1 Stock to Buy in May

As we do each month, we asked 10 of our top analysts across various sectors for one stock that looks especially compelling right now. Here are the companies they singled out.

Matt DiLallo: You know that old adage investors have held near and dear for years: "Sell in May and go away." Sure, that might work some years, but as a long-term investor you can miss some real bargains if you follow that advice.

Take National Oilwell Varco  (NYSE: NOV  ) , for example. The oil-field service and equipment maker is the king of its industry and boasts market share leadership to such an extent that its customers often refer to the company as "No Other Vendor." However, instead of selling at a premium, this premium business is selling at a rather inexpensive rate of less than 12 times earnings.

While its most recent quarterly earnings report brought its shares down, this company is far from being out. Its business instead should accelerate over the rest of the year as it typically lags the reports of drilling contractors and service providers, which have all been reporting stellar results.

So far this year National Oilwell Varco's stock has been sinking even as the rest of the market has gone higher. When you consider that the company just announced a new record order backlog and combine that with the growth it sees internationally, this makes it a great time to buy. So, instead of selling in May this year, consider buying shares of National Oilwell Varco and holding for the long haul.

Travis Hoium: Microsoft  (NASDAQ: MSFT  )  has been getting a hard time for the Windows 8 launch and slow sales of the Surface, but few people appreciate just how great the company's other businesses are. It now has two businesses larger than Windows -- Servers & Tools and the Business Division -- and they grew 11% and 5%, respectively, in the most recent quarter. Neither business shows any sign of slowing down, and Microsoft's smaller businesses have a lot of potential.

The Surface is growing sales at a rapid rate, the Windows 8 ecosystem is just starting to catch steam, and even Bing is taking a small amount of share in search. Windows is also generating solid profits with two-thirds of enterprise desktops on Windows 7 or 8 and revenue flat year over year. Add it all up and both revenue and earnings per share grew 8% in the most recent quarter, not bad for a company with no growth potential.

Even if you don't like Microsoft's business, you have to appreciate its value. The stock has a $273 billion market cap and the company has $74.5 billion in cash after generating $9.7 billion in cash from operations last quarter. Even before you pull out cash, the stock only trades at 10.6 times its forward earnings estimate, a great value for a company that's a better growth story than most people realize. 

Jim Gillies: I avoid buying IPOs at their unveiling. They're typically overpriced, there's generally a subsequent dumping of further shares on the market, and, first-day trading jumps aside, the newness euphoria soon dissipates, and many trade significantly lower in subsequent quarters. I prefer to watch IPOs that look like they have real, growing, cash-generative businesses, run by smart people. When I find one, I watch, attempting to buy when they fall from grace.

So, meet RPX (NASDAQ: RPXC  ) , a company with a Tony Soprano-esque business model. The company agrees not to hurt you if you pay protection money. While they term this "defensive patent aggregation," my simple descriptor isn't that far off. RPX buys up potentially problematic patents that could cost infringers legal bundles. Then, in return for "subscription fees" based on a client's financial results (the bigger you are, the more you pay), clients are granted rights to all patents in its portfolio, and moreover agree not to assert (read: scream infringement) or litigate. The client base -- 146 companies -- is a who's-who of the consumer electronics, wireless, software, and semiconductor industries. 

Debuting in spring 2011 at $24, RPX was overpriced for its then-growth prospects and fell by two-thirds over the next 18 months. But management kept its eye on the long term, adding clients, buying additional patents, expanding into new products (patent risk insurance) and industries. Today, the stock trades at about 3.2 times adjusted EBITDA, and is worth at least $20. IPO fever forgotten, today's buyer gets a proven debt-free business at a great price.

Dan Caplinger: Gold stocks aren't usually a big favorite of value investors, but with the recent plunge in gold prices, I'm taking a close look at Yamana Gold (NYSE: AUY  ) . Already boasting one of the lowest-cost operational structures in the industry, Yamana has historically benefited from being able to sell not only its gold production but also the copper, zinc, and other byproduct metals that result from gold-mining operations. Yet weak gold price performance has pummeled the stock, and investors weren't pleased with Yamana's earnings report earlier this week, in which the company missed on both the top and bottom lines. In particular, weaker commodities prices across the board produced less offsetting revenue from byproduct sales, raising cash costs.

