The stock market has rallied so far this year, particularly in the period between the last earnings season and this one. Companies now have to prove to Wall Street that their higher stock prices are justified.
Investors may find themselves in different camps, those looking to shift their focus toward value plays, those wanting to ride the momentum, and everything in between.
In this article, five contributors weigh in on top stocks to buy in August. Johnson & Johnson (JNJ 0.60%) and Pfizer (PFE +0.29%) stand out as two value-oriented plays, while Nike (NKE +2.87%) is a beaten-down name-brand stock that hasn't rallied like the broader market. On the growth side of the spectrum, HubSpot (HUBS +5.64%) is a software company with room to run. And Bitcoin (BTC +0.36%), Ethereum (ETH +2.26%), and Polkadot (DOT +2.58%) stand out as three of the top cryptocurrencies with staying power. Here's what makes these investment options worth a look in August.
Image source: Getty Images.
This transformation should play out well
Neha Chamaria (Johnson & Johnson): (JNJ 0.60%) It's been a pretty volatile year for Johnson & Johnson shares so far, but there's a solid reason why you'd want to add this Dow stock to your portfolio now. The thing is, Johnson & Johnson just made a huge business move that could totally work in shareholders' favor going forward.
Johnson & Johnson recently spun off its consumer health segment, which owns iconic brands like Band-Aid, Neutrogena, and Tylenol, into a stand-alone company listed as Kenvue. Now, Johnson & Johnson is also trying to offload its stake in Kenvue by offering its shareholders an exchange offer. The rationale behind divesting the consumer side of its business makes sense: It was a low-margin business, and sales often fluctuated alongside consumer spending.
In other words, the new Johnson & Johnson is a healthcare pure play focused on the faster-growing and more profitable businesses of pharmaceuticals and medical devices. If you expect Johnson & Johnson's sales to dive this year, given the spinoff, that's far from the case. In fact, Johnson & Johnson upgraded its 2023 outlook in mid-July, now calling for operational sales growth of 8% to $100 billion at the higher end of its guidance range. Operational sales exclude the impact of foreign currency translations and COVID-19 vaccine sales.
The healthcare giant is evidently off to a strong start to the second half of 2023. With Johnson & Johnson also recently increasing its dividend for the 61st consecutive year and management confident about pharmaceutical sales hitting $57 billion by 2025 versus about $53 billion in 2022, it's a good time to consider buying this dividend powerhouse.
NYSE: JNJ
Key Data Points
Nike is generating all-time high sales
Daniel Foelber (Nike): If you're looking for an impressive chart, look no further than Nike's revenue, which has doubled over the last 10 years.
NKE Revenue (TTM) data by YCharts.
It's not the most blistering growth rate. But it's incredibly impressive when you consider the onslaught of domestic and international competition Nike has faced from established brands. Newer companies have carved out sizable positions in athleisure, such as Lululemon, On Holding AG's famous On Cloud running shoes, and Deckers Outdoor's Hoka brand running shoes.
In a world where fashion trends come and go, Nike has become synonymous with timeless quality. Its brand resonates with all age groups. It is the only fashion, footwear, or accessory stock in the Dow Jones Industrial Average -- which tells you a lot about where Nike stacks up when among the top consumer-facing brands.
But after reaching an all-time high in 2021, Nike stock has been under pressure, mainly due to lackluster earnings and margin compression. These concerns seem overblown when looking at the historical context of Nike's performance.
Over the last 10 years, Nike's gross profit margin has consistently been between 42% to 46%, and its operating margin is typically 10% to 16%. Nike finished fiscal 2023 around the low end of both these ranges, with a gross margin of 43.5% and an operating margin of 11.6%.
Nike's margins can take a hit for a variety of reasons. Lower consumer spending is the classic case. Built-up inventory can lead to discounts, which strains margins. Too much advertising and sales expenses can squeeze Nike's operating margin. And supply chain issues can also hurt profits.
Nike is a powerful brand, but like many consumer discretionary companies, its business is prone to cycles. Instead of focusing too much on a couple of margin percentage points, long-term investors would do well to look at Nike's overall business, its growth trajectory, the brand, the integration of athleisure into modern fashion, the athletes it endorses, major shoe deals, and more. These are the factors at play. And if executed correctly, Nike could find itself doubling its revenue again over the next 10 years.
For investors looking for a timeless stock to buy, Nike looks like a great choice.
NYSE: NKE
Key Data Points
A better story than you might think
Keith Speights (Pfizer): Let me first list several reasons why you might not want to buy Pfizer stock. The drugmaker's shares have fallen despite a great overall environment for stocks. Pfizer's revenue and profits are sinking. The company also faces patent expirations for seven of its blockbuster drugs by 2028.
With all of these negatives, why in the world would anyone want to buy Pfizer? Because the story for the big pharma company is better than it might seem.
