Last week, the stock market reached a fresh new all-time high as the Dow Jones Industrial Average (DJIA) became the last of the three major indexes to turn positive for the year.
Leading that charge are four hot stocks that have reason to stay hot in September and beyond. And the best part? All four are still down for the year, so there's even more room for upside.
Image source: Getty Images.
Starbucks
Starbucks (SBUX 0.53%) rocketed over 10% higher last month as the coffee giant got an extra jolt from Stifel, an investment bank, which upgraded its price target to $90 from $78 a share.
Starbucks' recent quarter wasn't great, but there's reason to believe that Starbucks could blast to a new all-time high within the next few years.
Despite reporting its first quarterly loss in years and suffering a nearly 40% revenue decline, Starbucks was able to reopen nearly all of its U.S. stores, signaling the company may be back to normal very soon. But that's just the short-term good news. The long-term good news is that Starbucks is implementing a major change to its strategy that makes the stock a good candidate to buy and hold forever.
The COVID-19 pandemic has highlighted that loyalty toward Starbucks remains high. What stores were open enjoyed 25% higher average ticket comps as customers ordered multiple beverages and food items like never before. In an effort to lean into this trend, Starbucks is planning on transitioning from large coffee houses to quicker, higher-volume stores that rely on drive-thrus, curbside pickup, and new Starbucks Pickup stores.
The new business model should be the perfect fit for Starbucks. The company will be able to cut costs with smaller stores that take advantage of a loyal Starbucks Rewards customer base and a high volume of mobile orders that now comprise 22% of total transactions. Starbucks currently yields 2%, giving you some extra income while you wait for its strategy to unfold.
Honeywell
Honeywell International's (HON 1.66%) acceptance into the DJIA was the cherry on top of the company's 11% gain in August. America's third-largest publicly traded industrial company is finally getting the recognition it deserves for embracing the Industrial Internet of Things (IIoT) as an opportunity, not a threat.
Honeywell is one of the more modern industrials you'll find on the market today. Its development of Honeywell Forge, which is essentially an Enterprise Performance Management (EPM) system, has the ability to grow sales across all of Honeywell's core industries. And despite Honeywell's exposure to aerospace, oil and gas, and the construction industry, the company only suffered a minor blow to free cash flow (FCF) last quarter.
Honeywell now has the best balance sheet out of any industrial in the Dow, not to mention a 2.2% dividend yield, giving a reason to believe its hot streak is just getting started.
Southwest Airlines
Southwest Airlines (LUV 1.10%) enjoyed a 23% gain last month as optimism about a reopening of the economy continues to push the airline industry higher.
Although the TSA's travel throughput statistics indicate air traffic is still down around 70% compared to this time last year, the climate has improved substantially from when travel was down 95% in April.
Despite these challenges, Southwest management has reinforced its confidence in the company's balance sheet. In its recent quarter, management touted Southwest as the only airline with an investment grade balance sheet.
Southwest's financial strength gives it a big advantage in the current business environment. Unlike other more highly leveraged airlines, Southwest has the breathing room to take on more debt if needed to weather the storm. And given that management has decreased the company's daily losses substantially over the past few months, there's reason to believe that it's a smart move to buy Southwest Airlines.
Delta Air Lines
Like Southwest, Delta Air Lines (DAL -0.58%) has crushed the market over the last month. And also like Southwest, the company has done an impressive job reducing its daily cash burn rate.
If Southwest is the industry leader in financial strength, then Delta would take the crown as the best airline from an operational perspective. If the economy continues to reopen and travel surges from vacationers who need to get out, then there are few airlines that would be better to own than Delta.
DAL Free Cash Flow (Annual) data by YCharts
Over the best five years, Delta has grown to dominate the four major airlines in FCF, net income, and revenue. Although its balance sheet isn't as hearty as Southwest's, Delta's upside potential in a good economy is one reason why there could be bright skies ahead for Delta in September and beyond.
Room to run higher
Starbucks, Honeywell, Southwest, and Delta have the combination of strong fundamentals and momentum to carry their stocks even higher.
Social distancing and the ongoing COVID-19 pandemic make now the perfect time for Starbucks to implement its new long-term growth strategy. Honeywell's addition to the DJIA, industry-leading position across several pivotal segments, and embrace of IIoT makes it one of the most attractive industrial stocks on the market today. Southwest and Delta are arguably the two best U.S. airlines and offer one of the best ways to invest in the reopening of the American economy.
