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In the dog days of summer, July has handed off the baton to August. With the new month comes a great time to find some new stocks, or old favorites, to invest in. You're probably looking for a list of timely stock ideas right now -- and you're searching in all the right places!
We asked a panel of Motley Fool contributors covering technology and consumer goods companies to weigh in with their best stock ideas at the start of August. They came back with classics like iPhone maker Apple (AAPL -1.22%), e-commerce titan Amazon.com (AMZN -2.56%), and coffee chain Starbucks (SBUX 0.53%), all of which offer unique value right now. Toy maker Mattel (MAT -0.66%) is a turnaround story; online content delivery expert Limelight Networks (EGIO -5.28%) is a momentum stock taking a quick break from dramatic gains. Restaurant Brands International (QSR 0.08%) is creating something greater than the sum of its famous parts, and the market misunderstood Microsoft (MSFT -1.27%) in the second quarter. And have you seen what's coming down family entertainment giant Walt Disney's (DIS 0.16%) pipeline?
That's the 30,000-foot bird's-eye view. For all the juicy detail, dig in right here:
Joe Tenebruso (Amazon): Amazon isn't just winning the war for online commerce -- it's already won. And it's not just desktop shopping where Amazon dominates; the retail juggernaut is also rapidly establishing a formidable presence in mobile commerce.
A recent survey by Mizuho Securities showed that when it comes to shopping on a smartphone, nearly half (45%) of smartphone users start with Amazon. That compared to 16% for Google, 6% for eBay, and only 2% and 1% for Wal-Mart and Target, respectively.
As these results demonstrate, Amazon is quickly becoming the first, last, and only place people shop online. The e-commerce titan recently surpassed Wal-Mart in terms of market capitalization, and rightfully so. With still less than 10% of global retail sales conducted online, the growth of e-commerce remains in its early innings. And no company is as well-positioned to benefit from this megatrend as Amazon.
Image source: Apple.
Andres Cardenal (Apple): Apple stock took a beating recently, falling by nearly 5%, after the company reported earnings for the latest quarter. Investors seem to be disappointed with lower-than-expected iPhone sales during the quarter, but the bears may be missing the forest for the trees, since Apple's overall financial performance is nothing short of outstanding.
Total revenue during the quarter ended on June 30 jumped 33% year over year, reaching $49.6 billion. Profit margins are expanding, and the company is reducing the amount of shares outstanding via stock buybacks, so earnings per share jumped by an even more impressive 45% from the same quarter last year. iPhone revenue grew by a strong 59% to $31.4 billion. Only when expectations are sky-high can this kind of performance be considered a disappointment.
A new iPhone model is expected in September, and Apple is venturing into new products and services with initiatives such as Apple Watch, Apple Pay and Apple Music. Considering the company's brand power and track record of success, assuming that Apple can sustain above-average growth for years to come doesn't sound like much of a stretch.
All this comes for a very reasonable price. Apple stock trades at a P/E ratio around 14, a substantial discount versus the S&P 500 index and its average P/E near 19.
Anders Bylund (Limelight Networks) : There's no doubt in my mind that global network traffic will continue to grow dramatically for the foreseeable future. In particular, digital media weighs ever-heavier on our bandwidth pipes as consumers get used to larger screens, higher-resolution images, and online video everywhere.
These market trends helped online content delivery expert Limelight Networks to double its share prices year-over-year before hitting a wall in late May. Since then, the stock has plunged 18% lower.
Many investors are spooked by Limelight's nearly constant negative cash flows and red-ink earnings. That's fair, but you should also consider that those negative margins are starting to turn positive.
The content delivery industry is poised to grow sales by 15% to 20% a year over the next half-decade or so, which will also unlock economies of scale to help Limelight turn a profit eventually. The company is also a potential buyout target, and operating margins have already improved drastically in recent reports:
LLNW Operating Margin (TTM) data by YCharts
The stock is taking a break from a big momentum move, offering investors a temporary buy-in discount. I see June's plunging share prices as an invitation to put some Limelight in your portfolio. In other words, it's simply high time to take a greedy look at Limelight Networks.
Tim Green (Mattel): Things have been rough for toy maker Mattel over the past couple of years, but that's no reason to ignore the stock. The stock is now down about 50% since the beginning of 2014, with revenue declines and contracting margins disappointing investors. Slumping sales of Mattel's key brands, like Barbie and Fisher-Price, are a big problem for the company, and a new CEO was brought in earlier this year to attempt to right the ship.
Mattel's problems run much deeper than its brands being out of style. The culture at Mattel is a mess. The Wall Street Journal reported last year that Mattel employees were so overburdened with meetings, PowerPoint presentations, and bureaucracy that doing the creative work necessary for any toy maker was becoming increasingly difficult. These issues will need to be fixed before any turnaround can take place, but Mattel offers promise.
While the toy industry is fickle and the hot toy of today is the forgotten toy of tomorrow, Mattel has a portfolio of brands that have been around for decades, including Barbie, Hot Wheels, and Fisher-Price. These brands have stood the test of time, and I have no doubt that Mattel can eventually turn things around.
