April: It's the month of our favorite holiday at The Motley Fool -- April Fools' Day. It typically comes with showers ("April showers bring May flowers"). It contains the deadline for Americans to file their tax returns. And April is the perfect month to buy promising stocks.
We asked five Motley Fool contributors which stock they especially like in April. They chose Walt Disney (NYSE: DIS), ExxonMobil (NYSE: XOM), LGI Homes (NASDAQ: LGIH), The Trade Desk (NASDAQ: TTD), and Twilio (NYSE: TWLO). Here's what makes these five stocks top picks to buy in April.
Image source: Getty Images.
An empire in the making
Jeremy Bowman (Walt Disney): With the acquisition of Fox's entertainment assets finally behind it, the world's biggest entertainment company now has nearly all the pieces in place to dominate entertainment for another generation.
Cord-cutting has proven a temporary thorn in Disney's foot, eating away at profits from its media networks like ESPN and ABC. But by the end of this year, the company will have three streaming services: ESPN+, Disney+, and Hulu. (With the closing of the Fox deal, Disney now owns 60% of Hulu.)
In the Fox deal, Disney gets cable channels like FX and National Geographic and their content, and Fox Studios, including the critically acclaimed Fox Searchlight. It also gains a slew of Marvel characters who will fit well in the Disney ecosystem, including the X-Men and Fantastic Four franchises, as well as Deadpool.
What makes the Disney business model so powerful is the way it's able to extract value from its slate of popular characters and other intellectual property through movies, TV shows, theme-park rides, and toys, all of which complement each other and reinforce the brand in a virtuous cycle.
Though its cable and broadcasting businesses have struggled, Disney's theme parks and studio segments continue to put up strong growth, and its box-office releases this year look particularly strong. That signals that investors may be overlooking the potential in Disney stock. Shares have gone essentially nowhere over the past four years, but the company is in a much better position now than it was in 2015, and the stock is cheap at a price-to-earnings ratio of just 16.
A couple of announcements about new projects capitalizing on the Fox acquisition could remind investors that Disney is once again a growth company with explosive potential.
Expect some extra cash from this energy giant
Dan Caplinger (ExxonMobil): Buying stocks when they're down and out is a well-established way to find long-term success, and oil giant ExxonMobil has gone through a lot of tough times lately. With the persistent challenge of low crude-oil prices and the difficulty of finding enough new reserves to replace its production, ExxonMobil's shares have recently seen their price-to-tangible-book-value ratio drop to its lowest level in 30 years. That cheapness reflects investor skepticism that the oil giant can keep up with smaller, nimbler peers in the energy space.
Yet ExxonMobil is fighting back. The company has boosted its capital expenditures dramatically in an effort to find top prospects for future production, gradually moving in the direction of its long-term goals for 2025. By focusing on projects that have maximum efficiency and controlled costs, ExxonMobil believes it can boost earnings even if crude oil prices don't move higher from current levels.
April has traditionally provided a catalyst for ExxonMobil shares in the form of a dividend increase. For 36 straight years, the company has delivered annual boosts to its quarterly payout, including last year's 6.5% rise to its current level of $0.82 per share. ExxonMobil's production appears to be recovering, and that could prove to be a key factor that determines how much the oil company's management decides to pay in 2019's dividend hike. I think the payout could grow even more this year, and that's what's put ExxonMobil on my list of promising stocks for April.
A mortgage-rate reprieve is music to LGI Homes' ears
Tyler Crowe (LGI Homes): It was a little over a year ago that most on Wall Street were running away from homebuilders as fast as they could. The combination of high housing prices and rising interest rates had enough people concerned that the housing market, after a near-decade-long run steadily upward, was going to weaken.
These concerns sent shares of LGI Homes plummeting, dropping nearly 50% from May to October. While the company's earnings were good throughout the downturn and management was raising guidance, there were signs of slowing sales.
