Another month is in the books, and it was a good one. The S&P 500 is up over 7% so far in August, bringing the total rally from the index's March low to almost 57%.
As tempting as it may be to stick with stocks that are working, now might be a good time to start reconfiguring your portfolio. September is, on average, the worst month of the year for the market, and we're starting the month this year with lots of potential profit-taking. Throw the COVID-19 pandemic and resulting economic fallout into the mix, in addition to a contentious presidential race, and it just makes sense to rethink things. Perhaps now's the right time to solidify your portfolio with some big, established names that can stand up to anything that might lie ahead.
To that end, here are three large-cap stocks to consider buying before we get too far into September.
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Microsoft offers what companies can't live without
Bargain hunters and value seekers may be wary of Microsoft's (MSFT 1.82%) lofty valuation. Its trailing and forward price-to earnings (P/E) ratios are both well above 30 as of this writing. But as they say, though, you have to pay for quality, and the software giant has loads of it.
That's largely because it has drastically changed its business model under CEO Satya Nadella, who took the helm in 2014. Microsoft is still a software powerhouse, but it now "rents out" its software as well as selling it. That is to say, it offers cloud computing and productivity solutions on a subscription basis rather than limiting itself to license sales that may or may not be repeated when it comes time for an update. These products include Office 365 and its popular Azure cloud management interface. It's difficult to simply give up the use of either, once you've grown accustomed to your access.
But the company is thinking much more broadly now.
Realizing that the effects of the coronavirus contagion have effectively forced small businesses to move their operations online, it's made a point of making it easy for these organizations to plug into Microsoft's tools. In June, it expanded what it calls its Digital Marketing Center, equipping small-scale operators with tools that help them advertise online. In July, it integrated its ad-creation tools with Shutterstock's stock photos, making it easier for its advertisers to create effective ads. The company has also responded in earnest to the new work-at-home norm, beefing up its online collaboration and video conference capabilities. These are just a trio of examples of how Microsoft is morphing into a one-stop shop for businesses.
Despite the premium valuation, there's very little on the horizon that is likely to derail the company's growth. For the three-month stretch ending in June -- when the pandemic was at its worst -- Microsoft still managed to deliver 13% year-over-year revenue growth.
NVIDIA is in the middle of tech's hot spot
In the same sense that most of Microsoft's offerings have become essential for many businesses, computing hardware outfit NVIDIA (NVDA 6.18%) is well-positioned for growth regardless of what may await other companies in the foreseeable future. That opportunity is rooted in data centers and artificial intelligence.
NVIDIA still plays second fiddle to Intel in terms of total sales of processors to data centers, but the latter has faced a string of development setbacks, opening a door NVIDIA was ready to walk through regardless of the coronavirus. Data centers simply had to have the latest iteration of the company's new Ampere-based graphical processing units, because it meets a fast-growing need for high-performance cloud computing solutions. The end result: Data center sales in the fiscal second quarter grew 167% year over year to $1.75 billion, which was also a sequential improvement of 54%. It was the first time the comapny's data center business was even bigger than its gaming business, and it's not likely to be the last time as NVIDIA is the market leader of the key driver behind data center growth.
That driver is artificial intelligence. As of the end of the most recent quarter, NVIDIA technology was found in eight of the world's ten fastest supercomputers, and during the three-month span, NVIDIA hardware set 16 new artificial intelligence performance records. The company has been tapped to supply the computing backbone of more than 50 AI-powered servers expected to be delivered before the end of the year.
It matters. Although IT market research outfit Gartner is not expecting any growth this year in the $200 billion data center market, market research from International Data Corporation suggests the artificial intelligence hardware and software market could grow more than 12% this year. After this year, IDC believes AI spending growth will accelerate through 2024.
Not your father's Procter & Gamble
Finally, add Procter & Gamble (PG -0.78%) to the list of top large-cap stocks to buy in September.
Like Microsoft (and NVIDIA), P&G shares are seemingly on the expensive side thanks to the big gains that started to take shape in April and then reaccelerated in July and August. All told, PG stock is up more than 40% from its March low and well into record-high territory. Shares are now trading at 25 times forward earnings, pushed upward during a frenzy of demand for consumer staples and consumables. The buyers may have overshot.
However, the company has more of a second, post-COVID act ready to go than it may seem on the surface.
It's been difficult to see amid all of the noise, but CEO David Taylor has been steering the company into the 21st century for some time now. Rather than discouraging risks that might result in failure, he encourages them on the hope they'll lead to a new, marketable product. Some of those ideas were even "techie" enough to feature at this year's Consumer Electronics Show, including a toilet paper delivery robot, heated razors, and a baby monitor that helps predict an infant's needs. Also in January, the company acquired women's shaving company Billie, which is a subscription-based, direct-to-consumer brand. It adds to a handful of existing P&G direct-to-consumer initiatives with more likely to be on the way, either by acquisition or via internal development. And last year, the company radically overhauled how it promotes itself. Sweeping, indiscriminate advertising is out -- targeted, data-driven marketing is in.
Procter & Gamble may not be able to sustain its coronavirus-fueled revenue and earnings boost long term, but it's got several tailwinds ready to gel in the coming year.
