July means a new earnings season is upon Wall Street. In a matter of days, investors will get ready to brace for slew of earnings, starting with metrics from financials. Therefore, today’s article introduces eight stocks to buy that could outperform broader indices in the weeks ahead.
Over the past year, equity markets have depended heavily on money-supply expansion. As a result, many stocks have reached new record highs. For instance, this is how the leading market indices have fared over the past year:
- Dow Jones Industrial Average — up 13.1% year-to-date (YTD).
- S&P 500 Index — up 15.6% YTD.
- NASDAQ 100 Index — up 14.3% YTD.
Yet, last month the Federal Reserve indicated that the rest of the year could see tightening liquidity as a result of increased inflation expectations. In such a restrictive environment, not all assets perform equally well. Many investors wonder which sectors and companies could do well.
With that information, here are eight stocks that could do well in a restrictive environment:
- Bank of America (NYSE:BAC)
- BHP (NYSE:BHP)
- Chewy (NYSE:CHWY)
- ETFMG Prime Cyber Security ETF (NYSEARCA:HACK)
- First Trust Mid Cap Growth AlphaDEX Fund (NASDAQ:FNY)
- Invesco Zacks Multi-Asset Income ETF (NYSEARCA:CVY)
- iShares Global Utilities ETF (NYSEARCA:JXI)
- McCormick & Company (NYSE:MKC)
Stocks to Buy: Bank of America (BAC)
Leading the list stocks to buy is Bank of America, one of our most important financial institutions. The bank, which has almost $3 trillion in assets, operates under four divisions: consumer banking, global banking, global markets, as well as global wealth and investment management.
Bank of America announced first-quarter results in April. Revenue came at $22.8 billion. Net profit was $8.1 billion. Earnings-per-share (EPS) was 86 cents. A year ago, these metrics were $4.0 billion and 40 cents.
In the announcement, CEO Brian Moynihan said, “The strength of our balance sheet, our complementary and diverse set of businesses, and our talented teammates position us to perform well in that environment.”
So far in the year, BAC stock returned more than 32% and saw a multi-year high last month. The current price supports a dividend yield of 1.80%. Forward price-to-earnings (P/E) and price-to-book (P/B) ratios stand at 13.91 and 1.36, respectively. A potential decline toward $37 would improve the margin of safety.
Our next stock, BHP, is a leading global miner based in Australia. It is known as one of the most important suppliers of iron ore, copper, oil, metallurgical coal and gas. Iron ore makes up most of the earnings.
In April, BHP announced production metrics. The miner had record production at its western Australia iron ore mine. Investors welcomed higher productivity levels and lower costs.
On the results CEO Mike Henry said, “BHP continues to deliver on decarbonising, in line with the Paris Agreement goals. We have established emissions reduction partnerships with three major steelmakers in China and Japan whose combined output equates to around 10 per cent of global steel production.”
YTD, BHP shares are up 10.6% and saw a multi-year high earlier in May. Forward P/E and price-to-sales P/S ratios are 9.65 and 3.97, respectively. Interested investors should also find the dividend yield of 4.3% juicy. A potential drop toward $70 would make the shares more attractive.
Stocks to Buy: Chewy (CHWY)
The online pet retailing heavyweight Chewy saw sales expand over the course of the pandemic. Based in Florida, it retails pet supplies and medications. Its offerings extend to 2,500 brands and around 45,000 items. Chewy became public in 2019 and its current market capitalization (cap) is about $35.1 billion.
In June, the group released Q1 numbers. Sales of $2.14 billion translated into an increase of 31.7% year-over-year (YOY). Net income of $38.7 million meant an adjusted EBITDA of $77.4 million.
Following the announcement, CEO Sumit Singh said, “2021 is already turning out to be an exciting and busy year for Chewy. We continue to execute against our growth roadmap, expand our customer base, increase share of wallet, and grow our addressable market-expanding verticals.”
The shares are up about 68% over the last year, but down 7% YTD. The stock trades at a sales ratio of 4.6. A further decline toward the $80 level could offer a better entry point.
ETFMG Prime Cyber Security ETF (HACK)
Our next choice is an exchange-traded fund, the ETFMG Prime Cyber Security ETF. It provides access to cybersecurity firms. These businesses usually provide hardware, software, consulting and services to defend against cybercrime. The fund started trading in November 2014.
HACK, which tracks the Prime Cyber Defense Index, includes 62 holdings. About 70% of the companies come from the U.S., followed by Israel, the U.K. and Canada.
