford Motor (NYSE:F)
- Freeport-McMoRan (NYSE:FCX)
- Hilton Worldwide (NYSE:HLT)
- Stryker (NYSE:SYK)
- Take-Two Interactive (NASDAQ:TTWO)
- Verizon Communications (NYSE:VZ)
Over the past 12 months, investors were able to find quality names at good value. Now, valuation levels are quite stretched. Yet, there are still plenty of robust investment opportunities out there, especially for long-term investors.
Hot stocks to buy: Align Technology (ALGN)
52-week range: $195.56 – $647.20
Dental device group Align Technology is primarily known for its Invisalign system, an alternative to traditional braces to correct malocclusions, or misalignment of the teeth. You might know of this product as invisible dental braces. The company also manufactures scanners and offers computer-aided design (CAD) services to support the customization of these liners.
Align Technology reported record-setting first quarter results on April 28. Total revenue was $894.8 million, up 62.4% year-over-year (YoY). On a non-GAAP basis, first quarter net income was $198.4 million, or $2.49 per diluted share. This represented a 242% increase from $57.9 million, or 73 cents per diluted share, recorded in the prior year quarter. Cash and equivalents stood at $1.1 billion.
CEO Joe Hogan said:
“It’s remarkable to think about the pace of growth and adoption that we are experiencing worldwide, especially when considering it took 10 years to achieve our one millionth Invisalign patient milestone. Now we are adding one million new Invisalign patients in less than six months.”
The pandemic has meant many individuals had to postpone non-essential dental procedures. As our economy opens up further, more people are likely to start elective dental procedures, such as tooth straightening treatments. Meanwhile, the number of orthodontists and general practitioner dentists using the Invisalign system stateside is on the rise. Therefore, the company is likely to keep growing for many quarters to come. Its market capitalization (cap) stands at $43 billion.
Year-to-date (YTD), the shares are up 3% and hit a record high in late April. ALGN stock’s forward price-to-earnings (P/E) and price-to-sales (P/S) ratios are 65.36 and 16.88.
Short-term profit-taking could put pressure on the shares. A potential decline toward $520 would improve the margin of safety.
Ford Motor (F)
52-week range: $4.52 – $13.62
Legacy automaker Ford Motor reported first quarter results in late April. Revenue increased 6% to $36.2 billion. GAAP net income was $3.3 billion, compared to net loss of $2 billion in the prior year quarter. Adjusted earnings per share came at 89 cents.
CEO Jim Farley regards the Mustang Mach-E GT as Ford’s first serious push into the electric vehicle (EV) space. Going forward, CFO John Lawler highlighted that semiconductor shortage, exacerbated by a recent fire at a supplier plant in Japan, would likely get worse before bottoming out in Q2. The auto industry, as well as many other sectors, are under pressure due to the chip shortage worldwide.
YTD, Ford shares are up over 32%. Forward P/E and P/S ratios stand at 11.76 and 0.37, respectively. Since the earnings report, F stock has come under pressure. Any further decline toward $10 would improve the risk/return profile.
In addition to its legacy business, the new decade will likely see Ford gain gain market share in the growing EV industry. Buy-and-hold investor should put the shares on their radar.
52-week range: $7.80 – $44.50
Next in line is one of the largest copper miners worldwide, the Phoenix, Arizona-based Freeport-McMoRan. Its segments include refined copper products, copper in concentrate, gold, molybdenum, oil and other.
Regular InvestorPlace.com readers know well how copper has been under the spotlight in recent months. It is a critical commodity, seeing high demand as the economy opens up further. In addition, copper is used in infrastructure projects, such as construction, transportation and electrical networks. This major industrial metal is also used heavily in the transition to renewable energy. And EVs use up to four times more copper than traditional cars.
Freeport-McMoRan reported first-quarter results in late April. Consolidated sales came in at $4.85 billion, a 73.3% YoY increase from $2.80 billion in the prior year period. Adjusted net income totaled $756 million, or 51 cents per diluted share. As of March 31, the company had $4.58 billion in cash and equivalents.
CEO Richard C. Adkerson said:
“We are well positioned for long-term success as a leading producer of copper required for a growing global economy and accelerating demand from copper’s critical role in building infrastructure and the transition to clean energy.”
Since the start of the year, FCX stock has returned over 60%. Forward P/E and P/S ratios are 16.98 and 3.97, respectively. Copper bulls could look to buy the dips in the shares.
Hilton Worldwide (HLT)
52-week range: $62.47 – $132.69
Hilton Worldwide is one of the leading names in the leisure and hotel space, operating more than a million rooms across 18 brands. Needless to say, for over a year, hotel room bookings have taken a beating.
