Investors can be a superstitious bunch. "Sell in May and go away," for example. The stock market is supposed to have slim pickings over the summer months, and September should be one of the worst months to have money in the market.
The idea makes some sense. September is a quiet period for the U.S. stock market, wedged between the year's third and fourth earnings seasons. Many companies observe quiet periods heading into October's financial reports. And it's not always easy to see what the upcoming holiday season will look like, making it tough to pick winners and losers across many consumer-facing industries.
As a result, September really did see the worst single-month market returns in 2021 and 2022, as measured by the S&P 500 (^GSPC 1.02%) index.
However, this market lull can be a great time for putting your money to work. Buy low and sell high, right? And even if you're not buying or selling anything, some companies have potentially market-moving events scheduled in September.
So I'm keeping a particularly close eye on two American stocks this month. Read on to see why you should keep track of (and consider adding to your portfolio) C3.ai (AI 3.02%) and Roku (ROKU -10.29%) in September.
C3.ai: A widely misunderstood AI bet
Many investors are interested in C3.ai for the wrong reasons right now. You're barking up the wrong robotic tree if you jumped on the AI ticker, expecting a commercialized version of OpenAI's ChatGPT experience.
Yes, C3.ai is all about artificial intelligence (AI). However, it doesn't provide chatbots for the general public's use and amusement.
Instead, this company offers customized enterprise AI solutions, fine-tuned to fit more than 40 specific industries. Client companies handpick the right AI solution, expose their proprietary business data to its algorithms, and enjoy the benefits of business analytics powered by supervised and unsupervised machine learning.
Many investors expected C3.ai to benefit directly from the ChatGPT-driven AI boom, and that's not exactly how it works. Building credibility with enterprise-class customers can be a slow process, even if your target market is bubbling with excitement. As a result, C3.ai might have a stellar future in the exploding AI industry, but the big sales and juicy profits could come a few years down the road.
So the stock soared in the first six months of 2023, topping out at a 314% year-to-date gain in the middle of June. But sales growth isn't skyrocketing yet, and the company is deeply unprofitable. Disappointed shareholders backed the stock price down by 33% from the summer's soaring peak.
With an unusual fiscal year ending on April 30, the company will report first-quarter results on Wednesday, Sept. 6. Management expects top-line growth of roughly 9% compared to the first quarter of 2022. That would be the fastest sales growth since last summer, possibly lighting a new fire under the cooling market enthusiasm.
More importantly, investing is a marathon, not a sprint, and C3.ai has more control of its financial situation than the roller-coaster stock chart might suggest. The company collected $47.5 million in gross profit in the fourth quarter of fiscal 2023. It also spent $49.7 million on research and development (R&D) along with a $51.7 million budget for sales and marketing.
Each one of these growth-oriented expense lines was larger than the incoming gross profit. Together, they exceeded the company's top-line sales by 40%. Easing up on the gas pedal and nitro booster would go a long way toward achieving positive profits, at the expense of slowing down the business' growth.
But the current situation is all right because C3.ai has $731 million in cash equivalents and short-term investments on a debt-free balance sheet. The company can run for many quarters at the current rate of cash burn without running out of funds.
So C3.ai's first-quarter report should shed some light on how the balance between growth and profit is developing. It will also give us hints on how effectively the enterprise AI business can hook into the ChatGPT-based boom market.
The stock isn't cheap at 13 times sales, but it could still be a bargain if those robust growth investments pay off in the long run. You should keep a curious eye on C3.ai's earnings report this week.
Roku: Diving deeper into Wall Street's bargain bin
Media-streaming technology expert Roku is another misunderstood growth stock. Its share price has been sliding for two years now, even though the company's prospects are as bright as ever.
Like C3.ai, Roku has a rock-solid balance sheet with $1.8 billion of cash reserves and zero debt. And the similarity doesn't stop there: It also spends more money on sales and marketing plus R&D than it collects in quarterly gross profits.
In other words, Roku is also running on high-octane growth fuel with the pedal to the metal. The idea is to build a massive user base (currently 73.5 million accounts) before shifting the business plan into profit-taking mode. It should take several years, since Roku's international expansion is in an early stage.
But the company offers a user-friendly streaming experience that other platform providers can't match, based on the longest operating history in digital media streaming.
Roku's stock was probably overpriced two years ago. Still, the price correction went way too far. Today, shares trade 83% below the all-time highs of July 2021. At the same time, revenue growth has returned from a couple of flat quarters, and I can't wait to see how quickly the company can expand its market-leading position on a global level.
And the comeback trend in 2023 has stalled. The stock has doubled this year, but the gain includes an 8% drop over the last 30 days. This stock has been my favorite buy for many moons now, and not much has changed in my eyes: Roku is a no-brainer buy with share prices stuck at 3.6 times trailing sales.