Leading sector allocations include systems software (55.2%), communication equipment (10.3%), application software (9.2%), and research and consulting services (8.9%). The top 10 holdings constitute more than 25% of assets under management, which stand around $2.4 billion.
So far in the year, HACK is up more than 7%, and saw a record high in January. Increased digitalization during the days of coronavirus has put the cybersecurity in increased limelight.
Stocks to Buy: Invesco Zacks Multi-Asset Income ETF (CVY)
The Invesco Zacks Multi-Asset Income ETF provides exposure to a wide range of U.S.-listed stocks, American depositary receipts (ADRs) paying dividends, preferred stocks, real estate investment trusts (REITs), master limited partnerships and closed-end funds.
CVY, which has 152 holdings, follows the Zacks Multi-Asset Income Index. In terms of country allocation, the U.S. tops the list with more than 88%. Next are China, South Korea and Mexico.
The 10 largest holdings constitute about 13% of the fund. Among the leading names in the roster are Diamondback Energy (NASDAQ:FANG), Wells Fargo (NYSE:WFC), Tanger Factory (NYSE:SKT) and JP Morgan Chase (NYSE:JPM).
So far in the year, CVY is up close to 21%. The current price supports a dividend yield of almost 2%. Interested readers could regard the $23 level as a better entry point.
First Trust Mid Cap Growth AlphaDEX Fund (FNY)
The First Trust Mid Cap Growth AlphaDEX Fund invests in mid-cap growth from the Nasdaq U.S. 600 Mid Cap Growth Index. Those firms are ranked based on price momentum, revenue growth and sales-to-price ratio. The fund began trading in April 2011.
Top sectors include information technology, (19.45%), healthcare (19.17%), consumer discretionary (16.34%) and industrials (12.02%). FNY currently has 224 stocks. The 10 leading names comprise about 11.5% net assets of almost $415 million.
Meme stocks AMC Entertainment (NYSE:AMC); Swedish biotech group Olink (NASDAQ:OLK); Celsius (NASDAQ:CELH), known for its calorie-burning beverages; oil exploration firm APA (NASDAQ:APA), and medical device name Shockwave Medical (NASDAQ:SWAV) lead the names in the roster.
In the first half of the year, FNY has been up about 14%, hitting a record high in late June. Over the past 12 months, the fund has returned more than 52%. Investors could consider buying the dips.
Stocks to Buy: iShares Global Utilities ETF (JXI)
The iShares Global Utilities ETF invests in global utility companies that supply gas, and water. Many InvestorPlace.com readers would know of the sector for stable business with high dividend incomes. In fact, the current dividend yield of the fund is 4.1%.
JXI, which currently has 68 holdings, began trading in September 2006. Net assets are almost 145 million. In terms of sectoral allocation, electric utilities (59.94%) top the list. Next are multi-utilities (30.08%), gas utilities (5.47%) and water utilities (2.89%).
The top 10 holdings constitute close to 46% of JXI. NextEra Energy (NYSE:NEE), Duke Energy (NYSE:DUK), Southern (NYSE:SO), and Dominion Energy (NYSE:D) are among the leading names in the fund. Around 60% of the companies come from the U.S., followed by Spain, Italy and the UK.
So far this year, JXI is down about 1% (or flat). Interested readers could fund value around these levels.
McCormick & Company (MKC)
Our final stock for today is McCormick. The Hunt Valley, Maryland, company is well-known for its spices and seasoning mixes. Founded in 1889, the company now operates across 160 countries with popular brands including McCormick, French’s, Frank’s RedHot, Stubb’s, Lawry’s, Zatarain’s, Ducros, Schwartz and Kamis.
On July 1, McCormick reported financial results for the second quarter ended May 31. Revenue grew 11% YOY to $1.56 billion. Adjusted net income declined 6% YOY to $186.1 million. Adjusted diluted EPS was 69 cents, down 6.8% YOY. Net cash provided by operating activities was $228.7 million, narrowed 35.7% compared to $355.5 million same quarter prior year. Management raised the financial outlook for FY21.
On the results, CEO Lawrence E. Kurzius said, “We are capitalizing on accelerating consumer trends, particularly the sustained shift to cooking more at home, increased digital engagement, clean and flavorful eating, and trusted brands, which we are confident will continue to persist even beyond the pandemic.”
MKC’s forward P/E and P/S ratios stand at 29.85 and 3.97, respectively. The shares hit 52-week low in early March and are down 9% YTD. The current dividend yield is 1.54%. Interested investors could find value around these levels.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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.