5 Top Stocks to Buy in August
There's been a lot going on between enduring the sweltering summer heat, kicking back and watching the Olympics, and getting ready for back-to-school season. But the stock market just had arguably its most dramatic month of the year, with many mega-cap tech stocks plummeting, plenty of rebounds across small caps, and surprisingly red-hot runs in value-focused sectors like utilities.
No matter the cause or complexion of market gyrations, it's important to filter out the noise and focus on the companies that have what it takes to grow their earnings -- and in some cases their dividends -- over time.
Here's why these five Motley Fool contributors are especially excited about The Trade Desk (NASDAQ: TTD), Nio (NYSE: NIO), Visa (NYSE: V), Enbridge (NYSE: ENB), and Walmart (NYSE: WMT) as top stocks to buy in August.
Capitalizing on a recent pullback
Anders Bylund (The Trade Desk): Digital marketing expert The Trade Desk has seen some volatility lately. The stock has gained more than 25% year to date, but it also trades more than 12% below its recent multiyear highs.
One might think it's an expensive investment, since the stock trades at a lofty 223 times trailing earnings and 80 times free cash flow. But you're also looking at a sector leader with stellar sales growth, working in an online advertising industry with plenty of growth catalysts up its collective sleeve.
The 2024 Paris Olympic Games are on the air, with world-class sports content available across several streaming platforms. It's also an election year, with lots of political ad content across every conceivable media type. These events tend to go hand in hand every leap year, often with market-moving consequences.
And the digital marketing sector is coming back from a couple of rough years when ad buyers held onto their wallets due to raging inflation. Why spend a ton of money on targeted marketing when no one is ready to buy your goods and services? The upswing from that dark trough could be impressive, releasing years of pent-up advertising demand in a few short months.
So The Trade Desk is poised to perform in August and beyond. Its earnings are expected to jump 29% higher year over year in Friday's second-quarter report. Sales should also soar by at least 25%, according to the analyst consensus, though the company has a habit of leaving analyst estimates far behind.
This stock can be volatile, and I can't guarantee that it won't ever be cheaper than it is today. But if you don't have The Trade Desk in your stock portfolio yet, you're missing out on a tremendous growth stock with robust business prospects, both in the near term and over the long haul. You should consider grabbing a few shares in this compelling price dip.
This price drop is an opportunity
Neha Chamaria (Nio): The once red-hot electric vehicle (EV) stocks have hit a speed bump in recent months amid fears of a global slowdown. That includes Nio's stock, which has crashed a whopping 50% so far this year. I believe the sell-off is now overdone, and the second half of the year could be a lot better for the Chinese EV maker and give its stock price a much-needed boost.
Nio's deliveries and margins fell consistently for some quarters but now show signs of a recovery. In the first quarter, for example, Nio delivered a little over 30,000 EVs, which was down 3% year over year and nearly 40% from the fourth quarter of 2023.
Nio's deliveries, however, have improved significantly since, with the company even surpassing management's estimates and delivering more than 57,000 units in the second quarter.
To be sure, one quarter alone does not signal an uptrend, but there's a valid reason to believe that Nio's deliveries should continue to rise. The thing is, Nio started upgrading all of its models late last year, which hurt production and sales.
The upgrades were completed in April, which is also when Nio's deliveries picked up. I expect the trend to continue, and as its deliveries rise, so should its vehicle and gross margins. Dwindling margins were among the biggest factors that weighed on the stock's price.
Meanwhile, Nio also launched a mass-market brand called Onvo in May and expects to start deliveries of its first midsize SUV, the L60, in late September. Expectations are high since the L60 will compete with EV leader Tesla's (NASDAQ: TSLA) hot-selling Model Y and offer better pricing.
Overall, with Nio's deliveries on the rise and margins likely to rebound, the EV stock looks like a compelling buy at current prices.
Checking all the boxes
Daniel Foelber (Visa): When looking for stocks, it's easy to get too caught up in the price action and use it as a yardstick for where a stock has been and where it could be headed. A better way to determine which stocks to buy is to take a step back and think about the qualities that make up an excellent business, and then find companies that match that profile.
Visa has been a company I've admired for some time. Its global position has never been stronger. And yet the stock has sold off 12% in the past four months. I think it's a compelling stock to buy in August.
Visa has a diverse revenue stream spanning domestic and international markets, credit cards and debit cards, and consumers and corporate clients. The business model is essentially perfect: Charge a flat fee per transaction and a variable fee based on the size of the transaction. Visa wins whether you tap your card and spend $1 or $1,000, but it makes more if it's the latter.