Even with its strong cost position, Yamana is responding by taking further cost-cutting measures, including better inventory management and worker layoffs. Despite the short-term pain low gold prices will bring to the entire industry, Yamana is better positioned to withstand the tough times than most of its peers, and the inevitable shakeout should leave Yamana looking better than ever and potentially give it some lucrative strategic opportunities along the way.

Brian Stoffel: Until recently, Rosetta Stone was the classic case of an excellent product being mismanaged by executives. From personal experience, I know the language-learning program can be just as, if not more, effective than traditional foreign language classes. But really, who is going to plunk down more than $650 for a bunch of CDs while walking by a kiosk in an airport or mall?

New CEO Steve Swad can see the absurdity of that strategy. He is eliminating the kiosks in favor of a more sensible move to the cloud. Under this new strategy, Rosetta Stone can offer much more enticing price points for a subscription model that can hook users -- rather than relying on one-time monster purchases. Rosetta Stone's acquisition of Livemocha also gives it the platform to offer live coaching to users, further differentiating it from competitors.

Moving forward, Rosetta Stone has an enormous opportunity in two areas. First, international clients, for whom learning English is crucial, represent a largely untapped market. And second, institutional clients -- including government organizations, businesses, and schools -- could benefit from the value proposition Rosetta offers, as it's usually cheaper than hiring and sending employees/students to foreign language classes.

Combined, these two sectors contributed only 37% of total revenue in 2012, with U.S. consumers providing the rest. If Rosetta can get even a fraction of the international and institutional markets available, this could be a huge opportunity for investors.

Tim Beyers: If history says that most stocks have trouble in May, why not grab a 2-for-1 deal? That's what Time Warner is, in effect, offering investors right now. The media giant will spin off its beleaguered magazine unit later this year, though investors may be hoping for sooner. Magazine revenue fell 5% in the most recent quarter, largely due to an 11% drop in subscriptions.

Overall revenue fell 1% but net income surged more than 27% to $0.75 a share thanks to $870 million worth of share repurchases. Film revenue declined 3.7%, but that should change soon enough. Warner Bros. reboots the 75-year-old Superman franchise in June with Henry Cavill starring as the mild-mannered superhero in Man of Steel. A series of well-received trailers has 97% of those who've weighed in at Rotten Tomatoes -- more than 81,000 at last count -- saying they want to see the film. If they're pleased, and I suspect they will be, it'll give Warner and subsidiary DC Entertainment the momentum needed to build the sort of cinematic superhero franchise that's pushed Walt Disney to new highs.

Keith Speights: Sarepta Therapeutics is a good stock for investors to consider buying in May. Let me first warn, though, that this isn't a stock for the faint-hearted. Shares dropped more than 25% in the last half of April after the FDA requested more information regarding accelerated approval for eteplirsen, an experimental drug targeting the rare disease Duchenne muscular dystrophy, or DMD.

This pullback actually presents what I think is a good buying opportunity. Sarepta reported fantastic results from a mid-stage clinical study of eteplirsen last year. The main drawback to that study, though, was that only 12 patients were included. That's a very small sample size, so there's a decent chance that the FDA won't grant accelerated approval for the drug.

If the FDA allows Sarepta to move forward with the accelerated approval process, I think eteplirsen is very likely to win approval. If that happens, this stock will go into orbit -- in another solar system. If not, shares will plunge, but that should only be temporary. Failure to gain accelerated approval will simply mean that Sarepta must conduct a late-stage clinical trial. I think eteplirsen will still gain approval ultimately.

My view is to forget about trying to time things. There's no way to know for sure what will happen with accelerated approval. I'd buy some Sarepta shares in May. I expect solid gains to come -- sooner or later.

