The latest jobs report showed a slowing pace of hiring which will affect stock market opportunities. The July jobs report showed slowing hiring with low unemployment. The economy continues to cool, which lessens the chances that the Fed will decide to raise rates when the FOMC meets next in September.
This signals investors that a soft landing remains a distinct possibility and that the markets can continue to move upward. Yet the economy continues to be challenging to judge, with many prominent economists predicting an oncoming recession. Nevertheless, a bullish outlook remains, and investors should continue to grow their portfolios given the impressive returns year-to-date across the market.
Netflix (NFLX)
Netflix (NASDAQ:NFLX) hasn’t been rewarded for its efforts. The stock fell after the firm reported second-quarter earnings in mid-July. Yet, Netflix has set itself up for future success and growth. That suggests there’s a mismatch and that shares are undervalued.
The reason to get behind Netflix lies in subscriber additions. Netflix’s password-sharing crackdown has done what it was intended to. The firm added 5.9 million new subscribers overall. That figure was multiple times higher than the 1.9 million subscriber increase that had been anticipated.
However, the company doesn’t expect the additional subscribers to add to top-line results immediately. It’s more likely that Netflix will start to see actual results from the password-sharing crackdown toward the end of the year. Q3 revenue growth is expected to reach 7.5%. That figure is far better than Netflix’s 2.7% revenue growth in Q2. NFLX shares traded well above $600 recently, and it has improved since. It can undoubtedly grow from here.
Anheuser-Busch InBev (BUD)
It wouldn’t be fair to say that the stock of Anheuser-Busch InBev (NYSE:BUD) hasn’t been negatively affected by recent controversy. The firm’s promotion of Bud Light by featuring transgender influencer Dylan Mulvaney certainly created a strong backlash against the company. However, as is often the case, controversy creates opportunity.
BUD shares have fallen in the aftermath of the controversy and have remained lower since. Headlines have seized on the issue, and rightly so. Sales shares fell for Bud Light, and Modelo surged ahead as the top-selling beer in the U.S. in May. That trend is expected to continue throughout the year.
But here’s the rub: Anheuser-Busch InBev’s revenues have increased even as volumes have declined. Revenues increased by 7.2% in Q2. The company has found a way to drive top-line results despite controversy, increasingly strapped consumers, and other factors. It’s cheaper because politics have polarized everything to a degree we’ve perhaps never before experienced. At some point, the fervor will fade, and BUD shares will reward investors who remain steadfast in that belief.
Pfizer (PFE)
Pfizer (NYSE:PFE) will continue to be one of the better opportunities in the stock market in 2023 and into 2024. Shares have been beaten down as the firm’s pandemic vaccine victory dissipates. The average investor, ever driven by a what have you done for me lately attitude, has created an opening.
Pfizer’s prices have returned to pre-pandemic levels and now trade where they did before it successfully developed a Covid vaccine. The argument is pretty straightforward as it relates to investing in PFE shares. The company appears to be in decline, given it should make roughly $62.3 billion in sales in 2023. It eclipsed $100 billion in 2022 on its vaccine success. Yet Pfizer only made $41.65 billion in 2020 before it had a vaccine. It’s basically grown by 50% since 2020 after you strip away vaccine sales. Yet it trades for the same price as it did then.
The firm is launching nearly 20 products over the next 18 months. Growth could take off in that time if one or more of those products succeeds. Meanwhile, Pfizer’s dividend pays 4.5%, incentivizing investors to wait it out while providing a healthy income stream.
British American Tobacco (BTI)
British American Tobacco (NYSE:BTI) offers the same deal that most other tobacco giant stocks currently offer: A ton of sustainable income, paid for by cigarette sales, to investors willing to ride out the pivot toward cleaner tobacco products.
Let’s do some quick math here to understand what BTI shares offer investors. Shares trade for $33. Wall Street believes that those shares have a fair value of $49.87. That suggests an upside above 50% for investors. However, the dividend likely adds $2.90 or more to the price. That means investors could get in for $33 and see shares and dividends turn into $52.77. That equates to nearly 60% return.
The dividend is relatively safe, having last been reduced in 2018. Its payout ratio of 44% is within the healthy range and should be very sustainable. British American Tobacco is pushing aggressively toward next-generation products relative to its competition. It could reach those significant new product revenues first. Meanwhile, it will continue to be propped up by steady cigarette sales.
Dexcom (DXCM)
Diabetes stock Dexcom (NASDAQ:DXCM) continues to show improvement. Well, actually, the company continues to show improvement while share prices have fallen recently. Investors should ask themselves a few simple questions in order to understand Dexcom. One, is the prevalence of diabetes growing? Yes. Are diabetes patients demanding the continuous glucose monitors Dexcom provides? Yes. And is Dexcom a fundamentally sound firm? Also, yes.
Those factors make it appealing. The prevalence of type 2 diabetes is expected to increase by 700% by 2060, according to the CDC. Dexcom’s market is healthy. Revenues increased by 25% in Q2 on a year-over-year basis. Demand is evident. Further, Dexcom is fundamentally sound. Net income more than doubled over the same period reaching $115.9 million.
What I particularly appreciate about Dexcom is the fact that it is a value-creating firm based on WACC/ROIC comparisons. The company has shown that it can derive larger returns from capital borrowed than that capital costs the firm. That’s how to grow.
Coca-Cola (KO)
Coca-Cola (NYSE:KO) is the second-to-last stock on this list. Both are more conservative picks geared toward capital preservation. It’s wise to at least consider such stocks, given that so many economists continue to see a recession ahead.
Coca-Cola has fluctuated between $59 to $64 this year. It is a steady stock in terms of share price volatility. In fact, its beta of 0.54 is very low. KO shares avoid greater tumult in the markets, as 2022 showed. As the fear and greed index shows, investors are becoming less confident in the markets. That means they’ve become increasingly worried about a recession over the past month. That should drive demand for KO stock as it is a proven vehicle for capital safety.
Consumers love Coca-Cola products. They’re the little luxury that cash-strapped Americans can afford at the moment. Sales volumes may be flat at Coca-Cola, but revenues are rising nonetheless. The company has a product that is less price sensitive. It’s simply a safe company overall.
McDonald’s (MCD)
McDonald’s (NYSE:MCD) stock is another that investors worried about a recession should consider. Their beta of 0.64 means price fluctuations are much less pronounced. And like Coca-Cola, McDonald’s provides a healthy, modest dividend.
Again, McDonald’s is a more conservative pick geared toward capital preservation. That said, McDonald’s does boast some impressive growth figures of late. For example, global sales increased by 11.7% in the second quarter and by 10.3% in the U.S. in that period. For comparison, McDonald’s revenues have grown by 3.8% annually over the past five years.
So, McDonald’s recent efforts are proving successful. The company streamlined its menu and is considering reducing restaurant sizes moving forward. The company plans to build smaller restaurants with less seating as customers are less interested in dining inside its locations. That should reduce costs which can be redirected toward growth initiatives that improve the company.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.