The market may seem to be on the ropes right now, led lower by setbacks for several of its most popular AI stocks. The post-IPO weakness from SpaceX is adding to bearish undertones too.
As veteran investors can attest, however, these stumbles are often second chances to step into names you missed on the way up the first time around.
With that as the backdrop, here’s a rundown of three top stocks to buy that are now on sale, and not necessarily just because of the market’s recent weakness. In no particular order…
S&P Global
S&P Global (SPGI) hasn’t performed particularly well of late, tumbling in February due to disappointing guidance and worries that the advent of artificial intelligence poses a threat to its software business. The 24% plunge from that pre-earnings peak, however, is an opportunity to get into a name that’s undergoing some exciting evolutions.
But first things first.
Yes, this is the company behind the S&P 500 index, which may be the market’s best-known market barometer. It’s also a profit center, as S&P Global licenses the use of this index and others. This business accounts for about 12% of its total top line.
The company’s breadwinners, however, are its stock and bond ratings services and the sale of in-depth market data. These are businesses in perpetual demand, even if they’re rarely high-growth.
That being said, with higher interest seemingly here for a while in a market environment that’s a bit tricky to read, there’s an argument to be made that these two arms are actually going to see unexpectedly decent growth ahead, as was already seen in Q1 with the 13% year over year improvement in ratings revenue.
As for the laggard mobility arm that provides data and forecasts regarding automobiles and transportation, that’s one of the exciting changes in the works. In May, shareholders approved the spinoff of this business into its own publicly traded entity.
It won’t technically change much on a net basis, since current SPGI owners will actually be receiving their share of the impending spinoff. But the maneuver should unlock the value that’s otherwise been obscured by keeping this oddball business combined with its core operation.
S&P Global is also selling its energy software business to technology outfit SLB, which can arguably do more with it.
These divestitures will allow S&P Global to focus on more fitting and fruitful ventures, and of course, sidestep the risk that artificial intelligence poses on this front. Very little of this smart strategic shift, though, is currently reflected in the stock’s price.
Qualcomm
Qualcomm (QCOM) has been a tough name to get a handle on for a while now. The chipmaker wasn’t really a big part of the beginning of the artificial intelligence revolution, simply because it doesn’t make data center chips. As AI computing moved out of the data center and onto mobile devices, however, its high-performance Snapdragon mobile processors became pretty popular pretty quickly.
Then last year, the company actually entered the artificial intelligence data center processor market, although this had little impact on the stock until April, when shares soared following an impressive fiscal Q2 earnings beat and word that it had lined up its first paying data center customer, setting up recent profit-taking stemming from broader weakness from the entire AI sector.
Now take a step back and look at the bigger picture. CEO Cristiano Amon is right about this company’s future. So-called “edge” computing within automobiles, wearables, medical equipment, mobile devices, and more — where on-board AI can offer true constructive value without requiring the involvement of a remote data center — is the future, and the company’s portfolio is largely built from the ground up for this very purpose. Nobody else has anything quite like this company’s tech.
It matters simply because, according to Precedence Research, the worldwide mobile artificial intelligence business is poised to grow at an average annual pace of 26% through 2035, when it will be worth an estimated $325 billion per year.
Just make sure you’re truly prepared to be patient with QCOM stock here. You’ll need a long-term mindset to weather the volatility that’s sure to linger for a while.
Chewy
Finally, if you’ve got a few thousand bucks you’re ready to put to work for the long haul, add Chewy (CHWY) to your watchlist, if not your portfolio.
It’s not too difficult to understand why shares of this online pet supplies store have been down for the past few days. Although the company met its earnings estimates and topped sales estimates for its fiscal first quarter ending in early May, in mid-June, it also dialed back its full-year revenue guidance from the previous quarterly report’s outlook, with CEO Sumit Singh warning that “the consumer pet environment has become incrementally more challenged” in this inflation-riddled environment.
Just don’t lose perspective on the matter. Last quarter’s top line still improved 7.7% year over year — extending long-established trends — while the proportion of its business from autoship customers who enjoy the convenience of automatically recurring delivery of their pet’s supplies grew again to a record 84.4% of revenue. This business is, of course, relatively easy to retain.
But the consumerism headwind? It’s certainly nothing to ignore. Morgan Stanley’s analysts see it too, recently acknowledging this about the pet-care industry’s revenue: “After nearly 20% growth in 2021 and a 9% annual pace through 2025, expansion is expected to slow to about 4% through 2030.”
Now read the rest of analyst Simeon Gutman’s take on the matter. He adds, “but key growth drivers are intact: Emotional attachment to pets is high, the vet is still very important, and digitally positioned players are best placed to capitalize on evolving shopping trends.”
Chewy is one of these well-positioned digital players, offering pet owners the price and value they’re now shopping around for. The challenging economic backdrop could quietly favor it. Analysts seem to think so anyway. Most of those keeping tabs on this ticker currently consider it a strong buy, with a consensus price target of $ 30.82, which is more than 70% above Chewy’s current price.
— James Brumley
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Source: The Motley Fool