Jason Moser: Clean Harbors (NYSE: CLH  ) is an interesting company that does a few different things. The business operates in four segments: technical services (Hazmat and disposal); field services (environmental cleanup); industrial services (high-pressure and chemical cleaning); and oil and gas field services (exploration and directional boring services). While that may all sound extremely boring, the fact of the matter is that it operates in a market with very high economic and regulatory barriers to entry -- that's investor code for "competitive advantage." We'll want to keep an eye on its most profitable segment in technical services, which is responsible for 65% of the company's total operating profit, and while the balance sheet does carry $1.4 billion in debt versus about $240 million in cash, consistent operating earnings cover interest expense more than three times over and none of this debt (in the form of low-rate notes) even starts coming due until 2020. To top it off, my colleague Alyce Lomax has picked up shares for her TMF Real Money Portfolio twice; a good move in my opinion. It's a solid company in a steady line of work, and at 20 times full-year estimates it's a stock worth buying today.

Chuck Saletta: Generic-drug maker Teva Pharmaceutical looks like a stock worth buying in May. Near-term expectations for the company have been dropping, which has taken its stock down in recent weeks. That price decline gives investors the opportunity to buy it for less than seven times its forward earnings estimates.

That's a decent value in and of itself, but it gets even better when combined with a decent dividend that nets American investors somewhere around a 2.77% yield (after the Israeli 15% withholding tax). The dividend has also been regularly increasing for 13 years, rewarding investors for their patience and the risks they take by investing.

As the world's largest generic-drug maker, Teva is well positioned to thrive in a cost-contained environment for health care spending, as it's already operating in a low-cost space. Also, as a generic manufacturer, it doesn't face quite the same risks from patent expirations as its branded, research-based counterparts do, though it is getting more in that research space through recent acquisitions.

All told, it's got the right combination of a decent value, a healthy dividend, and advantageous positioning in its industry to be worth owning.

Jim Mueller: Homebuilder Meritage Homes (NYSE: MTH  ) was hit hard during the Great Recession. However, when the housing bubble collapse started, longtime CEO Steve Hilton moved quickly to position the company first to survive and then prosper coming out the other side. It shored up its balance sheet by paying down debt and rolling it forward, and growing cash, and then began buying properties on the cheap. It also worked hard at squeezing out costs and changing marketing to attract buyers, as well as building energy-efficient homes -- a good selling point.

Today, with signs of housing recovering all around us, Meritage is in a much better place. Orders have grown for eight consecutive quarters, home prices are rising, and it's solidly profitable after three years of losses during the recession. Yet, despite the stock's 600%-plus gain from the bottom, the story isn't over. According to the National Association of Home Builders, single-family housing starts are barely half where they were in 2000-2003, well before the bubble hit its heights. Plus a growing number of people are entering prime home-buying age.

Meritage builds and sells homes for first-time buyers as well as families looking to move up. It will certainly benefit from continued recovery in the housing market. It took several years for us to work through the bad times in housing; I expect the better times to last for several years more, with Meritage benefiting along the way.

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Read/Post Comments (18) | Recommend This Article (117)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 03, 2013, at 11:46 AM, RiverDayz wrote:

    Gillies is referring to RPXC not RPX

  • Report this Comment On May 03, 2013, at 1:29 PM, TMFCanuck wrote:

    Hi RiverDayz,

    The company is RPX, while the TICKER is RPXC.

    Note that the article did not add the ticker. If it had, it would have read:

    "So, meet RPX (Nasdaq: RPXC), a company with a Tony Soprano-esque business model."

    Best,

    Jim

  • Report this Comment On May 03, 2013, at 3:39 PM, PALH wrote:

    The ``directional boring'' Clean Harbors is engaged in is ``fracking,'' and it's disingenuous not to use that term.

  • Report this Comment On May 03, 2013, at 8:36 PM, 2xterra wrote:

    Kind of an oxymoron here no?! I thought there was only going to be 1 stock to buy in May turns out there are really 10!

