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All Contents © 2019The Kiplinger Washington Editors
By James Brumley, Contributing Writer
| June 17, 2019
The past year has been exciting, if not a little stomach-churning. A raucous 25% rally to start the year unwound a miserable last few months of 2018, but that big advance has been chopped by one-third just since the beginning of May.
Thus, when picking the best stocks to buy for the rest of 2019, you have to approach your selections with volatility – namely, avoiding it – in mind.
Maybe the year’s second act will be a little less exciting and a little more consistent for investors than the first. But with Chinese trade relations in limbo, Brexit still in the air and uncertainty about the Federal Reserve’s future plans for interest rates, calm is far from a guarantee.
To that end, here are the best stocks to buy for the rest of 2019. Not only are these stock picks a little less vulnerable to the volatility we’ve seen of late, but they each have solid backstories and/or fundamentals that should prove attractive if the hazy backdrop remains.
Data is as of June 16. Stocks are listed in alphabetical order.
Market value: $753.8 billion
Google parent Alphabet (GOOGL, $1,086.30) has a full plate. Not only is the search market maturing and becoming saturated, but Alphabet repeatedly is brought up as an example of what happens when tech companies know too much about consumers.
Alphabet’s shares were upended earlier in June on mere rumors of an antitrust probe. That added to a post-earnings loss fueled by revenues that missed analyst estimates. All told, GOOGL is down more than 16% from its April peak.
But one key detail has been glossed over amid the stock’s volatility: Only once in the past 10 years has Alphabet reported a year-over-year decline in quarterly revenue. The same can’t be said of profits, to be fair, particularly of late. The broader slowdown in smartphone sales (now that most everyone who wants one has one) has stymied its Android operating system as a profit center, and desktop/laptop search has seen “cost per click” prices slide for years now. It was only a matter of time before GOOGL ran into a fiscal headwind.
Nevertheless, betting against Google’s parent has proven to be ill-advised for the long haul. Alphabet has its finger on the pulse of the internet, and the tech giant rarely fails to find ways to muster more growth. Thus, this current dip might be one to buy.
Market value: $107.4 billion
This year has been tough on owners of biopharma name Amgen (AMGN, $176.08) – typically among the lower-risk stocks to buy in the biotech space. Shares are down roughly 10% year-to-date, while Standard & Poor’s 500-stock index is up more than 15%.
That disparity also is an overlooked opportunity, however, according to Smead Capital Management CEO Bill Smead. “Growth investors and index-huggers are trapped in big tech and under own AMGN,” he explains, alluding to a recent shift that could soon reverse. Investors have made a point of stepping into the biggest mainstream companies at the expense of health care holdings. If interest in the market’s most familiar stocks starts to fade again, investors may well migrate back into picks like Amgen.
Chief among the catalysts that could spur the rebound effort is continued progress on the drug-development front. Smead says, “If Merck’s success with immuno-oncology and the response of the stock last year – up over 30% – is any indication, AMGN has huge upside.” To that end, Amgens’s BiTE (bi-specific T-cell engagers) antibody tech has shown promise as a therapy for several tumor types, including tough-to-treat liquid tumors. Updates on those programs are forthcoming.
In the meantime, the stock’s weakness has bolstered the value argument. Smead touts AMGN’s price-to-earnings ratio of just 13 times trailing-12-month profits, as well as a dividend yield that has plumped up to nearly 3.5%.
Market value: $236.1 billion
AT&T (T, $32.35) shareholders have had a difficult time for a couple years. While it’s still a cash cow, investors have been uneasy about its entrance in the entertainment race via its purchase of Time Warner. Television hasn’t exactly been a booming business for the blue-chip stock, with its DirecTV arm unable to gain traction here at the height of cord-cutting mania. And there is little assurance that a Time Warner-branded streaming offering will crack the crowded streaming market.
But to be fair, AT&T isn’t the disaster that its 25% setback from 2016’s average price suggests it is. And the 18% bounce from the late-December low snapped shares out of a long-standing losing streak.
