The summer season is quickly coming to a close, but that doesn't mean we'll stop our never-ending quest to find market-beating stocks.
To that end, we asked five top Motley Fool investors to pick stocks they believe investors would be wise to consider buying in the month of August. Read on to learn why they chose Under Armour (NYSE:UA)(NYSE:UAA), FormFactor (NASDAQ:FORM), U.S. Silica Holdings (NYSE:SLCA), Dynavax Technologies (NASDAQ:DVAX), and General Motors (NYSE:GM).
This short-term pessimism is misplaced
Steve Symington (Under Armour): Thanks to a slowdown in growth following several sporting goods retailer bankruptcies, shares of Under Armour have been crushed to the tune of a 50% decline over the past year. But I think now is a great time to pick up the beleaguered stock.
Investors got their most recent peek at the state of Under Armour's business with its second-quarter report only a few days ago. Quarterly revenue climbed a modest 9% year over year to $1.09 billion, but a combination of margin compression and higher operating costs meant those sales translated to a $12 million net loss when all was said and done.
But for those clamoring for a return to its former glory, Under Armour also simultaneously restructured its business with the goals of streamlining operations, reducing costs, and taking a more disciplined approach at allocating investments to regain sustained, profitable growth over the long term.
Investors should also keep in mind that North America still represented 78% of Under Armour's total revenue last quarter. Meanwhile, international revenue climbed 57% (or 54% at constant currency), led by an 89% gain from the company's burgeoning Asia-Pacific operations. That's also why Under Armour's larger global competitors -- like Nike, for which North American revenue was flat on a year-over-year basis last quarter and represented just over 43% of total sales -- haven't been punished nearly as badly by investors amid the same stateside retail pressure.
So while Under Armour's latest results may not look encouraging on the surface, the company remains well positioned to continue delivering on its global growth story in the coming years. And I think investors who buy now will be more than happy with their results as they watch that story play out.
A smart way to invest in semiconductors
Keith Noonan (FormFactor): With the mobile market still growing, connected cars quickly gaining ground, and a range of heretofore "dumb" devices set to get the "smart" treatment thanks to the Internet of Things connectivity wave, there are major tailwinds propelling the semiconductor industry. That's great news for FormFactor -- a company that specializes in testing equipment for chips and counts industry leaders including Intel and Samsung among its biggest customers.
FormFactor recently delivered great quarterly results -- with sales up 12% sequentially and earnings that were substantially better than the average analyst estimate and the company's own guidance, but it looks like investors still have the opportunity to jump in and see great long-term returns with the stock. Thanks to its 2016 merger with Cascade Microtech, FormFactor now has roughly twice the market share of its leading competitor and looks poised to be the biggest beneficiary of growing demand for integrated circuit-testing solutions.
FormFactor was recently named the best supplier of test connectivity systems by VLSIresearch, an honor that it's now won for four years running, and its stock appears to be an inexpensive and relatively low risk way to invest in the growth of the semiconductor industry. Even after gaining roughly 10% since its Aug. 2 earnings report, shares still trade at just 12 times forward earnings estimates -- and that looks like an attractive entry point for a company that's on track to play a crucial role in the evolution of tech hardware.
Wall Street is punishing this stock for past sins
Tyler Crowe (U.S. Silica Holdings): After a tough couple of years post-oil price crash, America's shale oil revolution has found a second wind. Producers and oil services companies have developed new methods that have drastically reduced the cost to extract a barrel of oil. Today, producers in prolific shale basins like the Permian Basin enjoy better rates of return, with prices in the range of $45-50 per barrel, than they did in 2012 when they were well above $90. Improved economics have translated into steadily growing drilling activity.
Frack sand producer U.S. Silica has benefited immensely from this trend. One thing producers learned is that more sand leads to better production rates. As a result, total sand consumed per well has more than doubled in the past few years. We're even at a point where U.S. Silica and its peers are selling more sand than they did pre-crash even though the active rig count is still half what it was in 2014.
