One of the most important things an investor can do is regularly put money into the stock market. It’s OK to be more cautious at times and more aggressive at others, but buying stocks regularly helps correct for natural market volatility.
Investors should also aim to build a diversified portfolio. That means owning at least 25 different stocks spanning multiple market sectors. Following that blueprint minimizes the risk that comes with concentrating capital in a few companies or industries.
The market leader in online payment processing
Trevor Jennewine (PayPal Holdings): It’s no secret that digital payments are becoming more prevalent, but investors may not realize that digital wallets are driving that trend. According to research from Worldpay, credit and debit cards are losing market share to digital wallets in both online transactions and physical points of sale (POS). Few companies are better positioned to benefit from that trend than PayPal.
PayPal operates one of the biggest payments networks in the world, with 433 million active accounts, but the two-sided nature of its network is particularly noteworthy. Whereas Stripe and Adyen work solely with merchants, PayPal offers financial services to merchants and consumers, meaning it has data from both sides of the transaction. PayPal uses that data to increase sales and reduce fraud for its merchants, and that value proposition has paid off big time.
PayPal is the most accepted digital wallet in North America and Europe, and was the second-most-downloaded finance app worldwide last year, according to Apptopia. PayPal is also the market leader in online payment processing, with 42% market share, according to Statista. That means the company should benefit significantly as e-commerce becomes more prevalent, but PayPal is also working to expand its footprint in brick-and-mortar stores.
The company launched its PayPal Zettle POS solution in the U.S. last October and recently partnered with Apple to allow consumers to use PayPal- and Venmo-branded cards in conjunction with Apple Pay, the most popular in-store mobile payment option in the U.S.
Looking ahead, Grand View Research estimates that digital payment revenue will increase by 21% annually through 2030. That tailwind should keep PayPal in growth mode for many years to come, and with shares trading at 2.5 times sales — an absolute bargain compared to the three-year average of 8.6 times sales — now is great time to but this fintech stock.
A winner regardless of what the economy does
Keith Speights (Vertex Pharmaceuticals): Many investors are understandably nervous about the U.S. economy. After all, even the Fed is predicting that a mild recession is on the way. But there’s one stock you can buy in June that’s well positioned to be a winner regardless of what the economy does — Vertex Pharmaceuticals.
Vertex markets the only approved therapies to treat the underlying cause of the rare genetic disease cystic fibrosis (CF). AbbVie recently shut down its CF program, leaving only two other biopharmaceutical companies with CF drugs in clinical testing. Both are years away from even having a shot at competing against Vertex.
Patients won’t stop taking their potentially life-saving drugs during an economic downturn. Vertex will continue generating strong revenue and profits whether there’s a recession or not. It will also move forward with potential expansion into new therapeutic areas either way.
Vertex expects to win regulatory approvals soon for exa-cel to treat sickle cell disease and transfusion-dependent beta-thalassemia. It has two other products, its vanzacaftor triple-drug CF combo and non-opioid pain drug VX548, that probably aren’t far from potential commercial launches.
Wall Street expects explosive growth from Vertex over the next five years. However, its stock remains attractively valued with a low price-to-earnings-to-growth (PEG) ratio of only 0.56. In my view, with so much market uncertainty, Vertex is the ideal stock to buy in June.
Target’s on target again
Anders Bylund (Target): In this inflation-tinged economy, Target has seen its fair share of issues. Consumers have gravitated away from the big-ticket items that used to drive the retail giant’s bottom-line results while clearing the shelves of lower-priced commodities. As a result, Target’s warehouses were packed with unsellable furniture, clothing, and consumer goods as many shoppers went home without the everyday necessities they wanted to buy.
The stock price is down more than 40% in 18 months and, arguably, for good reason. Profit margins have trended downwards since the inflation crisis started, and the top line is running low on pep.