As it turns out, AT&T is more aware of the nuances of the streaming market than it appeared to be just a few months prior. The Time Warner-branded product has been put on hold (at least for the time being), with whispers now circulating that the company shifting its plans to offer just one, all-inclusive service that would include access to HBO and Cinemax content in addition to other Time Warner video that AT&T decided to throw in. At a theoretical price of around $16 to $17 per month, it could feasibly compete with Netflix (NFLX).
AT&T also is rumored to be mulling the idea of selling its DirecTV business to rival Dish Network (DISH), abdicating a business that has turned into quite a headache.
There’s no guarantee these moves will shore up AT&T’s problems. But it’s the most strategic-minded thinking the company has pieced together in a long while. That is encouraging. And AT&T, at a 6.7% yield, offers up one of the biggest dividends you’ll ever find in a mega-cap stock.
Market value: $195.3 billion
“For all of Boeing’s troubles, there have been very few 737 MAX order cancellations," says Interactive Advisors portfolio manager Barry Randall. “Why? In part because the world’s airlines are highly motivated to maintain some semblance of competition between Boeing and Airbus.”
The drama came and went relatively quickly.
In March, following the second crash of a 737 MAX 8 in less than six months, problems with the plane’s software-based safety systems were fully uncovered. Although fixable in time and addressable in the meantime, concerned airline customers canceled some orders of the highly lauded passenger jet that had only been in commercial service for a couple of years. Boeing (BA, $347.16) shares took a bath in the wake of the crash and some airlines’ subsequent self-imposed grounding of these aircraft.
The 737 MAX still is permitted to fly in the U.S., however, and carriers that continued to use the aircraft haven’t reported new incidents. Software updates are being made. The problem appears to be fixed, and investors seem to be putting the past in the past.
Boeing, then, could be one of the best stocks of 2019’s second half because of the rebound proposition. The stage is set for an eventual recovery of the stock’s long-term uptrend, says Randall, who owns BA shares for himself as well as on behalf of clients of the Boston-based advisory. “It’s highly likely that existing 737 MAXs will be flying again by year end,” he notes, in turn meaning “Boeing’s cash flow machine will be turned back on.”
Sooner may be better than later, though. Randall concludes, “Thoughtful investors will buy now in anticipation of that happening.”
Market value: $24.3 billion
Tech/industrial outfit Corning (GLW, $30.91) isn’t the head-turner it used to be. But don’t overlook this blue-chip name that too many investors have forgotten about. Not only is the company still producing steady sales and earnings growth, but Corning also is quietly setting itself up for future growth that may not yet be reflected in analysts’ long-term projections.
The advent of 5G connectivity will forever change the landscape of wireless telecom. Not only will 5G speeds usher in the Internet of Things, digital data loads that were unthinkable just a couple of years ago will become the new norm, handling everything from improved industrial output to all sorts of entertainment.
That massive manipulation of data won’t be handled entirely over airwaves, however. In fact, most of work will be done with wired connections, using the speeds that only fiberoptic cables like those supplied by Corning can provide.
Investors have already seen evidence that 5G is driving growth. Corning believes its Optical Communications division, though still sporadic, will grow 10% this year from last year’s total, reaching annual sales in excess of $5 billion.
Faster growth may be waiting beyond this year’s sales. Lisa Youngers, CEO of the Fiber Broadband Association, wrote in a 2018 column that “the United States will require an estimated $130 billion to $150 billion in fiber investment over the next five to seven years to adequately support broadband competition, rural coverage and wireless deployments for future network technologies such as 5G.”
In the meantime, Corning continues to work its technology-screen business line.
Market value: $1.4 billion
Dave & Buster’s Entertainment (PLAY, $39.58) is far from a traditional pick and perhaps overly sensitive to even the most moderate of economic headwinds. The stock hasn’t been a terribly rewarding or even consistent performer for the past several years, either, falling precipitously after it reported a small decline in same-store sales last quarter.
