The official start of summer is just a few weeks away. While you may have plans to take it easy, money invested in the stock market doesn't take vacations. It keeps compounding, month after month, year after year. There are ups and downs, of course, but over the long run, there's no better place to put your hard-earned cash.
What stocks should you invest in? Five of our Motley Fool investors have some ideas. Here's why you should consider adding Gilead Sciences (NASDAQ: GILD), International Business Machines (NYSE: IBM), 3M Company (NYSE: MMM), SodaStream International (NASDAQ: SODA), and SolarEdge Technologies (NASDAQ: SEDG) to your portfolio in June.
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A top turnaround candidate
Keith Speights (Gilead Sciences): There's no way to sugarcoat Gilead Sciences' problems over the last three years. The big biotech stock lost nearly half of its market cap during the period due to plunging sales for its hepatitis C virus (HCV) drugs. However, I think Gilead is now poised to be a top turnaround candidate.
One key reason why is that HCV sales should stabilize soon. The HCV market has come down to a one-on-one battle between Gilead and AbbVie. That should provide a setting for price stabilization. Gilead expects the numbers of new hepatitis C patients to continue to decline, but more slowly than in recent years.
With HCV less of a drug for Gilead, the biotech's HIV franchise, which is set to generate solid growth, will be the big story for the company. Gilead recently launched Biktarvy, which market research firm EvaluatePharma projected as the biggest-selling new drug to reach the market in 2018. Peak sales for the HIV drug could top $6 billion.
Perhaps the most important component to Gilead's comeback, though, is the biotech's pipeline. Gilead and partner Galapagos are developing a promising anti-inflammatory drug, filgotinib. Analysts think the drug could achieve peak annual sales between $2 billion and $3 billion. There are also great opportunities for selonsertib, Gilead's lead candidate targeting treatment of nonalcoholic steatohepatitis (NASH).
Gilead stock currently trades at a little over 10 times expected earnings. If HCV sales stabilize, Biktarvy takes off, and the pipeline delivers like I expect, this biotech stock won't remain this cheap for too much longer.
No love for Big Blue
Tim Green (International Business Machines): The market didn't like IBM's first-quarter report in April, sending the stock tumbling despite better-than-expected revenue and earnings. Revenue jumped by 5% year over year, but that growth was driven almost entirely by currency. The company's gross margin also continued to erode, although the declines are getting smaller.
A growth stock IBM is not. But that doesn't mean it can't be a solid long-term investment. IBM's growth businesses are expanding at a double-digit pace, accounting for 47% of total revenue over the past year. Cloud revenue is now 22% of total revenue, and it grew by 20% during the first quarter. And cloud delivered as a service, a key growth driver for IBM, now has an exit annual run rate of $10.7 billion, up 25% from one year ago.
Declining sales in legacy businesses are still offsetting all this growth, leading to headline numbers that fail to impress. But I think the market is being too pessimistic. IBM stock now trades for just about 10.3 times the company's guidance for adjusted full-year earnings. And after a recent dividend bump, the stock yields 4.4%. This is a company that still has significant competitive advantages, including a large customer base dependent on its products and services. The rock-bottom valuation doesn't seem to reflect that.
If you're looking for a beaten-down dividend stock in June, look no further than IBM.
Don't listen to the market
Neha Chamaria (3M): 3M is off nearly 25% from its 52-week highs. Remarkably, the steep fall has come in just the past four months, opening up an opportunity for smart investors to buy shares in the industrials conglomerate that's also among the only eight publicly listed companies that have increased their dividends for a jaw-dropping 60 consecutive years. More so, because the sell-off in 3M shares makes little sense.
3M had a banner year in 2017, generating a record $30 billion in sales from a portfolio that comprises of more than 60,000 products that serve the needs of nearly every major industry you could think of. If you're wondering what kind of products, 3M is the owner of Post-it, Scotch, Scotch-Brite, Command, Filtrete, and Littmann brands, among others.
