3 Top Stocks to Buy in July
3 Top Stocks to Buy in July
Investing in the brands that people regularly use is a simple and effective way to grow your savings for retirement. To give you some ideas, three Motley Fool contributors believe now is a great time to buy shares of Starbucks (NASDAQ: SBUX), Airbnb (NASDAQ: ABNB), and Walt Disney (NYSE: DIS). Let's find out more about these opportunities.
Buy the dip on Starbucks
John Ballard (Starbucks): Buying shares of industry-leading companies when they are on sale can pay off in the long run, and the stock market is handing a great opportunity to invest in the world's dominant coffee chain at a discounted price. Starbucks shares are down 17% year to date, but the long-term growth in the coffee market will ultimately benefit this outstanding brand.
The stock has underperformed this year due to weak comparable-store sales. Starbucks reported a year-over-year decline in global comp sales in the March-ending fiscal second quarter. This decline was most pronounced in China where comp sales dipped 11%.
Increasing competition, as more coffee brands compete on price, is mostly to blame for the weak sales performance. However, instead of competing on price and hurting profits, Starbucks is focused on leaning into its premium brand positioning to distinguish itself from the rest of the pack. This will benefit the company in the long run.
The out-of-home coffee market is expected to grow 17% to reach a value of $437 billion by 2028, according to Statista. One important advantage for Starbucks is its customer-loyalty program, in which it had 32.8 million active 90-day members in the most recent quarter, representing an increase of 6% year over year.
Wall Street analysts expect the company to grow earnings per share by 11.8% over the next several years. With the stock trading at a reasonable price of 22 times this year's earnings estimate, investors can expect the share price to follow the company's earnings growth in the coming years.
A new leader in travel
Jennifer Saibil (Airbnb): Airbnb has become a mainstream alternative to hotels, and in many ways, it has upended the entire travel industry. That makes it "sticky," and unlike many hyped-up disruptors that have come and gone without leaving much of a trace, Airbnb is joining the ranks of the travel leaders.
Sales growth decelerated from the triple-digit percentages it saw in 2022 and part of 2023 as it rebounded from the worst of the pandemic, but Airbnb demonstrates continued relevance and resilience by maintaining double-digit revenue growth. Sales increased 18% year over year in the 2024 first quarter even though it faced a tough comparison from a strong Q1 in 2023. It's also consistently profitable, with increasing net income and free cash flow. Net income was $264 million with a 12% margin in Q1, and it generated $1.9 billion in free cash flow.
Airbnb operates an asset-light model, and that means it benefits from growth at a low cost. Listings increased 15% year over year in Q1, and while it does have marketing expenses to entice new hosts to join its platform, many of its listings come from current hosts who have created a lucrative business out of hosting several rentals through Airbnb.
It's very hard for traditional hotel companies to match Airbnb's model. For example, it was uniquely positioned to benefit from the recent total solar eclipse that was best viewed in several U.S. cities where there aren't many hotels. It offers rentals in areas around the world that are otherwise hard to visit, and it makes it easier and cheaper for visitors who want to rent for several weeks at a time or even live in Airbnb's rentals.
It's always finding new areas to invest in. Recently, it moved its focus to its mobile app. It's launching experiences that "drop" in the app and just rolled out collaboration tools for groups to book together. There are many ways it can keep up its growth for the foreseeable future.
Airbnb will release Q2 earnings soon, and the stock is already climbing on high expectations. Expect it to jump with a strong earnings report.
A great brand at a solid value
Jeremy Bowman (Disney): It's hard to think of a stronger consumer brand than Disney. The name has been synonymous with family entertainment for a century, including animated films, TV, theme parks, live entertainment, and consumer products like toys.
Disney benefits from an unmatched consumer-products flywheel, which allows it to monetize the same piece of intellectual property over and over again, and its ownership of ESPN gives it a leadership position in sports entertainment.
Recently, that hasn't been enough to make the stock a winner, but that could soon change. Disney tumbled on its earnings report in May after it said that it expected streaming profits to be weaker in the current quarter, but that's exactly the kind of sandbagging that can lead to recoveries on the following quarter's results.
While investors seem to be demanding a smoother profit-growth line in the streaming division, they're missing the bigger picture in Disney's evolution. The company reported its first-ever profit in the direct-to-consumer division in the fiscal Q2, and it forecasts overall full-year adjusted earnings per share will grow 25% this year. Earnings should continue to grow from there.
Disney has also consistently beat Wall Street estimates, meaning that the stock is likely even cheaper than the price-to-earnings (P/E) ratio of 19 it trades at based on 2025 estimates.
With Disney's streaming segment finally reaching profitability, profit growth could accelerate from here as well, as its decline in its linear network division becomes less meaningful. That means investors could be looking at a few years, at least, of strong profit growth for the entertainment giant.
Disney is likely to face some challenges in July as the Olympics saps viewers from ESPN and its other channels, but if you take a longer view, it looks like a good time to buy as the price is right and momentum is likely to build from here.
Should you invest $1,000 in Starbucks right now?
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Jennifer Saibil has positions in Airbnb and Walt Disney. Jeremy Bowman has positions in Airbnb, Starbucks, and Walt Disney. John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Airbnb, Starbucks, and Walt Disney. The Motley Fool has a disclosure policy.