Over the past couple of weeks, though, interest rates for 30-year mortgages have dropped sharply, and now hover just above 4%. There are several reasons behind this; more dovish policy from the Federal Reserve stands out as a big one. But the important thing is that lower mortgage rates at a time of low unemployment and rising wages means there's a large appetite to buy.
For investors, this makes LGI Homes an incredibly compelling stock to look at in April. LGI specifically targets first-time homebuyers with homes at lower price points, and marketing geared toward renters looking to build equity. This group of buyers is especially sensitive to interest rates, so lower rates will likely help the company grow sales through the high selling season in the spring and summer months.
Despite the better outlook and management's track record of growing sales in any interest-rate environment, shares of LGI Homes still trade at only 9 times earnings, making LGI a stock to put on your watchlist this month.
Taking the advertising world by storm
Keith Speights (The Trade Desk): In May of 2011, The Trade Desk averaged an underwhelming total of $0.08 in revenue per day. By 2014, the company made $1 million in a day. Last year, The Trade Desk scored its first $10 million day. That's phenomenal growth. And while that kind of trajectory probably won't continue, there are plenty of reasons for The Trade Desk to keep growing for a long time to come.
The Trade Desk offers a platform for buying targeted advertising on digital channels. While the global advertising market is huge (around $725 billion anticipated this year), only around $33 billion of that amount is programmatic -- using software to purchase ads, instead of the traditional process involving requests for proposal and back-and-forth negotiations.
But The Trade Desk founder and CEO Jeff Green stated on the company's fourth-quarter conference call in February that "before long, the vast majority of advertising will be digital, and all of it will be transacted programmatically." He's probably right. That means an enormous opportunity for his company.
A couple of avenues look especially promising for The Trade Desk. One is connected television (CTV), the convergence of the internet and TV; many TV networks are making their programs available through internet streaming. Another growth driver for the company is international expansion; two-thirds of global advertising spending occurs outside of the U.S.
Sure, this stock might look ridiculously expensive with shares trading at 63 times expected earnings. But I think the future for The Trade Desk looks very bright, and I view this high-flying stock as a great pick for April.
Growth that boggles my mind
Brian Stoffel (Twilio): When I first looked into Twilio in 2017, I was turned off by the fact that one customer -- Uber -- accounted for 14% of the company's revenue. If Uber bolted, I reasoned, the company's stock would suffer inordinately. That ended up happening; the stock suffered, and business slowed.
And then...growth reaccelerated and has continued unabated.
For those unfamiliar with the company, Twilio provides a service that helps companies communicate with their clients -- via messaging, video, audio, or (thanks to a recent acquisition) email. When you use Lyft or get a message that your seat is ready at a restaurant, Twilio is at work behind the scenes. The company gets paid based on usage of these cloud-based solutions.
The most important metric I watch is dollar-based net expansion rate. This measures how much one cohort spends year after year with the company. If it comes in near 100%, it generally means Twilio's customers are staying on board. If it exceeds 100%, it means they are staying and using Twilio more.
Last year, dollar-based net expansion came in at a mind-boggling 140%. That means the company's tools are becoming embedded deeper and deeper into its customers' infrastructure, which creates a wide moat via high switching costs.
According to management, we're just scratching the surface of what Twilio is capable of. That's why I'll be purchasing shares as soon as Motley Fool trading rules allow -- and think you should consider doing the same in April.
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Brian Stoffel has no position in any of the stocks mentioned. Dan Caplinger owns shares of Walt Disney. Jeremy Bowman owns shares of The Trade Desk and Walt Disney. Keith Speights owns shares of The Trade Desk and Walt Disney. Tyler Crowe owns shares of ExxonMobil, LGI Homes, and Walt Disney. The Motley Fool owns shares of and recommends The Trade Desk, Twilio, and Walt Disney. The Motley Fool owns shares of ExxonMobil and LGI Homes. The Motley Fool has a disclosure policy.