But there are reasons to like Dave & Buster’s, including that it has steadily beefed up its top line for the past five years. The same can’t be said for its profits since early last year, but that hasn’t deterred Matthew Litfin, lead portfolio manager of the Columbia Acorn Fund (ACRNX). He says, “While there are new entrants in the entertainment arena for more experiential dining experiences – like TopGolf – we believe this should be less of a negative impact for Dave & Buster’s as it had been recently and is a sign that consumers are increasingly seeking out unique out of the home experiences.”
Dave & Buster’s operates more than 100 entertainment venues in 39 different states, with more on the way. These locations are restaurants, but the word understates all that the company offers. Dave & Buster’s also facilitates fun and play for adults and kids who want to play games above and beyond the traditional video arcade fare. And yes, it offers adult beverages, too.
New games might well rekindle profit growth. “Over the remainder of 2019, the company has a strong new game pipeline, including key VR (virtual reality) titles, to drive solid traffic, along with enhancements to food, service and marketing,” Litfin says.
Market value: $27.5 billion
Electronic Arts (EA, $92.73) shares tried to snap out of Q4 2018’s steep diver earlier this year, but the effort failed by mid-February. Worse, EA has lost a third of its value over the past 12 months.
The punishment is understandable but overdone. Between a couple of disappointing quarterly reports, the surprising rise of hit indie game Fortnite and delays of the release of its own Battlefield V, investors simply didn’t find enough to like.
However, EA might be one of the best stocks to buy for the rest of 2019 … and potentially much further down the road.
Jeff Bilsky, portfolio manager and senior analyst for the large-cap equity investment team at Chartwell Investment Partners, doesn’t think the foreseeable future is going to look like the recent past, however.
The key is EA’s updated portfolio of games, and how they’re sold. “The majority of EA’s revenue is derived from its FIFA and Madden franchises, but it has significant upside with the recent release of Fortnite competitor Apex Legends,” he says. “Long-term, EA should also benefit from a greater shift to digital downloads (which comes with much higher margins) after the console upgrade cycle next year, increasing in-game purchases, and the growing popularity of eSports.”
Bilsky thinks the upshot of the company’s recent development work is already materializing, saying, “The company gave revenue guidance for the game of $300 million to $400 million for the fiscal year, but this could be conservative given its already generated around $200 million in the first quarter and Fortnite earned an estimated $2.4 billion in revenue last year.”
Market value: $12.7 billion
Expeditors International (EXPD, $73.97) isn’t a household name, but the logistics outfit would be a nice addition for many households’ portfolios.
It’s categorized as a logistics company, with peers such as FedEx (FDX) and United Parcel Service (UPS). The classification doesn’t exactly describe all that Expeditors International is, however. In fact, unlike UPS and FedEx, Expeditors International doesn’t own any airplanes, ships or trucks. Rather, it has mastered the art of supply chain management through the use of technology. It can find the best routing solutions and most cost-effective pricing options for its customers available via third-party service providers.
The business model works. Although the company’s earnings growth hasn’t progressed in a perfectly straight trajectory, it has progressed. Trailing-12-month earnings of $3.52 per share were only $2.34 two years ago, and $2.05 per share two years before that. More of the same kind of sales and earnings growth is projected this year and next as well, with analysts modeling a 2020 profit of $3.76 per share.
Market value: $48.6 billion
Wall Street is hardly a huge fan of Illinois Tool Works (ITW, $149.05). The consensus rating on ITW shares is a “Hold” – a glaring lack of confidence from a generally bullish crowd – and the consensus target of $147 is below the stock’s present price. This is not a pleasant scenario for current shareholders.
But analysts’ doubt has proven misguided lately. Indeed, beginning in February, shares of Illinois Tool Works not only hit the then-target price of $136, but blew past it en route to a 26% romp.
The rally cooled off, but since appears to have been rekindled, once again defying the doubters. Indeed, analysts’ reservations could, for contrarian reasons, fuel a sustained bull run. Because if ITW shares continue to rally as they have of late, the analyst community might be compelled to upgrade their ratings, sending even more buyers into the stock.