U.S. Silica has a lot of going for it right now. It's selling sand at a record rate, it's turning a decent profit, and the company is building a new sand facility in the heart of the Permian Basin. Despite all that the company has going for it, Wall Street has absolutely punished this stock this year.
Selling frack sand is a commodity business that could go through another period of oversupply like it did during the crash. However, better well economics in U.S. shale plays suggest the oil and gas industry is much more resilient to prices than it was a few years ago. This could make shares of U.S. Silica a great way to invest in the industry rebound.
Just a few more details to hammer out
Cory Renauer (Dynavax Technologies Corporation): Hepatitis B vaccinations have been available for years, but human nature doesn't jibe with the typical six-month dosage schedule. An estimated 46% of patients never complete the standard three-dose series, which helps explain why about 19,000 Americans still become infected with the incurable virus each year.
My stock pick for August has a fancy new vaccine in extra-late-stage development that does the trick with just two doses given four weeks apart. The Food and Drug Administration has delayed its review of Heplisav-B's application multiple times, but it looks like a recent advisory committee vote in Dynavax's favor has convinced the agency to finally move forward.
The FDA doesn't follow every advisory committee recommendation, but it just dropped a big hint that it's ready to give Heplisav-B a thumbs-up. The agency just pushed back the date by which it previously expected to deliver its decision. Contents of FDA communications aren't subject to full disclosure, but Dynavax said it wants to hammer out the details of an aftermarket safety study before issuing a decision.
While the longer-than-expected wait is disappointing, I doubt the FDA would be so concerned about such details if it didn't intend to hand down a conditional approval. If approved, Heplisav-B sales could top out at around $700 million each year at its peak. This suggests a successful launch could, in turn, more than double Dynavax's recent $916 million market cap over the long run.
Electric cars and self-driving? This is the automaker you want
John Rosevear (General Motors): I really think the market is missing the story on General Motors (NYSE:GM). Here in August 2017, GM is as well positioned as any of its rivals (old or new) to thrive as technology transforms the auto business, and it's run by a management team that understands (and practices) disciplined capital allocation, generating good returns that should get even better over the next several years.
It even pays a 4.3% dividend. But it's trading at just six times its expected 2017 earnings. What's going on here?
I think there are a couple of factors holding GM's valuation back. First and foremost, it's hard for an established automaker to look like an exciting investment in comparison to Tesla. But even its fans have to admit that an investment in Tesla is a high-risk bet at this point.
GM isn't nearly as exciting, but it's also not nearly as risky. CEO Mary Barra and her team have been eliminating low-margin businesses (like GM's long-suffering European operation, now sold), while placing big bets on new technologies and new business models that offer opportunities for greater returns -- and getting out ahead of potential "disruptors" like Tesla.
GM has already emerged as a leader in electric cars, urban mobility, and self-driving technologies -- far ahead of many rivals and on par with Silicon Valley's best. Meanwhile, its core business is cooking right along: GM's well-regarded lineup of trucks and crossover SUVs are generating good sales and strong margins in the U.S. and China.
The second factor holding GM's shares back is probably a concern about the U.S. new-car market, which is almost certainly past its cyclical peak. But GM is prepared for that, too: It's bringing down its inventories and holding plenty of cash in reserve. When the inevitable downturn arrives, GM will be just fine -- and in a good position to gain ground when the market turns back up.
And that dividend? It's actually conservative: CFO Chuck Stevens said GM is prepared to continue to pay it through the next downturn (unless things get dire, of course).
Long story short: It's almost like GM is hiding in plain sight (or at least in Tesla's shadow). But sooner or later, Wall Street will catch on -- and investors who buy hereabouts could be well rewarded.
Cory Renauer has no position in any stocks mentioned. John Rosevear owns shares of General Motors. Keith Noonan has no position in any stocks mentioned. Steve Symington owns shares of Under Armour (C Shares). Tyler Crowe owns shares of Tesla. The Motley Fool owns shares of and recommends Nike, Tesla, Under Armour (A Shares), and Under Armour (C Shares). The Motley Fool recommends FormFactor. The Motley Fool has a disclosure policy.