Best stocks to buy today (May 31, 2021)
It has been a cyclical value play since the beginning of January, but some of the best stocks to buy are those that have shown little volatility on the market.
Twilio just got a tremendous secular story with great attention on how they can communicate with their customers. Shopify greatly supporting small businesses and medium-sized businesses. These are costly stocks, with Shopify trading at 46 times sales. But we think there are opportunities in the long term, although there might be some short-term pain.
Financials will be the first factor to influence stock picking. Out of the three buckets of technology – meaning more consumer’s staples tech, the cyclical tech, and the high beta tech – we’re going back to consumer staples tech where it will be more about quality of earnings, quality of cash flow. This scenario favorites stocks such as Apple and Microsoft and more cyclical tech stocks like Salesforce, Adobe, PayPal, Visa, and MasterCard. Stocks that, as we have seen in the last months, many investors worldwide sold way too early during the post-pandemic.
The higher wage earners are going to continue to spend money. The higher-wage earners are going to continue to travel. People want to get out there and live again. There’s a real opportunity as we continue to go to restaurants and start to live and spend money again. Stocks like Costco, Walmart, and Target are doing a wonderful job, but they have not been rewarded on the earnings side like the rest of the market. These high-quality earning retailers will also be a great place to look for the best stocks to buy during the second half of the year.
Wells Fargo is another exciting stock that we think will perform well in this second semester of 2021. Bank of America is a good call; Morgan Stanley is for diversification. Prudential is a restructuring story, and it is currently super cheap.
Sitting on the doorstep of new records, are we about to make the next move higher? The DOW has been up five of the past six days, the S&P500, three of the past four days with ten-year note yield closing at 1.59.
We made it through the big sell-off in May mainly because the S&P was up .8%, and we’re not that far away from record highs. The S&P500 is half a percent away; interest rates aren’t running away from us, and earnings expectations are improving. The market seems to lean towards the next level higher, led by a fairly diverse cross-section of industry groups and sectors.
The market increase is not due to FAANG stocks, as we had seen at previous highs ending up not being very sustainable. This is a very different picture. The XLF has spent the last few weeks hanging near highs, stopped making forward progress, but gave absolutely nothing back, especially in the big ones like JPMorgan. That’s a super bullish setup for next week. Historically, when financials are doing well, stock markets do well, especially when they’re at record highs.
The XUS index – the entire global stock market, not only US – not only is approaching an all-time high right now, but over the last 12 months, this index has outperformed the S&P500. The stock markets overseas, particularly in Europe and Japan, have the same reflationary trends that we are coming out of this pandemic. When the whole world seems to want to break out, it is tough to stay bearish or pessimistic.
This has been the year of rotation, with the market outperforming by a considerable margin year-to-date. But in the last two weeks, it has been interesting to see growth make a comeback. The reason is that some people fear inflation, a scenario where growth would do better than value. Given all the stimulus distributed in the last 14 months and more to come, it leads to growth. Maybe not as strong as the first and the second quarter that we expect, but it will stay above trend. And then you have the Richmond fed earlier this week talking about cap spending, cap x spending up about 42%. We are still seeing good trends in the consumer yesterday’s GDP number regarding personal consumption. Still, there’s also some inflation in the system related to wages. Growth and a little bit of inflation are a recipe for owning more cyclical, more value-centric companies.
However, it needs to be said that gasoline prices the highest since 2014, and crude oil has doubled in the past year. Considered this increased price and the recent events, many analysts don’t expect a June boom. Instead, they expect that people will moderate their purchase behavior, overall personal consumption, and expenditure.
We’re in the early stages of transitioning to an earnings-driven, fundamentally-biassed market that means more diverse performance. It means a broadening out, stock picking, and all caps – small, mid, and large – working together.