By Michael Cintolo, Vice President of Investments, Cabot Wealth Network

What Are the Best Stocks to Buy in July?

We’ve seen a handful of nice baby steps for the market this year, but overall it’s best to remain mostly defensive until the buyers show they’ve conclusively taken control. On a positive note, this list has names either showing some outsized accumulation of late or are forming solid bottoming areas, showing strength going into July.

Academy Sports & Outdoors (ASO)

Despite a turbulent economic backdrop, Academy Sports has become a standout among sporting goods retailers. The company operates a chain of 260 retail outlets across 16 Southeastern states, with its biggest presence in Texas (with 108 stores). Nearly all of its locations that have been in operation for over four years have been consistently profitable in the face of an uncertain macro environment, thanks in part to what Academy sees as a consumer trend to enjoy a “healthier, happier, and more fun lifestyle,” a trend that accelerated during the pandemic but has remained surprisingly robust in recent quarters, too. What’s more, Academy just opened its first new location since 2019 (in Atlanta), and management has been pleased with the store’s performance to date, with expectations that EBITDA will be positive after the first year of operation. Additionally, Academy plans to open at least eight new stores this year as part of a bigger plan to open 80 to 100 stores over the next five years, so there’s a cookie-cutter story here as well. Most important, results remain buoyant: In Q1, although revenue of around $1.5 billion was 7% lower from a year ago (partly due to its comparison with stimulus-driven 39% comp sales in the prior year’s quarter), it still exceeded estimates by 16%. When compared with pre-pandemic Q1 2019, moreover, sales grew each division by at least 20% (with outdoors increasing more than 50%!). E-commerce sales jumped 19% while per-share earnings $1.73 beat the consensus by 32 cents. Looking ahead, analysts do see a slight dip in earnings this year, but the real story is that the drop isn’t going to be large—earnings should remain north of $7 per share this year (P/E near 5!) and grow as more stores open in 2023. The stock needs work like most names out there, but we like the big shakeout/recovery it had in May and the much higher low in June (33 vs 25); a more positive market should do wonders here.

Argenx (ARGX)

A Belgian immunology researcher, Argenx released its first commercial drug in Q1, generating better-than-expected sales. The drug, Vyvgart (efgartigimod), treats generalized myasthenia gravis (gMG) in adults who test positive for the anti-acetylcholine receptor antibody. It’s a rare chronic autoimmune disease that causes weakness in skeletal muscles controlling the eyes, mouth, limbs and, in a potentially life-threatening situation, the throat. It was approved by the FDA in December and in its first full quarter on the market sales tallied $21.2 million from about 350 patients. Wall Street had expected initial sales of about $6 million, so it was obviously a good surprise. Management credits the beat to its experienced sales force and early work with insurance companies. There is some belief, too, that Q1 sales reflect underlying demand that’s better than expected. The drug started selling in Japan on May 10 with a ruling on acceptance by the E.U. expected the second half of this year. Filings for approval were submitted in Israel and are nearing submission in China. Studies on dosing strategies, delivery methods and application to related afflictions – such as one sparked by COVID-19 – are underway. One effort, called Vyvgart Adapt-NXT, is a study for continuous dosing that the company expects it can submit for FDA approval by year’s end. On the sales side, the priority for Argenx this year is getting wider coverage for potential patients, from the current level of 62% in the U.S. Long-term, though, this could be a blockbuster, with some analysts seeing $2.5 billion of revenue for the treatment within a few years. The emergence from Argenx into a commercial operation means it’s expected to post losses for the foreseeable future, but the business has $2.9 billion in cash and no debt. As for the stock, it topped in February 2021, has built a huge launching pad since and today, despite the market, it’s knocking on the doors of new high ground.

Bumble (BMBL)

There will surely be plenty of new leadership during the next bull run, and one thing we like to look for are possible follow-on opportunities—companies that can be fresh winners in an established sector. As Covid restrictions and fears fade, one area to look at is the online dating group as people of all ages change out of their sweatpants and head back out to the dating scene. Match.com has long been the leader here, and by size, it’s still the big player—but we think Bumble could be “the next” Match.com or Tinder in a sense, with a couple of big differences that has people signing on. The first and most noteworthy thing is that women have to make the first move when it comes to initiating a chat, giving them the power to command the conversation. (It’s a boon to many guys as well, who are fine not having the pressure to reach out first.) Second, Bumble has a policy that cuts back on “ghosting,” where one party abruptly cuts off a conversation; on Bumble, any chat that isn’t responded to within 24 hours goes away, creating a sense of urgency. Most believe there are fewer spam bots as well, which is another plus. Most of these improvements are credited to founder and stemwinder Whitney Herd, who’s just 32 years old but cut her teeth at Tinder (which is owned by Match) as the VP of marketing and seems to have come up with a better mousetrap. Bumble also operates an older app named Badoo that operates mostly overseas (business has suffered of late in part due to the Russian invasion, with lots of Belarus, Russian and Ukraine subscribers cancelling for obvious reasons), but the namesake app is the big driver (three-quarters of revenue and growing) and is what investors are focused on. In Q1, total revenues lifted 24%, but the Bumble app itself saw sales up 38%, led by a 31% gain in subscribers (and up 8% sequentially), while revenue per user lifted 5%, all of which resulted in the firm’s first profitable quarter. As for the stock, it came public near the growth stock summit in early 2021 and imploded from a post-IPO peak near 80 to a low around 16 in March—but the stock found massive-volume support there, and did so again after Q1 results in May. BMBL looks to be building a low area over the past few months, and if business stays strong, we think it could start a new uptrend once the market gets out of its own way.

