The stock market has been unstoppable this year, with bullishness continuing from 2020 and the S&P 500 index now up over 15% since the start of January. Given that context, it's natural to be a little apprehensive about buying stocks right now -- many look a bit expensive. But there could be more gains ahead, as the U.S. economy is still in the early stages of returning to normalcy after the coronavirus pandemic.
Three stocks that look to be great buys for the latter half of the year include Walgreens (WBA -1.12%), Alphabet (GOOG -1.80%), and American Airlines (AAL -1.60%). They have all been outperforming the S&P 500; here's why their gains could get even bigger as the year progresses.
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1. Walgreens
Walgreens' stock has been falling since the company released its latest quarterly results on July 1. Although the pharmacy retailer beat expectations for sales and profits, investors only saw that the business did well due to a boost from COVID-19 vaccinations. Already looking ahead (perhaps too far), they hit the sell button on concerns that the trend would subside -- even though management forecasted 10% growth in its adjusted earnings.
And while it is completely reasonable to expect numbers to taper off as coronavirus vaccination rates continue to increase, Walgreens is still likely to get a boost from flu shots. Cases of influenza were at record lows this past flu season, and a resurgence this fall could offset any drop-off in vaccine-related traffic to its stores. Looking further ahead, booster shots for COVID-19 could become an annual occurrence and may even be combined with flu shots.
Investors may be selling off Walgreens stock prematurely. With shares of the healthcare company trading at the lowest levels they've seen since March, now may be a good time to buy on the dip. And with the stock's yield of 3.9%, investors will also be securing a payout that is well above the S&P 500 average of just 1.4%.
2. Alphabet
A return to normalcy is also great news for tech giant Alphabet, which could experience a surge in ad revenue as businesses go back to spending money on promoting their operations. Media investment company GroupM is seeing advertising growth exceed its expectations at the midyear mark, specifically when it comes to digital media. In December 2020, the company was expecting to see 15% growth in ad spending related to digital media for this year, but it now projects that number will rise as high as 26%.
That's great news for Alphabet, which is already coming off an improved quarter. In its latest results, released April 27, revenue for the first three months of 2021 totaled $55 billion, growing 34% year over year -- up from a growth rate of just 13% in the same period of 2020. The company credited the results to "broad-based growth in advertiser revenue" -- a trend that doesn't look to be dying down anytime soon.
Although Alphabet's shares are already up 47% this year, it still may not be too late to invest in the company. The stock is trading at a price-to-earnings multiple of 34, and it's often traded even higher in the past. Strong earnings later this year could bring that number down.
3. American Airlines
Investing in American Airlines used to be a contrarian bet, but not anymore. Pent-up travel demand could be a catalyst behind a strong second half for the company. On July 4, just under 1.7 million people passed through TSA travel checkpoints -- more than double last year's tally of more than 730,000. The demand is strong, but the company has been canceling flights due to labor shortages and weather-related issues to ensure that it "minimizes surprises at the airport." While that isn't great news and it means there will likely be some lost revenue, it could prove to be a temporary issue if American Airlines can hire enough staff in the near term to help manage these challenges.
The surge in travel, even despite cancelled flights, should give American Airlines' numbers a big boost this year. Investors have already been anticipating that, with shares of the airline up more than 35% year to date. But it likely won't be until investors see just how strong the earnings numbers are that the stock will likely hit a peak. Sales of $4 billion for the first three months of 2021 were still underwhelming and down more than 50% from the previous year.
Over the next few earnings reports, however, when stronger demand translates into a much better top line for the company, that should drive even more bullishness behind American Airlines stock -- likely sending it back to its pre-pandemic highs of more than $30 per share before the end of the year. Investors should expect to see the company's next earnings report (which will cover the three-month period up until the end of June) later this month. With last year's numbers of $1.6 billion for the period being down more than 86% versus 2019's totals due to lockdowns, the airline should crush its year-over-year comparables this time around.