Illinois Tool Works – a Dividend Aristocrat that has been growing its payout for 55 years and running – certainly doing its part. While far from explosive, last year’s bottom line of $7.60 per share is projected to reach $7.92 per share this year, and then to $8.44 in 2020.
©2017 Intuitive Surgical, Inc.
Market value: $57.3 billion
Intuitive Surgical (ISRG, $496.54) has been an erratic performer since last fall, and understandably so. ISRG missed its first-quarter earnings estimates, and analyst responses were mixed following the post-report plunge.
Raymond James analyst Lawrence Keusch remained steadfast in his bullishness however, calling the pullback a buying opportunity put in place by a misunderstanding of how the company’s business model is changing.
Taking a cue from several software and cloud computing outfits, Intuitive Surgical has entered the subscription business. Rather than selling its da Vinci robotic surgical equipment outright, it has begun to lease – the companies uses the term ‘place’ – some of its products rather than selling them.
The response has been positive. Intuitive Surgical placed 235 systems during the first quarter of the year using this new, alternative financing approach – up 27% from the year-ago period’s deliveries. The new business model sacrifices one-time revenue now in exchange for recurring revenue in perpetuity.
Keusch suspects the new model is gaining even more traction than initially suspected, saying about the company’s Q1 results, “The net impact of the greater number of leases vs. our assumption was $30M less revenue, or 3.5% y/y growth, implying the top-line would have handily exceeded Street estimates.” The Raymond James analyst goes on to tout “ease of upgrade, smoother revenue cadence and standardization on Gen 4-systems/higher instrument mix” as reasons to anticipate more long-term growth than other analysts expect.
Thus, ISRG still may live up to its billing as one of the best health-care stocks to buy for 2019.
Market value: $3.6 billion
Not too unlike the nation’s bridges, schools and potable water systems, the United States’ airports and related airport-management equipment are aging, in need of repair or outright replacement.
The numbers are big, too. In 2017, $10 billion was earmarked to overhaul JFK International. Chicago’s O’Hare secured approval for $8.5 billion worth of upgrades last year. Most airports in the U.S. need at least some degree of improvements and modernization.
It’s an opportunity that Richard Mathes, President of New York-based investment advisor The Mathes Company, hasn’t overlooked. His pick to plug into the airport spending trend is a rarely considered outfit called John Bean Technologies (JBT, $114.41), which makes everything from airport cargo loaders to boarding gates to airport air-handling hardware.
The results back up the promise. Rounded out with its food and automated systems business lines, John Bean’s revenue has grown every quarter since the beginning of 2014. Five acquisitions have helped muster that growth, but John Bean Technologies picks and integrates its acquisition targets well. Operating income has grown just as impressively, even if not as consistently.
Analysts on average expect revenue growth of roughly 5% next year and per-share profit growth of 12%, extending well-established trends for both measures.
Market value: $356.2 billion
The handful of times we’ve seen the yield curve invert since March is cause for concern, particularly for banks. Even if it doesn’t portend a recession, it’s a dynamic that makes the business of money-lending a less profitable venture.
But this prospect may be more than unnecessarily priced into the value of most banking names. JPMorgan Chase (JPM, $109.82) is no exception.
JPMorgan CEO Jamie Dimon explained his bank’s resilience in an interview with Barron’s: “We have a lot of subscription-like businesses. The volatility of our results is very low over time – surprisingly in businesses like fixed-income trading, where a large chunk of the revenues are consistent year to year … The macro environment doesn’t change anything we do. We invest through the cycle.” Wealth management and consumer banking are two particularly consistent business lines.
That resilience hasn’t prevented investors from looking at the big bank through bearish-colored lenses. But JPMorgan may end up being one of the best stocks to buy for the rest of 2019 for its contrarian potential.
Barron’s contributor Andrew Bary is among a few observers who believe the current interest-rate worries may ultimately serve as an entry opportunity, recently penning “Just as the stock market was unduly optimistic about JPMorgan and the group before the financial crisis, it’s inappropriately pessimistic now.”
Newcomers to JPM will also enjoy a dividend yield of roughly 3%, if they step in now.
