June is here, and you might be readying yourself for an onslaught of warm-weather activities. But if you have any money not pegged for cookouts, family vacations, or trips to the water park this summer, it might be wise to consider putting some of it to work in the stock market.
We asked seven Motley Fool contributors to pick one stock they think investors would do well to buy in June. Read on to see which businesses they chose and why.
Steve Symington: I think now is a great time for investors to pick up shares of iRobot (IRBT +0.00%). First, the home-robot maker is basking in the strength of its first-quarter report from late April, which caused shares of iRobot to jump 10% in a single day after both quarterly earnings and forward guidance came in well ahead of expectations. For that, iRobot credited continued momentum in the U.S. for its high-end Roomba 980, as well as an "overwhelmingly positive response" to its new Braava jet floor-mopping robot. And that's not to mention that the Braava jet won't even arrive in China or Japan until the third quarter, where it will be able to capitalize on a key growth opportunity given its affordable price point and the predominance of hardwood-floor dwellings in the regions.
What's more, more recently iRobot won a contentious proxy fight with Red Mountain Capital, as a majority of investors voted for iRobot's own board nominees up for re-election this year. In doing so, they thwarted the threat of what the company argued -- and I agreed -- were inexperienced board member nominees and misguided attempts to maximize profitability. Perhaps most notably, Red Mountain wanted to reduce iRobot's seemingly aggressive R&D spending (which hovers around 12% of annual revenue) to levels commensurate with traditional consumer-products companies -- something iRobot rightly insisted would be a grave mistake and negatively affect its ability to compete and innovate in the high-tech home robotics industry.
Of course, that doesn't mean Red Mountain won't try to continue pushing its agenda as a large shareholder of the company. If that happens, iRobot will gladly engage in healthy dialog there. But now that iRobot is free to continue tackling that market in its own way as it works to expand its global presence and product offerings, I think iRobot stock has a long way to run from here.
Tim Green: NXP Semiconductors (NXPI 4.34%), a manufacturer of a broad range of semiconductor products, reported an 11% year-over-year decline in comparable revenue during the first quarter. Revenue surged on an absolute basis because of the company's merger with Freescale Semiconductor, but a difficult period in the semiconductor industry is taking a toll on the company's results.
However, the future for NXP looks a lot brighter than the present, in part because of the company's heavy focus on the automotive semiconductor market following the merger. More than one-third of the company's revenue is now derived from automotive products, and NXP is making a big push to be a critical supplier for the eventual self-driving car. In May, NXP announced BlueBox, an autonomous vehicle computing platform that the company claims will enable major advances by 2020. NXP also sells a wide variety of other products aimed at the automotive market, including radar chips and sensors.
NXP's earnings have taken a hit because of weak demand, with first-quarter non-GAAP EPS slumping 16% year over year. But a recovery in demand, as well as growth driven by the company's automotive segment, could drive earnings much higher in the coming years. Analysts are expecting non-GAAP EPS to reach $7.56 in 2017, up from $5.60 in 2015. That puts the forward P/E ratio at just 12.2.
NXP will face plenty of competition in the automotive market going forward. Graphics-chip company NVIDIA already offers a similar autonomous-car platform, and other companies are sure to follow. But NXP has other growth opportunities as well, including NFC chips, which power mobile payment systems. NXP offers investors a compelling combination of growth and value, and June is as good a time as any to consider the stock.
Brian Feroldi: With the S&P 500 trading within spitting distance of an all-time high, it's hard for investors to find much value in the markets today. Yet that's exactly what I see when I take a hard look at biotech blue chip Gilead Sciences (GILD 1.51%). Shares can be had for less than eight times trailing earnings, which I think is simply too cheap to ignore.
Investors largely believe that the company won't ever grow again, and the market has accordingly priced the stock for death. While it's as clear as day that this company is facing some challenges right now, I think the pessimism is overdone and there's reason to be optimistic from here.
First, lets get through the bad news. Revenue from U.S. sales of Gilead's blockbuster hepatitis C drug, Harvoni, plunged more than 50% last quarter. While the company more than made up for the shortfall by growing elsewhere -- total revenue increased 3% last quarter -- margins took a hit, causing net income to drop 16% year over year to $3.6 billion.
Competition is what caused Harvoni sales to plunge. To maintain its dominant hepatitis C market share, Gilead had to make some big pricing concessions. That caused margins to decline, and the pressure is expected to continue throughout the year. Management is forecasting full-year revenue to land between $30 billion and $31 billion this year, down from $32.2 billion in 2015.
That's not great, but I think the market is overlooking the potential of Gilead's next-generation hepatitis C drug, which is currently under regulatory review. If the FDA gives it the thumbs-up on its June 28 PDUFA date, then Gilead will have the first ever pan-genotype hepatitis C therapy on its hands. That means that patients won't have to undergo testing ahead of time to figure out which of the six hepatitis C genotypes they have, which will give Gilead a huge competitive edge in the marketplace. That could help to restore its premium pricing and fix its margin problem.
Gilead also has a lot of interesting things going on in its core HIV portfolio. It recently won approval for a new formulation of Viread that poses less of a risk to patient's kidneys than a previous version did. Gilead has plans to expand that new formulation into its other HIV therapies as well, which should keep its antiviral sales heading in the right direction.