  • Report this Comment On May 03, 2013, at 10:35 PM, foolsall wrote:

    PALH is exactly right! Tell us the whole truth - - nothing but the Truth! Fracking uses 17 toxic chemicals; and way to much precious water in the process.

    The area in Northern Canada is rapidly becoming a Wasteland. The local Indians are filling up the Clinics with all kinds of ailments and complaints. The Tree Foliage is withering; and, there are pools of, God knows what; sitting open and exposed.

    This is just another example of Predator Capitalism; and, rape of the land and the surrounding environment.

  • Report this Comment On May 04, 2013, at 3:48 AM, neimcg wrote:

    Can't you guys agree on anything. This is more like 10 stocks to buy in May

  • Report this Comment On May 04, 2013, at 12:51 PM, kdrew22 wrote:

    Why don't you include tickers for all of the stocks?

  • Report this Comment On May 04, 2013, at 1:46 PM, Buckeye46 wrote:

    Fracking, Schmaking..... Sorry you envirowennies can't pin anything on fracking. The industry get better at what it does as time wears on and the country get richer and better for it. I hate you greenies and one day.... well, one day.

  • Report this Comment On May 04, 2013, at 3:23 PM, bretco wrote:

    To Buckeye46, you want your children and grandchildren to live in a sewer-like pit you should move to China where "greenies" are

    not welcomed or have our freedom we have in the free world and people like you are free to pollute the air, the water and the earth

    .....well.....one day....your grandchildren will reap the toxic results of your ignorance, excerbated

    perhaps, by greed.

    Don't pollute our world !!!

  • Report this Comment On May 04, 2013, at 3:47 PM, geo11zak wrote:

    I'm so disappointed with the motley fools . There is no consistency , and the products change periodically , they are like the rest , they want to make money. Good luck to you all . It is really confusing trying to follow all these fools . I must be a fool myself .

  • Report this Comment On May 04, 2013, at 4:06 PM, Obidonkenobi wrote:

    @Buckeye46: Wow. Insults and derision for bretco who is trying to save the planet for you and your family? Do you also sock your doctor in the nose after he makes you well?

  • Report this Comment On May 04, 2013, at 4:30 PM, crca99 wrote:

    thx for MTH endorsement.

  • Report this Comment On May 04, 2013, at 7:19 PM, MFNOVICE wrote:

    Forgive me for butting in but there has to be a balance here gentlemen. How many Americans have actually seen a clean river? 15 minutes in the sun today burns my skin worse than an entire day at the lake when I was a kid. Since the beginning of the industrial revolution our lands, lakes and rivers have been used as a toilet for countless industries. I spent quite a few years in Korea and some neighborhoods looked like they were dumped in white ash from the factories. The trees were dead white sticks and the people were sick. The Japanese have filters (that are expensive, $1m give or take) to clean the smoke stacks. When I asked my Korean colleagues why the factory owners there didn't care they said we, Americans and the Western world have polluted the planet for over 300 years and it's their turn to grow now. Have you looked at the specs of the cars sold in Korea? No clean air packages, no safety bars in the doors etc. and in most cases the cost is over double than the cars sold here. The Koreans resent the Japanese's for their successful 'dumping' here. Michael Crichton warned us in the early 1990's about Japan but no one who mattered listened. They said if they could not beat us militarily then they would wait patiently and beat us economically and their #1 target is our automotive industry. The Han River is so polluted that all US personnel both civilian and military are forbidden to enter any body of water in S. Korea with the exception of the sea on the eastern coast. They call it the East Sea while most maps refer to it as the Sea of Japan. Now, look at the birth defects in Mexico where the waste is dumped right on the ground. I hate to say it but it's really too late. Between huge corporations and politicians we don’t have a chance to reverse the damage. We had a carburetor that got over 50 miles per gallon in the 1970's along with tires that could out last the automobile. What about the corn/vegetable oil engine for factory equipment ready to roll out at the World's Fair over 100 years ago? Rudolph Diesel’s engine was replaced by it. We have all read about it but the point is we have the technology to clean our factories, roads, water and air but it will never happen.