Market value: $98.9 billion
It remains to be seen if Raytheon (RTN) and United Technologies (UTX) will be allowed to merge. But if they are, the change could prove distracting and disruptive. It also opens the door to other defense companies becoming more superior stock picks in the space.
Daniel Milan and Matthew Essmann, managing partners of Michigan-based Cornerstone Financial Services, now see Lockheed Martin (LMT, $350.14) as a top name in aerospace and defense.
Lockheed Martin is “taking a leadership position in future, next-gen aerial systems like hypersonic strike weapons, laser weapon systems, autonomy and artificial intelligence, which could lead to future revenue growth,” Milan says. He continues, “Their largest program is the F-35 stealth fighter jet and LMT recently issued a bullish forecast for the F-35 sales.”
“Lockheed Martin has shown much improved earnings growth over the last five quarters – at least 30% each quarter – and raised its full-year guidance in April,” Milan says. Analysts are on board with the company’s optimistic outlook, too. As a whole, they expect earnings of $20.56 per share this year, up 17% from last year’s $17.59. Then in 2020, they see another 21% leap to $24.89 per share.
Lockheed has issues, sure, including a very underfunded pension plan. But that doesn’t keep LMT from being among the best stocks to buy for the rest of this year.
Market value: $7.5 billion
You probably haven’t heard of $7.5 billion medical technology outfit Masimo (MASI, $141.08). That’s fine – just don’t be fooled by its obscurity. Its shares are up more than 500% over the past five years.
Matt Litfin, Columbia Acorn Fund’s lead portfolio manager, believes there’s more upside in store.
“Smart R&D investments over the last several years are just beginning to drive very profitable growth,” Litfin says. “Masimo has recently released a slate of new hospital automation solutions that directly address critical needs of the health care system such as the ballooning cost of care, the nursing shortage and the opioid crisis.”
Masimo’s claim to fame is its Signal Extraction Technology (SET) pulse oximetry, which serves as the basis for its cutting-edge blood oxygen saturation and pulse-rate monitoring equipment.
Litfin says about the hardware, “Masimo’s far superior pulse oximetry, a test to monitor blood oxygen levels, and other proprietary non-invasive vital parameters are transforming the way patient vital signs are monitored in the hospital and the home.”
Its pulse oximetry wares are, in fact, the preferred technology used in most of America’s top hospitals. Analysts believe the hospital market will continue buying up this hardware, too, driving 7% sales growth this year and accelerating its top-line growth to the tune of 10% in 2020.
The promise of 5G connectivity is finally becoming a reality, with commercial use of the ultra-high wireless technology already beginning. We’re just scratching the surface; it’s only available in roughly a couple dozen American cities. The bulk of the market as well as its consumers have yet to tap into the game-changing wireless service.
This budding ramp-up in 5G adoption – which should lead to $700 billion worth of annual global spending by 2025 –leads Jack Murphy, CIO of New York-based asset management firm Levin Easterly, to Nokia (NOK, $4.95).
“We believe Nokia will show continued improved execution in future earnings reports, especially with regard to the profile of the upcoming 5G cycle and improved cash flow from operations,” Murphy says of the organization that offers an end-to-end lineup of solutions, including the software and services needed to keep 5G connections up and running.
Nokia has the fiscal wherewithal to holds its place as a 5G leader and deliver value to shareholders, too. “Nokia’s balance sheet should continue to support a high degree of stock repurchase, supplemented by further restructuring,” Murphy says.
Market value: $136.5 billion
The rise of Square (SQ), the development of a payment app from Apple (AAPL) and even an entry into the money-transfer business by Facebook (FB) are just a small sampling of available options for digitally delivering cash. There are few barriers to entry in the business. A countless number of players are capitalizing on the chance to enter a payment market that Research and Markets expects to be worth $168 billion by 2026.
But sometimes the best-established player in the business also is the top stock to buy. In this arena, that’s PayPal (PYPL, $116.17).