So why did 3M lose favor with investors? While weakness in the broader market knocked off some gains early on, a sharp drop in the company's first-quarter earnings followed by an outlook downgrade in April added fuel to the fire. In reality, 3M's sales hit all-time first quarterly highs, and two significant one-time expenses hit its bottom line. While one was a tax-related expense, the other was related to the settlement of a lawsuit, which was actually a positive development for the company.
Now here's the bigger news: Management downgraded its fiscal 2018 earnings per share (EPS) range estimate by 1% at the midpoint, primarily on the back of an unanticipated weakness in electronics. Yet, that was enough to spook investors as they saw 3M's guidance downgrade as a precursor to a slowdown in momentum in the industrials sector.
I beg to differ, because 3M's outlook still calls for a double-digit growth in EPS this year. In fact, 3M is unwavering on its 2016-2021 financials goals of growing its EPS by 8%-11% and converting 100% of its net income into free cash flow. It's time you get serious about this dividend growth stock.
Thirsty for high returns
Demitri Kalogeropoulos (SodaStream): If it's been a while since you checked in with SodaStream, you might be surprised by just how well the business is doing. The sparkling water machine specialist just posted its ninth straight quarter of double-digit sales gains while achieving record profitability. The important usage metrics are all pointing in the right direction, too, with machine sales and carbon dioxide refills showing strength across a range of markets including Canada, Australia, Japan, and the United States.
This is a far different business than the one that suffered painful sales and profit declines in 2014 and 2015. Since then, CEO Daniel Birnbaum and his team have shifted the brand focus from cola to sparkling water, lowered their manufacturing and distribution costs, released popular new machines, and improved relationships with key retailers. As a result, sales and earnings are both on pace to rise by about 15% this year after expanding nicely in 2017.
Consumer appetites can change quickly, and that means SodaStream has to keep innovating if it wants to extend its positive momentum. The growth plan includes the launch of a new one-touch machine in the coming weeks and a bigger e-commerce platform that makes home delivery of carbon dioxide canister refills easier for its customer base.
Looking further out, there's a big global market opportunity ahead for the company that, in delivering over 1.5 billion liters of sparkling water to consumers last year, can claim to be the world's biggest water brand, by volume.
Who wants a second bite at the apple?
SolarEdge, one of the world's leading producers of solar inverters for converting direct current electricity from solar panels into alternating current electricity for home use, had a fabulous fiscal Q1, beating Wall Street estimates for both sales and earnings, reporting 11% sales growth, 430 basis points of improvement in gross profit margins, and a 134% increase in earnings per share (with 149% improvement in cash flow). Just like the analysts at Vertical Group predicted back in February, competitors to SolarEdge are "nowhere in sight."
SolarEdge stock soared 26% in the few days following its Q1 2018 earnings release, but then, last week, the stock suffered whiplash. Over two days of trading, SolarEdge gave back literally every cent of its gains.
The reason? No one knows. There's been no bad news whatsoever, that I can find, to explain the stock's sudden turnaround (unless you call investors "taking profits" a reason).
As for the rest of us, thanks to the irrational decision to sell off SolarEdge stock, investors who missed their chance to buy before earnings have been given a second bite at the apple -- an opportunity to buy SolarEdge stock at its pre-earnings price, knowing beforehand just how wonderful those earnings numbers would be or already were.
If I were you, I'd grab that apple.
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Demitrios Kalogeropoulos has no position in any of the stocks mentioned. Keith Speights owns shares of AbbVie and Gilead Sciences. Neha Chamaria has no position in any of the stocks mentioned. Rich Smith owns shares of SolarEdge Technologies. Timothy Green owns shares of IBM. The Motley Fool owns shares of and recommends Gilead Sciences. The Motley Fool owns shares of SodaStream. The Motley Fool recommends 3M. The Motley Fool has a disclosure policy.