Best stocks to invest in August 2020: four companies to watch for new highs
10:32, 30 July 2020
August is typically a turbulent month for the stock markets, and this year is set to be no different with the momentum of the past few months’ rally showing signs of slowing down. For investors wondering what stocks to invest in, August is a time to be cautious – particularly when opening new positions.
Economic activity has recovered more quickly than expected following the easing of Covid-19 lockdowns but a resurgence in the pandemic is now leading to a stalling in that recovery, note analysts at ABN Amro, warning investors to “brace for the summer dip”.
This article provides an overview of four top shares to invest in that have the potential to perform well even if the broader markets pull back: Walmart (WMT), Visa (V), Clorox (CLX) and Microsoft (MSFT). As always with stock suggestions, you should do your due diligence and consider your risk tolerance.
Best stocks to invest in: August 2020 picks
The recent sharp rally in technology stocks that led the rebound in financial markets since March has made analysts cautious that the sector may be approaching the top. Citibank suggests carrying out “an analysis of one’s large-cap US tech-related holdings to avoid allocations that exceed 20 per cent of portfolio wealth,” and adding “diversification to diminish overall technology sector risk.” Turning to consumer staples and companies that can withstand cyclical trends can provide some portfolio protection.
We have selected four companies for investors looking for current good stocks to invest in amid an increase in market uncertainty.
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Walmart: new online subscription could propel the retailer to fresh highs
US retail chain store giant Walmart has been trading around all-time highs since April, as consumers forced to stay home during the Covid-19 pandemic have boosted the company’s sales of groceries and other home products.
“Higher e-commerce penetration to us means that the firms that are best positioned to offer a direct to consumer experience stand to benefit,” said Adam Virgadamo, US equity strategist at Morgan Stanley.
Walmart stock is up by more than 10 per cent since the start of the year and there is potential for it to hit fresh highs above $134 per share, making it one of the best stocks to invest in. August should see the launch of a new Walmart+ monthly online subscription service to rival Amazon and take market share from competitors like Target and Kroger.
The median price target of 30 analysts offering 12-month price forecasts for Walmart is $138.50 per share, with the lowest estimate at $100 per share and the highest at $155 per share, according to CNN Business. The median estimate indicates a gain of around 5 per cent from the $131 per share level around which it has been trading in recent days. Of 32 analysts that have issued a rating on the stock, 19 recommend it as a buy.
Visa: online and cashless payment processing
US-based global payments technology company Visa reported a 17 per cent decline in revenues for the quarter ended 30 June, as Covid-19 lockdowns reduced consumer spending. But over the long term, it stands to benefit from the accelerated shift to e-commerce and online payments.
Visa’s share of e-commerce where cash is not an option is around three times greater than physical transactions, said Alfred Kelly, the company’s chairman and CEO. In countries where e-commerce has not been well developed, there has been a dramatic shift in adoption – for example Argentina saw active e-commerce card growth of over 100 per cent and Romania experienced a 70 per cent increase, Kelly said.
The median 12-month price forecast from 31 analysts covering Visa is $217 per share, ranging between $185 per share at the low end and $247 per share at the high end, according to CNN Business.
The median share price estimate points to an increase of 11 per cent from the company’s post-earnings share price. Technical indicators for the stock indicate there is a potential upside for the stock to move higher.
Clorox: pandemic drives demand for cleaning products
Shares in household products manufacturer Clorox hit an all-time high in early July at the $232 per share level, soaring almost 50 per cent since the start of 2020. As a consumer staples company, the share price held up during the March selloff in equities, and it has clearly received a strong boost in demand for cleaning products during the Covid-19 pandemic with the emphasis on hygiene and with people spending more time at home. Technical indicators point to the potential for the stock to reach fresh highs after a period of consolidation in recent weeks.
“With the pandemic expected to have a sustained positive impact on consumers' disinfecting and hygiene habits, we'll invest further in our brands, turn incremental usage into loyalty,” said Lisah Burhan, the company’s vice president of Investor Relations in presenting its results for the March quarter. Sales increased by 15 per cent and the company updated its guidance to estimate its full-year sales growth to 4-6 per cent, from its previous forecast of 2 per cent.
Analyst forecasts for the stock range widely, from a low of $164 per share up to $256 per share.
Microsoft: software services tap into remote working shift
While analysts are sounding a note of caution on investing in technology stocks, Microsoft remains one of the best shares to invest in. August could see the stock reach fresh all-time highs as the company’s shift to focusing on software services has coincided with increased demand from companies working remotely, which some have said will continue well into 2021. Microsoft reported a 13 per cent increase in revenue during the quarter ended 30 June, driven by its technology in cloud computing, artificial intelligence, security, and compliance.
The share price has climbed by more than 25 per cent since the start of the year to around $202, and the 12-month median price forecast from 28 analysts is $230 per share, ranging from $208 per share to $260 per share, according to CNN Business.
Analyst outlook: the stock market is set for choppy trading
The sharp rally in stocks since March led by the technology sector has stretched company valuations, and could be setting up the markets for a pullback, according to some analysts. While the overall market is likely to remain bullish in the near term, investors should be careful to research potential positions in depth and be prepared for continued volatility.
“These extended valuations leave little margin for error should the companies disappoint the lofty expectations,” said Eleanor Creagh, market strategist at Saxo Bank, in a recent note. “With the Nasdaq having rebounded over 50 per cent since late March, momentum is on side with the bulls and resistance seems futile. However, we remain vigilant as complacency reigns for now, but risk typically builds slowly, and when sentiment shifts, liquidity quickly disappears... Long growth/short value positioning is at historical extremes and a reversal in this positioning could be painful, with a correction well overdue.”
“Despite some positives, we believe the market is still in a somewhat range-bound mode for the short term with sector swings beneath the surface,” said Larry Adam, chief investment officer at the Private Client Group at Raymond James. “The market is focused on fiscal stimulus and good earnings reports right now, but there are also concerns out there (stalled reopening process, geopolitical tensions, election). That said, we remain positive over the longer term and would use weakness to accumulate favoured sectors (Tech, Health Care, Communication Services, Consumer Discretionary).”
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