Pfizer's current financial woes are due to declining sales for its COVID-19 products. However, the company expects a rebound for its COVID vaccine beginning next year. It believes that the anticipated launch of a COVID/flu combo in 2025 will provide a major sales catalyst.
Oral antiviral therapy Paxlovid's slump in 2023 is mainly because of excess inventory. Pfizer looks for this situation to turn around beginning in 2024.
Sure, a patent cliff looms in the near future. Pfizer projects that it faces an annual loss of revenue of around $17 billion per year as a result.
But the company also thinks that new product launches through the first half of 2024 will generate an additional $20 billion in annual sales by 2030 -- more than offsetting the impact of the losses of exclusivity. Another $25 billion in annual sales should come from Pfizer's business development deals.
In the meantime, Pfizer is dirt-cheap compared to the overall S&P 500, with a forward earnings multiple of 11 times. It also pays an attractive dividend yield of 4.4%.
I view the stock market as overvalued and think that a correction is due. If I'm right, that's an ideal scenario to buy a bargain dividend stock with better prospects than meet the eye.
Time to restock my cryptocurrency portfolio -- and maybe yours, too
Anders Bylund (Three essential cryptocurrencies): I'm cheating a little bit by bringing three names to the party instead of a single ticker. Sorry about that. I don't mean to disrupt the natural order of these monthly updates. As it happens, I'm focused on picking up some Bitcoin (BTC +0.36%), Ethereum (ETH +2.26%), and Polkadot (DOT +2.58%) right now.
I was forced to reassess my crypto-investing strategy a couple of weeks ago, and I walked away from that painful process with a couple of useful insights.
- I expect a handful of cryptocurrencies to become commonly used financial and technological tools over the next few years.
- There are thousands of altcoins today, and most of them will never join that select group of truly important cryptocurrencies.
- Bitcoin stands out as the gold standard of long-term value preservation, and its price should rise as real-world demand increases for this strictly limited digital asset.
- Ethereum wrote the rulebook for smart contracts, which are poised to disrupt many types of financial systems and services over time. Non-fungible tokens (NFTs) are just a taste of more ambitious developments. Ethereum-compatible tools should shift the balance of fiscal power away from banks and into the hands of individual consumers over time.
- Polkadot will serve a similar purpose in the upcoming sea change for online content. Today's focus on social networks and paywalled content publishers will eventually embody the individual control ideals of Web3 publishing. Polkadot is the tailor-made blockchain network that will keep the Web3 gears running, making the DOT token a useful and valuable tool.
A few other digital coins still deserve a second look, but these three are no-brainer bets on the next era of financial systems and information-sharing networks. As such, I'm in the process of converting a sprawling altcoin portfolio into almost exclusively Polkadot, Bitcoin, and Ethereum tokens. And I'm pouring fresh cash into that portfolio as well.
All three of these important digital assets have significant value-boosting events coming up in the relatively near future. Bitcoin's mining rewards will drop dramatically in the next halvening. Polkadot has nearly completed its fundamental technology platform, setting the stage for widespread Web3 app development. Ethereum continues to keep making its transactions faster and more cost-effective.
Some of the growth drivers are several months away, but investors may start to drive the related token prices higher ahead of these well-known and meticulously planned events. Luck favors the prepared, and I'd rather board the crypto train a bit early than be left on the platform when it takes off.
So I am picking up plenty of Ethereum, Polkadot, and Bitcoin tokens right now, reserving roughly 5% of my total long-term investment portfolio for these digital tickers. You should consider following along, starting with a deeper look at the crypto market as a whole and these three core tokens in particular.
CRYPTO: BTC
Key Data Points
A leader in customer relationship management software
Trevor Jennewine (HubSpot): Happy customers stick around, and they usually spend more money than dissatisfied customers. HubSpot leans into that time-tested truth with its customer relationship management (CRM) software. Its platform includes tools that help marketing, sales, service, and operations teams work more productively. Those tools help businesses keep their customers happy by providing a delightful experience at every interaction.
HubSpot takes a different tack than rivals like Microsoft and Salesforce by focusing on small and medium-sized businesses, an underserved segment of the CRM market, and that strategy has paid off. HubSpot is the leading provider of CRM software to small businesses. Indeed, it has achieved such a strong market presence and received such glowing user satisfaction scores that research company G2 ranked HubSpot as the best global software vendor in 2023.
Despite a difficult economic backdrop, HubSpot delivered a solid first-quarter earnings report. Its customer count rose 23% to 177,298, and the average subscription revenue per customer climbed 3%, meaning existing clients spent more even as many businesses worked to reel in expenses to compensate for macroeconomic uncertainty. In turn, revenue rose 27% to $502 million, and non-GAAP (adjusted) net income soared 122% to $1.20 per diluted share.
Looking ahead, management values its total addressable market at $72 billion by 2027, leaving plenty of upside for shareholders. And with shares trading at 14.8 times sales, a discount to the three-year average of 17.4 times sales, now is a great time to buy this stock.