“We believe PayPal is a structural winner in the payment processing sector,” notes William O’Neil + Co. executive director and analyst Dean Kim, adding “PayPal has a strong hold in mobile and e-commerce with over 270 million active users and 22 million merchants.”
The next big growth driver has already presented itself too, in Venmo. Kim explains, “PayPal has also successfully grown its reach to millennials via its Venmo platform, which processed $21 billion in transaction volume out of the total $161 billion in just the first quarter of this year.”
Bottom line? “We believe PayPal will continue to maintain its outpaced growth for years to come on the back of continuing global shift to digital forms of payments from physical cash,” Kim says.
Courtesy Prudential Financial
Market value: $40.3 billion
Prudential Financial (PRU, $99.23) has been a subpar performer since early 2018, with fears of stagnant or even falling interest rates prompting traders to steer clear of rate-sensitive areas such as insurers. But those fears ultimately might serve as the basis of a buying opportunity, for three reasons.
Chief among those is that, despite all the dire speculations, the U.S. and global economies have remained robust enough to at least allow the Federal Reserve to stand pat with its benchmark rate. We’ve seen the yield curve invert – albeit in a shallow way – this year when the bond market drove long-term bond and mortgage rates down. But in retrospect, the inversions are suspect mostly because they were prompted by excessive demand for U.S.-issued paper with stronger rates than what’s available in other parts of the world.
The second reason? Results, past and projected. Whatever headwinds might have taken shape and may take shape in the future, it has yet to meaningfully impact Prudential’s results. While revenue is projected to fall a couple of percentage points this year, earnings are on pace to grow nearly 9%. Next year’s expected 4% growth in sales should drive another 9% improvement in profits.
And third, Prudential is hardly just an insurer. It also offers investments, pension management, annuities, structured settlements and more. As such, the company isn’t as much of an interest-rate liability as it’s often assumed to be.
Market value: $50.5 billion
ServiceNow (NOW, $272.25) shares may be up more than 50% year-to-date, but this might be the rare case where a rapid advance is poised to become even more impressive.
ServiceNow offers companies a way of automating computer processes that otherwise must be done manually, or not at all. It’s more than just a set of scripts. There’s a predictive and programmed, intuitive element to it. ServiceNow can address needs ranging from IT to human resources to customer service and more, even giving its customers a means of developing their own custom-built apps.
ServiceNow’s products are clearly in demand too. Analysts see revenues expanding by more than 30% this year; those estimates temper only a bit to 28%, largely the result of a higher comparison bar. On an absolute basis, ServiceNow is still accelerating its top-line growth, which is driving comparably impressive operating-profit growth.
The clincher is reliable and recurring revenue. More than 90% of ServiceNow’s sales are subscription-based, and well more than 90% of its customers renew their subscriptions when the time comes.
NOW won’t win any value awards, but it’s certainly one of the best stocks to buy for the rest of 2019.
Market value: $311.4 billion
Finally, Levin Easterly CIO Jack Murphy says investors should consider stepping into Walmart (WMT, $109.07) as we move into the latter half of 2019.
“Walmart is the world’s biggest retailer, and it’s solidly in command of its markets, supply chains and industry trends,” Murphy says. While even Walmart itself has lamented the present and future impact of Chinese tariffs, the retailer so far has handily pushed through the big-time trouble they were supposed to cause. Walmart’s most recent quarter saw total revenues fall just shy of analyst estimates, but it still grew year-over-year by roughly a percentage point. Per-share profits dipped by about a percentage point but crushed expectations. Most impressively, same-store sales improved by 3.4% – its best comps growth in nine years.
Murphy also is impressed by what’s happening outside the company’s stores. “What’s most significant is Walmart’s pivot towards technology and e-commerce,” he says, “which can enable it to compete effectively with Amazon.”
The web still is a relatively small piece of the organization’s total business, but that’s changing. Walmart’s Q1 e-commerce business ballooned another 37%, maintaining a multiyear streak of strong double-digit growth in its digital marketplace. If an economic headwind is starting to blow, Walmart doesn’t look terribly bothered.
James Brumley was long GOOGL and T as of this writing.