    As for the MF I am grateful and indebted to them for their advice. I had to start from nothing in my late 40’s. I lost everything due to caring for sick parents and a few other catastrophes out of my control. I’ve managed to earn 9-20% over a 5 year period. Financially I have to say I’m out of most MF member’s leagues with less than $20k saved so far. I’m 55 yrs. old and I’m still wearing the same clothes I purchased over 10 years ago, I do my own hair and manicures and I put all of our clothing allowance into my husband’s wardrobe for his job. The banks offer a pitiful 1% interest on most of our savings accounts (while paying the Korean’s 10 times that) so I believe putting what money I can invest/save is worth the risk. I subscribe to SA and RB and wish I had more to save. Yes, I wish MF would get to the point quicker as time is precious. I read pages of information only to learn I’m already a subscribed to that publication. I wish they would let you know ahead of time which one they are advertising and what the #1 stock pick is.

  • Report this Comment On May 06, 2013, at 11:44 AM, SANDSTREAM wrote:

    You guys are all soooo pathetic... Hi I'm 55 and I have 20k and its not fair. Pitiful. Hi I think your expert stock pick sucks because I think it might possibly be bad for the environment... ADD A CREDIBLE, PEER REVIEWED LINK! I hear someone going on about Korea? A. I don't know why B. It doesn't make much sense... duh there's going to be worse refuse based on the density of the population in any region... nevermind the war where unknown poisons galore were used for deforestation and as weapons... but I don't see how its relevant anyway! The greenie weenie guy was right... I highly doubt liberal Canada is allowing toxic refuse to be dumped on a bunch of natives in 2013... it's absurd, especially without anything besides your word (why haven't they been sued yet for billions, successfully, by these people)? Because you're spewing your political opinion out of ur... well u know what. And why would anyone be complaining, that there's 10 choices to research on your own to find perhaps your favorite 2,3 or maybe all 10? Do you want one stock to blindly buy without your own due diligence? That sounds like a dumb idea... That's some Bernie Madoff business there. Such ignorance... you are getting free investment ideas from professionals via 1 of the most respected financial advisory companies in the World for people before profits... You get to further investigate and determine which, if any of these stock picks are right for you and your investment goals, needs, objectives, etc... and if you don't know how to do that or don't have the time to do that... then pay someone (via a mutual fund, exchange traded fund or personal adviser)... Motley Fool has some funds if you haven't the time or wherewithal to picks your own stocks (most people don't, that's ok)! My dad makes close to 3/4 of a million a year from his salary, but no clue how to invest, luckily I can help with that because of websites like this... So please in the future don't spread idiotic rumors, rag on free stock advice, or post otherwise head scratching comments. THX

    Disclosures: I am long on BAC, SAND, CS & DNR

  • Report this Comment On May 06, 2013, at 1:05 PM, nweze wrote:

    NOV is good buy.

  • Report this Comment On May 07, 2013, at 2:12 PM, jordanwi wrote:

    Mmmm. No, not oxymoron. It's not that. A misnomer, yes. Oxymoron, no. Bone up on your english, son!

  • Report this Comment On May 09, 2013, at 3:31 PM, hbrof wrote:

    regarding Chuck Saletta's comments on Teva, he makes no mention on Teva's branded initiatives which seems to me part of what's weighing down on the company, despite all of the upside on the generics business. Any thoughts?

  • Report this Comment On June 04, 2013, at 3:21 PM, MFNOVICE wrote:

    Mr. Sandstream assumes too much. My beautiful home is paid for now, as well as my vehicles, land, and my Harley. I just don't have any savings (investments) to speak of so please don't assume I'm feeling sorry for myself. I've spread out our other money in IRA'a, ROTH's, 401k and my sock drawer. My husband is an executive. He doesn't make as much as your dad but hey, good for your father. Korea and every other country that is dumping waste into their environment when it is not necessary is very relevant.

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