Pinduoduo (PDD)

Pinduoduo is one of China’s largest e-commerce sites, which combines online shopping with social media to offer deep discounts on everyday household items to group shoppers (a business model some are calling “gamified shopping”). Pinduoduo was able to keep the growth trend alive in the first quarter during China’s recent Covid lockdowns, with consensus-beating revenue of $3.7 billion increasing 11% from a year ago on the back of higher online marketing services and transaction services sales. Per-share earnings of 47 cents topped estimates by 17 cents. The company’s monthly active users (MAU, a key metric) continue to grow, with north of 750 million users in Q1, up 4% from a year ago. There were also 882 million active buyers in the 12-month period ended March 31, an increase of 7%. Looking ahead, Pinduoduo said it’s focusing on technology and sees a huge opportunity in agriculture; it plans to pursue “longer-term high-quality growth” in ag based on an expected boom in online food product purchases. The company also plans to promote the increased use of precision technology and artificial intelligence (via partnerships with governments and universities) in order to increase productivity and make China’s ag industry more cost effective. On the financial front, management hinted that growth will take a hit due to shutdown-related spillovers, prompting analysts to predict flat sales in Q2, but the main reason the stock is strong today is that investors are looking ahead--Wall Street sees top-line growth picking up in Q3 (up 16%) with double-digit growth continuing for several more quarters to come, while earnings lift nicely both this year and next. It’s not the young buck it was once, but Pinduoduo is an intriguing turnaround situation: The stock bottomed out from March through May and has actually been quite strong since then and has refused to give back any of its recent gains. Of course, shakeouts are likely given the market, but it looks like the worst has passed for PDD.

Scorpio Tankers (STNG)

Business is booming for oil tankers, thanks in part to higher demand generated by a ban on Russian oil by several countries and resulting in significantly higher shipping rates. Scorpio is the world’s third-largest oil ocean shipper by market cap, transporting and distributing refined petroleum products using a fleet consisting of the latest generation of fuel-efficient tanker vessels. Scorpio’s strength was catalyzed by the Ukraine war earlier this year, with the U.S. import ban on Russian liquid fuel and Europe’s recent plan to phase out Russian oil this year providing further stimulus. Although earnings were in the red in Q1, with a per-share loss of 27 cents (31 cents above estimates), the losses are rapidly shrinking and a return to the black is predicted for Q2. First-quarter revenue of $174 million, meanwhile, was 30% higher from a year ago and up 17% from the prior quarter, while beating the consensus by 10%. The company is focused on improving its balance sheet by reducing debt and improving liquidity, recently announcing the sale of 18 vessels and the repayment of $70 million worth of convertible notes (in total it’s chopped its debt balance by $452 million this year, or 14%). And all the good news is set to continue, as Q2 thus far has seen time charter equivalent (TCE) rates average $35,000 a day, Scorpio expects to finish Q2 with $450 million in liquidity while further reducing debt. Looking ahead, the company has no further plans to sell vessels and management expects refined product demand to increase as the pandemic eases, especially as the Ukraine war has exacerbated the global diesel shortage. Scorpio is also focused on returning capital through a $250 million share repurchase program and steady dividend (1.1% yield). For its part, Wall Street sees earnings soaring to nearly $5 per share this year and remaining elevated into 2023. The stock is one of the few in a legitimate uptrend, soaring higher in April and May and holding firm in recent weeks even as most commodity names have wobbled. Shakeouts are obviously possible, but odds favor the next major move is up.
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About Cabot Wealth Network

This report is published by Cabot Wealth Network which was founded in 1970 by Carlton Lutts, a disciplined investor with an engineering mind who developed a proprietary stock picking system using technical and fundamental analyses.

Since then Cabot Wealth Network, headquartered in Salem, Massachusetts, has grown to become one of the largest and most-trusted independent investment advisory publishers in the country, serving hundreds of thousands of investors across North America and around the world.

About the Expert

A growth stock and market timing expert Mike Cintolo is Vice President of Investments and Chief Analyst of Cabot Growth Investor and Cabot Top Ten Trader. Since joining Cabot Wealth Network in 1999, Mike has uncovered many exceptional growth stocks and helped to create new tools and algorithms for buying and selling stocks to help him identify the optimal time to buy, hold, sell partially, or exit completely.

Mike developed the proprietary Cabot Tides trend-following market timing system which has helped Cabot place among the top handful of market-timing newsletters on numerous occasions.

This report is updated monthly.