Stocks continue to do incredibly well, with the S&P 500, Dow Jones Industrials, and NASDAQ Composite all at record levels. But before you "sell in May" as the old saying goes, you might be better served to buy right now -- especially if it's one of the top stocks below.
Our contributors have put their analysis skills to work and come up with these great companies that it might be smart to buy shares of now: Netease Inc (ADR) (NASDAQ:NTES), BofI Holding, Inc. (NASDAQ:BOFI), Under Armour Inc (NYSE:UA)(NYSE:UAA) C shares, Autozone, Inc. (NYSE:AZO), and American Outdoor Brands Corp (NASDAQ:AOBC).
Keep reading below to learn what makes these top stocks worth buying now.
Investors will want to play this game
Dan Caplinger (NetEase): With all the strength in the U.S. stock market lately, investors haven't paid nearly as much attention to international markets as they did in the past. However, despite some general economic challenges in many parts of the world, there are still several pockets of strength, and Chinese video game giant NetEase has continued to produce impressive growth even as competition in the industry has increased.
In its most recent quarter, NetEase posted revenue gains of more than 50%, and the gaming company boosted its adjusted earnings by about two-thirds. Online gaming was strong, and NetEase made key inroads into the mobile-device market. The company's head start in focusing on mobile advertising has been extremely valuable, and NetEase has been able to pass on its profit growth to shareholders in the form of big increases in dividends. At the same time, the gaming giant has also been able to keep growing its revenue from other sources, including email and e-commerce channels.
This month, NetEase will report its first-quarter results, and all indications suggest that the growth story at the video game company should continue. At this rate, if NetEase can continue to gain name recognition not just among Chinese online video game players, but also among customers using its services for other reasons, then the company could capitalize even more strongly on the long-term growth story in China going forward.
A growth stock you can bank on
Jason Hall (BofI Holding): Over the past couple of years, few stocks have been as divisive as BofI Holding. The company and its executives have dealt with a bevy of accusations by short-sellers of all sorts of bad deeds, nearly all of which have been proven false. Over this period, BofI has undergone multiple regulatory reviews, made acquisitions that required additional scrutiny, and had its financials audited multiple times.
Lastly, BofI is cheap right now. It's rare to find a bank trading for 1.9 times tangible book value and less than 14 times earnings, while generating returns on equity far better than most banks, and boasting an efficiency ratio that's twice as good as its average competitor.
Slowing down, but still running
Steve Symington (Under Armour (C shares)): Given a cursory look at Under Armour's first-quarter 2017 results announced last week, it might seem crazy to nominate the athletic apparel and footwear specialist as a top stock to buy this month. After all, revenue only climbed 7% year over year, to $1.1 billion, marking the company's first time below 10% growth in over a decade. That notably included a 1% decline in Under Armour's core North American business following multiple bankruptcies of retail distributors like Sports Authority last year. On the bottom line, Under Armour incurred a quarterly net loss of $2.3 million, or a penny per share.
But those results were in line with Under Armour's expectations and ahead of Wall Street's models. To be sure, shares popped 10% the following day as the market cheered the news. Of course, it helps that Under Armour has struck new retail partnerships with the likes of Kohl's and DSW to help pick up the slack. Its international business also remains strong, with revenue climbing 52% year over year, but still representing just 20% of total revenue. And that's not to mention the long-term potential for UAS, or Under Armour Sportswear, which was only just introduced last year to mark Under Armour's entry into the $12.5 billion fashion-centric sportswear industry.
In the meantime, Under Armour management also told investors to expect revenue growth in to reaccelerate as 2017 progresses, with year-over-year growth returning to a mid-teen percentage rate in the second half. With Under Armour C shares still down more than 25% year to date as of this writing, I think investors would do well to open or add to their positions before that happens.
This growth story hasn't broken down
Brian Feroldi (AutoZone): Automakers have been improving the quality of their vehicles for years. That has allowed consumers to hang on to their older cars and trucks for extended periods of time. This aging of the auto fleet has steadily increased the demand for aftermarket auto parts, which is a market opportunity AutoZone has beautifully capitalized on over the last decade.
AutoZone's strategy has been to invest in its store count and customer service capabilities to make it easier for consumers to quickly get the part they need. This simple but effective strategy has lead to consistent growth in same-store sales and revenue. When combined with steady margin improvements and the company's habit of buying back stock, the AutoZone was able to report 41 consecutive quarters of double-digit EPS growth.
However, that streak recently came to an end. Last quarter, AutoZone's same-store sales were flat, and EPS only grew by 8.8%. Management blamed the slowdown primarily on a delay in tax refunds, which many customers have historically used to make vehicle repairs.
While that excuse makes sense to me, Wall Street wasn't thrilled with the news and sold off the company's stock. That has knocked down the company's valuation as shares are currently trading for less than 14 times next year's earnings estimates. I think that's a bargain price for a recession-resistant retail concept that promises double-digit profit growth over the next five years.
The market is completely misreading this stock
Rich Duprey (American Outdoor Brands): Sometimes, and in some ways, the market just gets it wrong. That's the case with American Outdoor Brands, which remains significantly undervalued because the market is interpreting gun sales data all wrong.
The federal gun buyer background check data for April showed more than 2 million applications for the month, and the market took that as another signal that demand for guns was declining. The figures were 16% below March's numbers and almost 5% below year-ago levels, so it would seem the market has it right: that demand is ebbing and American Outdoor's stock price drop was warranted. Except the market is looking at the numbers wrong.
First, April is historically a quieter month than March, and background checks typically decline by double-digit percentages. Second, 2016 was a unique year in that gun sales were driven by politics and the expectation that the presidential election would have a different outcome. There were more than 27.5 million background checks processed last year, more than any time since the FBI began tracking such data in the late 1990s.
A better comparison would be the 2015 data, which, while still a record-setting year at the time, was not especially skewed by politics or elections. When compared to April 2015, we find background checks running almost 20% higher. In other words, just because this year's gun buyer data isn't as high as the all-time biggest surge in gun buying doesn't mean demand isn't still enormous.
The market is misreading the signs and discounting American Outdoor Brands' stock, and that's a buying opportunity. The gunmaker trades at just nine times trailing earnings, around 12 times next year's estimates, and at a fraction of its projected earnings growth rates. It also goes off at an incredibly discounted seven times its free cash flow.
Few stocks are as cheap as American Outdoor Brands yet have a phenomenal growth trajectory in front of them, and for that, investors can thanks the market for getting it completely wrong.
Brian Feroldi owns shares of BofI Holding and Under Armour (C shares). Dan Caplinger has no position in any stocks mentioned. Jason Hall owns shares of BofI Holding and Under Armour (C shares). Jason Hall has the following options: long January 2018 $30 calls on BofI Holding. Rich Duprey has no position in any stocks mentioned. Steve Symington owns shares of Under Armour (C shares). The Motley Fool owns shares of and recommends BofI Holding and Under Armour (C shares). The Motley Fool recommends AutoZone, DSW, and NetEase. The Motley Fool has a disclosure policy.