While investors wait for Mattel to return to growth, they'll collect a massive dividend. Due to the decline in Mattel's stock price, the dividend yield is currently about 6.5%. There is a risk that Mattel will be forced to cut the dividend if things get worse, as its earnings last year didn't quite cover the payout, so that shouldn't be the only reason for buying the stock. But for investors willing to wait a few years, a turnaround at Mattel offers a great opportunity.
Rick Munarriz (Disney): August should be a big month for the family entertainment giant. The fireworks should start on Tuesday afternoon when Disney reports quarterly results. It's coming off of back-to-back blowout quarters, and it should benefit from strong theme park and box office trends. Then we have the Fantastic Four reboot hitting a multiplex near you on Friday. Disney isn't the studio behind the movie, but as the parent company of Marvel it naturally benefits from the potential blockbuster's success.
We could also see some potential catalysts come into play the following week during the D23 expo for Disney buffs. A theme parks presentation is slated for Aug. 15, and all of the chatter suggests that it's when Disney will announce major new Star Wars-themed attractions, including a long overdue makeover of Disney's Hollywood Studios in Florida.
Disney has been firing on all cylinders lately. One can only imagine what would happen if the iconic blue chip turns things up a notch across its dynamic and valuable properties.
Dan Caplinger (Starbucks): If there's one thing investors can count on, it's that millions of people around the world can't live without their morning coffee. Starbucks has taken this simple fact and turned it into a global empire, with its store footprint rapidly expanding around the world. With the coffee giant having released its latest financials late last month, things look brighter than ever for Starbucks, which saw sales rise 18% alongside comparable-store growth of 7% and a 21% boost in earnings.
Starbucks has achieved its success in multiple ways. First, it has made internal moves within its organization to acquire previously licensed locations in Japan and increase its exposure to high-growth regions of the world. Second, new progress on initiatives like delivery and mobile-based ordering systems should help make Starbucks even more efficient in serving its customers in the future. Also, Starbucks is planning to treat shareholders well, with the recent addition of another 50 million shares to its stock buyback authorization.
For investors, Starbucks trades at a fairly hefty valuation of more than 30 times forward earnings estimates, making some leery of buying in at these prices. Yet, given the numerous opportunities that the coffee giant has to become even bigger in the near future, both in terms of geographical reach and the range of products it offers, Starbucks is worth a look even at all-time highs.
Asit Sharma (Restaurant Brands): In the quick-service restaurant industry, which has been hampered by the rampant growth of "fast-casual" chains, it's been hard recently not to notice the success of Restaurant Brands International, the company formed by the merger of Burger King Worldwide and Canadian coffee chain Tim Hortons late last year. The company's second-quarter 2015 earnings report, issued at the end of July, was an emphatic statement that there's still vigorous growth in the fast-food industry for companies that can find the right formula.
QSR reported comparable-store sales increases of 5.5% for Tim Hortons and 6.7% for Burger King (in constant currency) during the quarter, well beyond the rate of peers such as McDonald's, which has faced recent same-store sales decreases. The combined company has booked a healthy operating margin of 26.5% through the first half of the year.
QSR has brought a focus on cost discipline and increased marketing to the Burger King and Tim Hortons brands, a hallmark of investor 3G Capital, which initiated the merger. This formula, combined with a bias toward franchising over operating restaurants, promises a long ramp for growth in both brands. Burger King locations are proliferating globally due to 3G's preference for forming joint ventures with local franchise operators in targeted geographic areas.
Notably, on the expense side of the ledger, QSR's management is currently attacking Tim Hortons' cost structure with a "zero-based budgeting exercise," in which prior assumptions about costs are thrown out the door and a yearly budget is built from the ground up.
In short, QSR is run in a very disciplined fashion by a management team that also knows how to build sales credibly. It's a compelling company to consider in August, especially for those with a long-term holding period.
Tim Brugger (Microsoft): You've likely heard about Microsoft taking the $7.5 billion plunge to write off its deal to acquire Nokia's device manufacturing unit, right alongside another $780 million in "restructuring" charges. The result was a whopping $1.02 negative impact on earnings per share (EPS) in Microsoft's recently announced fiscal 2015's Q4.
Ouch.
Adding insult to injury was the "slowing" of perhaps the most important aspect of Microsoft's future -- the cloud. Unfortunately, Microsoft ended its string of triple-digit quarterly growth in cloud revenues last quarter. Cloud-related sales "only" jumped 88%, or 96% if you factor in the impact of the strong U.S. dollar.
Thing is, at an annual run rate of over $8 billion, Microsoft is already among the leading providers -- if not the leading provider -- of cloud-related services on the planet. This is all part of CEO Satya Nadella's "mobile first, cloud first" plan. At some point, investors are going to recognize that it's in these strategic areas that Microsoft should be measured, and when they do, shareholders will reap the benefits.
The reaction to the Nokia write-off is indicative of the short-term nature of altogether too many investors. Microsoft is a steal at these levels, and even offers a 2.66% dividend yield. For long-term growth and income investors, Microsoft offers a compelling story as it continues its shift to becoming the world's leading provider of cloud solutions.