Visa often gets roped into cyclical stock conversations. And while it's true that it benefits from increased spending and economic growth, it strikes me as more of a staple at this point.
The transition to cashless digital and mobile payments has accelerated growth for credit card companies. It wasn't long ago that you would have to convert U.S. dollars to local currency in cash when traveling abroad. But now, the conversions are automatic using a Visa card, which is one of the reasons Visa's international segment is growing faster than its domestic one.
Visa fell after reporting its third-quarter results. U.S. payments volume declined, and international growth was weighed down by a poor performance in China. Still, Visa's results are respectable.
Better yet, Visa's key valuation metrics like price-to-earnings (P/E), price-to-sales, and price-to-free cash flow are all below historical levels. It now has a lower P/E than the S&P 500 even though it is arguably a much better business than the average component in the index.
To top it off, Visa generates a boatload of free cash flow that it uses to buy back stock and pay a growing dividend. Don't let Visa's 0.8% yield fool you -- if it wanted to, it could pay nearly four times that if it reallocated the money it was using for buybacks on dividends instead.
However, buybacks have historically been a much better use of capital because Visa has been a market-outperforming stock, and the buybacks have helped reduce the share count -- thereby boosting earnings per share and making Visa a better value.
Add it all up, and Visa is a near-perfect business that you don't have to pay a premium price for.
A great ultra-high-yield dividend stock
Keith Speights (Enbridge): I realize that ultra-high-yield dividend stocks might not be everyone's cup of tea. But Enbridge could be worth a sip for any investor in August, even if you're not looking for income.
Enbridge ranks as a leader in the North American energy sector. The company operates pipelines and terminals that transport and store crude oil, natural gas, and other liquid hydrocarbons. It also has a natural gas utility business and owns solar and wind assets in renewable energy.
With a dividend yield of over 7.2%, Enbridge doesn't have to deliver much share price appreciation for investors to enjoy attractive total returns. Although the stock hasn't performed especially well so far in 2024, I think Enbridge's growth prospects are pretty good.
The company can count on 1% to 2% annual growth in earnings before interest, taxes, depreciation, and amortization (EBITDA) from its inflation-based revenue escalators and cost-cutting programs alone. Enbridge is investing in several pipeline expansions that could drive further growth. It also recently completed the acquisition of Questar Gas from Dominion Energy.
I like its risk profile. Over 98% of its cash flow is contracted or part of cost-of-service arrangements. More than 95% of the company's customers are investment-grade. Around 80% of Enbridge's EBITDA is protected from inflation.
Last, but certainly not least, Enbridge is reasonably valued. The stock trades below 17.6 times forward earnings.
Shop for discounts
Demitri Kalogeropoulos (Walmart): Retailing giant Walmart will announce its second-quarter results in mid-August, but investors don't have to wait until then to buy this sturdy dividend stock.
The company gave investors plenty to cheer in its last visit to the earnings plate back in May, with sales and profitability both rising in the first quarter. Walmart enjoyed strong customer traffic in its online business and at stores, helping it stand out against rivals like Target. I would expect those trends to continue when the company reports fresh results on Aug. 15.
Besides customer traffic, watch Walmart's profit margin in August. Operating income growth should slightly exceed the 4% uptick in expected second-quarter revenue, just as it has for most of the past year.
The retailer is getting help in this department from strong demand for its low-priced products, but also from margin-boosting revenue streams like online advertising. Falling inventory last quarter, meanwhile, also sets the stage for another strong period for earnings.
Looking further out, shareholders can expect Walmart to return more of its ample cash flow in the form of dividends and stock buybacks. Sure, the stock yields below 1.5% today, and you can get higher initial income by owning Target or Home Depot. Yet Walmart has returned about $3 billion to investors in each of the past two quarters, split roughly evenly between buybacks and dividend spending. And the chain's recent 9% hike shows management's commitment to prioritizing a rising payout.
Unlike most of the products it sells, Walmart's stock isn't especially cheap at nearly 30 times trailing earnings. Investors should still consider building up a position in the market leader to benefit from its strengthening profitability over the coming years.
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Anders Bylund has positions in The Trade Desk. Daniel Foelber has no position in any of the stocks mentioned. Demitri Kalogeropoulos has positions in Home Depot and Tesla. Keith Speights has positions in Enbridge, Target, and The Trade Desk. Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Enbridge, Home Depot, Target, Tesla, The Trade Desk, Visa, and Walmart. The Motley Fool recommends Dominion Energy. The Motley Fool has a disclosure policy.
5 Top Stocks to Buy in August was originally published by The Motley Fool