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Stocks to Watch in July

Nicholas Rossolillo, The Motley Fool

June ended on a sour note for the market as ongoing worries about relations between the U.S. and its trade partners dragged many stocks down again. News on that front will likely continue to affect investor sentiment from day to day, but the month of July will offer another distraction: second-quarter earnings reports. Those reports, among other things, will play a key role in the direction stocks take in the months ahead.

A lot to watch in tech

When earnings reports start rolling in later in July, the FAANG stocks -- Facebook, Apple, Amazon, Netflix, and Google parent Alphabet -- will be of particular importance. These companies have been at the forefront of reshaping the economy, and their growth has been leading the way for the stock market. Though momentum has eased up for some of them, they all still outperformed the S&P 500's sub-2% record so far this year.

Company

Q1 2018 YOY Revenue Growth

Stock Return Through June 30

Q2 2018 Report Date

Facebook (NASDAQ: FB)

49%

10%

July 25

Apple (NASDAQ: AAPL)

16%

9%

July 31

Amazon (NASDAQ: AMZN)

43%

45%

To be announced

Netflix (NASDAQ: NFLX)

40%

104%

July 16

Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL)

26%

7%

July 23

Data source: Companies. YOY = year over year. 

The next round of quarterly reports will be particularly important for some of these companies. Facebook will be reporting its first full quarter since the breaking of the news about Cambridge Analytica. Apple is coming off of strong results, but iPhone sales momentum is increasingly getting replaced with recurring revenues from services. Alphabet is also heavily investing in new segments, chief among them self-driving vehicles and a new Pixel hardware-building business. And Netflix shares have doubled this year as investors bet strong subscriber growth will continue.

In addition to these quarterly reports, Prime Day is coming on July 16: Amazon's annual retail smorgasbord offering deals to Prime members. Prime Day was originally designed to get consumers to sign up for Prime memberships, but the event has turned into a shopping holiday and a big boost for Amazon's sales. This year, subsidiary Whole Foods will be joining the party, too.

Semiconductors under duress?

Speaking of trade wars, the one looming between the world's two largest economies, the U.S. and China, has been under the microscope. To kick off July, a court in China suspended sales of 26 products from semiconductor manufacturer Micron Technology (NASDAQ: MU). The Idaho-based maker of memory chips has been embroiled in a patent infringement dispute with Taiwan-based United Microelectronics (NYSE: UMC), and this latest turn is a point in favor of the latter.

It's too early to say this case is directly related to a trade war, but the timing of the decision to suspend Micron sales has raised eyebrows. The company's revenue and profits have soared over the last year as memory chip supply has been tight, in turn causing higher prices. China is the world's largest market for semiconductors and has been trying to nurture its domestic chip manufacturing industry, so Micron's success as of late may have made it a target.

Whatever the reason for the decision, though, tensions have hit semiconductor stocks particularly hard over the last few months. Micron, for one, has been priced for just such a negative event transpiring. And after another knockout quarter and this bout of bad news, trailing P/E is a mere 5.2. July could be a good month to bet on a rebound as this story develops. 

A young woman is pictured thinking with an illustrated thought bubble and bag of money.

Image source: Getty Images.

Shoe sales are doing great

Rounding out this list is shoemaker Skechers (NYSE: SKX). The stock was a poor performer after reporting first-quarter results a couple of months ago, and is now some 30% lower from multiyear highs reached back in April.

First-quarter numbers weren't to blame; revenue and profits both increased by double digits. The problem, rather, was worry that overall sales were slowing, and that expansion into emerging economies is costing too much. Management confirmed as much with weak guidance for the period from April through June, although it maintained the second half of 2018 would be better.

Perhaps investors can take comfort from Nike, which just reported its quarter that ended May 31. Sales in North America reaccelerated and returned to growth, and overseas continued to be a bright spot with another period of double-digit expansion. If Skechers can follow a similar trend and put fears of a slowdown to rest, a big rebound might be in order. The company should report in the second half of the month.

This year hasn't been the best for stocks thus far. Worry has been the overarching theme even though the average business continues to expand. If another quarter of year-over-year quarterly growth is logged in July from these stocks, there's a good chance some of that worry could be put to rest.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Nicholas Rossolillo and his clients own shares of Alphabet (A shares), Alphabet (C shares), Apple, Facebook, Micron Technology, and Skechers. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Facebook, Netflix, Nike, and Skechers. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.