Stock Picks
Ever heard the phrase "sell in May and go away"? Well, that might hold some water, but if you are looking for opportunities on sale, August might be your month!
Take note, EasyVSTRs; August has traditionally been a very poor month for the US stock market over the last couple of decades; well, that is if seasonality is still anything to go by these days. But that does not mean that it is a given that this August will see the same as the markets are constantly changing and adapting to conditions. But if the stock market decides to start selling off, it could deliver exceptional opportunities to get more stock at a reduced price.
Let’s take a look at 2 US stocks that could weather the storms in August:
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The Coca-Cola Company (KO)
This iconic company, whose brand is recognized worldwide, needs no introduction and has also been an exceptional stock to own over the long run; ask Warren Buffett.
The share price has rebounded quite significantly from the pandemic low point and is up over 65% despite all the global lockdown challenges it faced. The soft drink giants' latest Q2 earnings report blew expectations out of the water despite higher inflation and rising cost. Coca-Cola's adjusted revenue was reported at $11.3 billion, which topped the $10.56 billion expected, while organic revenue soared by 16% to smash the analyst consensus of +8.19%.
- Share Price: $ 64.52
- Market Cap: $ 279.03 billion.
- P/E Ratio (TTM): 29.3x
- P/B Ratio: 12.1x
- Dividend (Annual Yield %): 2.73%
- 52 Week range low of $ 52.28 and $ 67.20 share high.
Outlook: Coca-Cola is a very resilient company with a track record that spans decades and has bounced back from recessions and other major economic events. The forward guidance on organic revenue growth is projected between 12% to 13% for the entire year, which is higher than the prior outlook, calling for 7% to 8%, and has attracted investors.
Considering the share is trading at 29 times trailing twelve-month earnings, it certainly is not “cheap” but is trading below its fair value by our estimates. Taking the value aspect into account, it could be worth looking for newbie investors to add to their portfolios.
Coke has also been a solid dividend stock in your portfolio over the last decade, and Warren Buffett has held the soft drink maker in his portfolio over the previous 34 years for a reason. Analyst Sean Williams said about Coke’s impressive dividend, “After 34 years, Coca-Cola's base annual payout has grown to $1.76/share. With Buffett's company holding Coke at an average share price of approximately $3.25, we're talking about an annual yield on cost of 54%! There's absolutely no reason to sell Coca-Cola when Buffett is more than doubling his initial investment in the company every two years.”
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The Home Depot Inc. (HD)
This specialty retailer could weather the storms this August as Consumer Staples has proven to be a resilient sector over the summer months.
Home Depot is right up there with the best of them, and if earnings history is anything to go by, then we could see big revenue numbers posted for the second and third quarters of the year. The next earnings release is scheduled for the 16th of August 2022, before the market open.
Looking back at the previous sales and earnings growth, we can see that Home Depot posted substantial sales numbers that increased by 19.9% in 2020 and 14.4% in 2021. It recorded $151.2 billion in sales in fiscal 2021, along with net earnings of $16.4 billion, but the current economic declines could weigh in on the share price, which should be noted.
- Share Price: $ 305.82
- Market Cap: $ 314.31 billion.
- P/E Ratio (TTM): 19.4x
- P/B Ratio: N/A
- Dividend (Annual Yield %): 2.49%
- 52 Week range low of $ 264.51 and $ 420.61 share high.
Outlook: Looking forward, the largest home improvement retailer could be well positioned to take on a recession if the 2008 financial crisis downturn repeats itself. Looking at the history of Home Depot, we can see that revenue fell 7.8% between 2006 and 2012, but the stock still climbed 64% over that time. Although Home Depot is by no means recession-proof, it does, however, hold value over the long term and, by our estimates, is currently trading below its fair value.
According to analyst John Ballard, Home Depot pays over 40% of its profits to shareholders via dividends. So with a lower valuation and a corporate culture that never takes its foot off the gas, the stock is a great investment.
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Sources –EasyResearch, Reuters, Koyfin, The Coca-Cola Company, Sean Williams, Nicholas Robbins, SeekingAlpha, John Ballard, The Home Depot Inc.
Follow Barry Dumas
@BEEF_FINMARKETS
Barry is a market analyst with GT247, with a wealth of experience in the investment markets. Now in his tenth year in the markets, Barry "The Beef" Dumas brings a combination of technical analysis and fundamental insights to the table.