However, that’s all in Target’s rearview mirror now. Past results do not guarantee a similar performance in the future, and it looks like Target has solved its paradoxical inventory problems. Customer traffic to Target stores increased quarter over quarter in the first quarter of 2023, ending a painful streak of lower comps.
And thanks to a data-driven revamp of Target’s inventory management processes, shortages of high-frequency essentials now stand at three-year lows and are trending downward. At the same time, the clutter of unsold upscale items has cleared out. Target’s upgraded distribution centers make heavy use of automation and more cost-effective bulk shipments. Thus, Target is running a leaner, meaner operation now, and this fiscal discipline should serve the company well when consumers are ready to make big-ticket purchases again.
Meanwhile, the stock price is down by nearly 20% over the last quarter, and Target trades at a serious discount compared to its peers in the affordable retail sector. Of course, the low stock price also pushed Target’s dividend yield to a multiyear high of 3.1%. It looks like a great time to lock in that generous payout and prepare for an upswing as the inflation crisis fades out.
Disney’s dark days drag on
Daniel Foelber (Walt Disney): Disney stock is down 56% from its all-time high and is within striking distance of an eight-year low. The stock continues to find itself out of favor for myriad reasons. When Disney+ first launched in November 2019, investors cheered subscriber and revenue growth even if the service lost money. But over the last couple of years, Disney’s profitability has been under a microscope.
A concentration of competition in the streaming space has painted a fine line between content creation and reckless spending. Shortly after launching Disney+, Disney made the goal to turn the service profitable by fiscal 2024. That goal is looking less likely despite extreme cost-cutting efforts by CEO Bog Iger.
The objective of any streaming service is to create enough content to keep subscribers engaged and entertained — but not so much content that subscribers are overwhelmed. The simplest way to make Disney+ profitable is to slash the quantity of content. But as Disney is quickly realizing, subscriber growth will stall, or even decline, if customers feel their needs are not met.
Disney’s parks business continues to put up monster results. But like many cyclical industries, investors are weary that results will decline if macroeconomic conditions worsen.
It has been nothing short of disappointing to see Disney mismanage its content spending, undergo messy leadership changes, furlough employees during the pandemic, and then fire thousands of employees to cut costs. There is no sugarcoating the bleak short-term outlook for Disney. But this is also a beloved brand and one of the most powerful entertainment engines on the planet.
Disney stock has gone essentially nowhere in eight years despite a stock market that has increased severalfold. For investors who believe Disney will find a balance and chart a path toward sustained streaming profitability, now looks like a good time to buy Disney stock, even if things get worse before they get better.
This oil dividend giant is taking a big growth leap
Neha Chamaria (Chevron): Investing in oil stocks isn’t for the faint of heart, but one oil giant has consistently rewarded investors over the decades — Chevon. There’s a particular reason I’m recommending Chevron stock now, though: The company is making a big acquisition that should significantly contribute to its earnings and cash flows within the first year of closing, making Chevron an even more compelling stock to add to your portfolio.
Chevron will acquire PDC Energy by the end of this year in an all-stock deal valued at $7.6 billion, including debt. The acquisition should significantly boost Chevron’s footprint in Colorado’s Denver-Julesburg Basin while expanding its presence in the Permian Basin. Chevron’s total proved reserves will increase by 10%, and it’ll become one of the top players in the Colorado basin in terms of production.
Notably, Chevron appears to have bagged quality assets for a reasonable price — it is paying a premium of only 14% above PDC’s 10-day average closing prices on May 19. The deal is expected to boost Chevron’s annual free cash flow by $1 billion at a Brent crude price of $70 per barrel and a Henry Hub natural gas price of $3.5 per Mcf.
Although Chevron’s capital expenditure could also rise by about $1 billion per year, the incremental cash flows should leave the oil major with enough scope to grow its dividends and buy back shares. Chevron is a rock-solid dividend stock with a 36-year streak of consecutive dividend increases. With Chevron down almost 17% in the past six months and yielding 3.9% now, this Buffett stock is a compelling long-term pick for anyone looking to park some money this June.