In the meantime, the company is repurchasing its shares at a furious pace, buying back $8 billion worth just last quarter. The board also authorized another $12 billion worth of repurchases, so the company's share count should continue to rapidly decline. It doesn't hurt that the dividend yield is above 2%.
Add it all up, and I think that the pessimism for Gilead Sciences is far too high. The stock could zoom higher if anything at all goes right in the near future.
Neha Chamaria: Investors in CF Industries (NYSE: CF) have seen a lot of drama in recent months. The stock price has halved since the fertilizer giant first announced its proposed merger with some business divisions of Netherlands-based OCI in August last year, proving how wary investors were about the deal.
In an unexpected turn of events, CF called off the merger recently, as the proposed setting up of a newly merged company in the U.K. to move tax domiciles didn't go down well with the U.S. Treasury, which is cracking down on tax inversions.
So where does that leave investors? To begin with, CF will consider returning the extra cash it had sidelined for the deal to shareholders: It held $2.7 billion in cash and cash equivalents as of March 31, and I'm expecting a share-repurchase announcement soon. I don't see a dividend increase coming, as CF is in the midst of completing major expansion programs this year that still require substantial amounts of capital. Once complete, the projects should add significant capacity, especially for urea-ammonium nitrate, or UAN -- a high-margin nitrogen product -- and fortify CF's position as North America's largest nitrogen manufacturer and the world's biggest UAN maker.
As nitrogen is also the most important crop nutrient, I believe CF should continue to outperform its peers, as it has in the past decade. The next best performer, PotashCorp, generated half the returns of CF during the same period. Thanks to its steep fall, CF is now trading at only 13 times trailing earnings and 6 times its cash flow, versus an industry average price-to-earnings ratio of 23 and a price-to-cash flow ratio of 13. It's a great opportunity to add CF to your portfolio.
Dan Caplinger: The medical-device industry has had demographics working in its favor for years, and an aging population is likely to need even more healthcare services in the years to come. Medtronic (MDT +0.46%) has seen the potential in serving that population, and its stock has soared on the many promising strategic moves it has made recently.
For instance, Medtronic's purchase of the gynecology business of Smith & Nephew will give it a chance to expand its presence in the minimally invasive surgery arena. More recently, the company joined forces with Qualcomm to develop new systems for continuous glucose monitoring for those who suffer from Type 2 diabetes. In combination with its own internal launches of products and platforms such as its Spine Essentials set of implants and instruments for use in spine-fusion procedures, Medtronic is using every means at its disposal to encourage growth.
What makes Medtronic a smart buy in June is that traditionally, that has been the month when the medical-device maker announces its annual dividend increase. Medtronic has boosted its payout in 38 straight years, with shareholders getting a substantial 25% raise in 2015. Shareholders shouldn't necessarily count on that big a payout, but with something likely in the cards for this month, Medtronic would make a smart buy early in June.
Todd Campbell: While I typically shy away from recommending phase 2 stage drug companies to investors, I'm making an exception for Kite Pharmaceuticals (NASDAQ: KITE), which does come with a big risk.
Kite's management hasn't said when it will report pivotal interim data from its ongoing trial of KTE-C19 in aggressive non-Hodgkin lymphoma, but it has said that it will be in the second half of this year, and that may make now a good time to buy shares.
KTE-C19 is one of the first in a brand-new class of cancer-curbing therapies called CAR-Ts that re-engineer a patient's immune system to find and destroy cancer cells. If interim phase 2 results are positive, then Kite Pharmaceuticals plans to file for accelerated FDA approval before the end of this year.
The FDA might be willing to give KTE-C19 a nod without confirmatory phase 3 data in hand because the prognosis for aggressive non-Hodgkin lymphoma is extremely poor. If the FDA does approve KTE-C19 based on phase 2 data, then Kite Pharmaceuticals could have a nine-figure-plus drug on the market as soon as next year.
Of course, this trial could fail, and if it does, then Kite Pharmaceuticals' shares will tumble. Therefore, the risk in buying shares in this stock is undeniably big. Nevertheless, risk-tolerant investors who want exposure to CAR-T might want to buy shares before Kite reports its KTE-C19 data. Doing so could pay off.
Jason Hall: For years, athletic apparel and footwear maker Under Armour Inc. (UA 1.08%) (NYSE: UA-C) has been posting double-digit sales and earnings growth, and this most recent quarter were no exception -- sales were up 30% and earnings per share jumped 33%.
But at the same time, the company's stock is cheaper now than it's been since 2014:
UA PE Ratio (TTM) data by YCharts
I'm not saying Under Armour's shares are exactly cheap, with a very high trailing and forward price-to-earnings multiple that's far above that of competitor Nike Inc. (NKE +1.06%). But this is still a great time to invest in potentially one of the greatest growth stocks of its generation.
As much as Under Armour has grown over the past 20 years, the company is still a lightweight in the global athletic apparel and footwear business. Under Armour is on track to break $5 billion in annual revenue in 2016. For context, Nike sold $8.5 billion in footwear alone in 2015, just in North America. Nike's total revenue over the past 12 months was nearly $32 billion, nearly seven times more than Under Armour.
The best part? Under Armour's growth doesn't require it to take business away from a stalwart like Nike. Athletic apparel and footwear is a global growth market, and the pie will be plenty big enough for Under Armour and Nike alike. And thanks to the recent sell-off, Mr. Market is giving investors a great opportunity to buy Under Armour at a discount to its usual premium price.