Hampton and Hilton are currently the group’s two largest brands by total room count at 28% and 21%, respectively. For hotels, revenue per available room is the key measure of top-line performance.
Hilton reported first quarter results on May 5. Total revenue fell more than 54% to $874 million. Revenue per available room declined about 38% from a year earlier. Net loss was $109 million.
CEO Christopher J. Nassetta remarked, “While rising COVID-19 cases and tightened travel restrictions, particularly across Europe and our Asia Pacific region, weighed on demand in January and February, we saw meaningful improvement in March and April. We expect this positive momentum to continue as vaccines are more widely distributed and our customers feel safe traveling again.”
So far in 2021, HLT stock is up 9%. Forward P/E and P/S ratios are 47.85 and 10.54 respectively. Many investors see the shares as a bet on the post-pandemic recovery. Buy-and-hold investors should regard a decline toward the $110 level as an opportune point of entry into the shares.
52-week range: $171.75-268.04
Kalamazoo, Michigan-based Stryker manufactures medical equipment, consumable supplies and implantable devices. Its product portfolio includes hip and knee replacements, endoscopy systems, operating room equipment, embolic coils and spinal devices. As for many companies, the pandemic meant a disruption of business.
Stryker released Q1 2021 figures in recent weeks. The company’s top line increased 10.2% YoY to $4 billion. Adjusted diluted EPS was $1.93, a 4.9% YoY increase. Quarter-end cash and equivalents stood at $2.2 billion.
Management cited, “As we recover from the pandemic, we continue to expect 2021 organic net sales growth to be in the range of 8% to 10% from 2019, as this is a more normal baseline given the variability throughout 2020, and now expect adjusted net earnings per diluted share to be in the range of $9.05 to $9.30.”
YTD, Stryker stock has returned about 4% and hit a record high in late April. The current price supports a dividend yield of 0.99%. As life gets back to normal in the coming months, the company should see higher procedure volumes, translating into stronger revenue.
Furthermore, our country is aging. Thus, its products are likely to be used by more individuals. However, the shares are richly valued. Forward P/E and P/S ratios are 27.78 and 6.59.
Interested investors would find better value around $240.
Take-Two Interactive (TTWO)
52-week range: $124.86 – $214.91
Game publisher Take-Two Interactive markets products through its subsidiaries Rockstar Games and 2K. Its iconic title Grand Theft Auto V (GTA V) is well-known by players worldwide and brings in a large slice of revenues. Other titles include NBA 2K, Civilization, Borderlands, Bioshock, and Xcom. The video gaming industry has been one of the clear winners during the ‘stay-at-home’ days of the pandemic. Management plans to release new names in the coming quarters.
In February, Take-Two Interactive reported strong Q3 results. GAAP net revenue was $860.9 million, as compared to $930.1 million in the prior year quarter. GAAP net income increased 11% to $182.2 million, or $1.57 per diluted share, compared to $163.6 million, or $1.43 per diluted share, a year ago. As of Dec. 31, 2020, the company had cash and short-term investments of $2.42 billion.
CEO Strauss Zelnick said:
“Due to an incredibly strong holiday season, coupled with our ability to provide consistently the highest quality entertainment experiences, especially as many individuals continue to shelter at home, Take-Two delivered operating results that significantly exceeded our expectations.”
YTD, shares are down around 18%. TTWO stock has given up some of its recent gains after hitting an all-time high in early February. Forward P/E and P/S ratios are 28.33 and 5.95, respectively.
The recent pullback offers a good opportunity for long-term investors. Bear in mind the company will report Q4 results on May 18. Interested investors may want to analyze those metrics before buying into the share price.
Verizon Communications (VZ)
52-week range: $52.85 – $61.95
Our final stock is telecom giant Verizon Communications, which serves around 90.2 million postpaid and 4 million prepaid phone customers. Verizon announced Q1 figures for 2021 at the end of April. Revenue rose by 4% YoY to $32.867 billion. Bottom line growth was much more impressive, with 25.4% YoY increase. Net earnings realized was $5.378 billion. Diluted EPS came at $1.27. A year ago, it had been $1.00. During the quarter, cash flow from operations was $9.7 billion.
CFO Matt Ellis cited:
“We delivered strong operational and financial performance, giving us positive momentum as we end the first quarter. High quality, sustainable wireless service revenue growth, a recovery in wireless equipment revenues, strong Fios momentum and excellent Verizon Media trends led the way.”
In December, the shares hit a 52-week high of $61.95. Now, the stock is just shy of $60. The current price supports a dividend yield of 4.2%. VZ stock’s forward P/E and P/S ratios are 11.67 and 0.47, respectively. Interested investors 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, Ph.D., 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.