Day: September 2, 2024

Bargains can be harder to come by when the stock market is up big on the year. But there are plenty of opportunities if you know where to look.

Toyota Motor (NYSE: TM), Delta Air Lines (NYSE: DAL), and Brookfield Infrastructure (NYSE: BIP)(NYSE: BIPC) may not be the fastest-growing, flashiest names. But all three companies reward investors with growing payouts and have inexpensive valuations.

Here’s why all three dividend stocks are worth buying in September.

Toyota is at the top of its game, yet the stock is down big

Daniel Foelber (Toyota): After surging to an all-time high of over $255 a share earlier this year, Toyota is now down around 30% from that high and has erased essentially all of its 2024 gains.

Automakers like Toyota benefit from lower interest rates, which reduce borrowing costs for buyers and help drive sales. Inflation and higher interest rates have been a challenge for the industry. But overall, Toyota’s sales have held up fairly well.

For the fiscal year ending in March, Toyota manufactured a record number of cars and its June quarter had strong earnings.

Toyota has taken a unique approach to the threat of electrification by focusing on innovations that don’t abandon its heritage or internal combustion engine (ICE) prowess. Its new combustion engine lineup features low- or no-carbon engines that can run on gasoline and alternative fuels.

Toyota has long been a pioneer in hybrids. Its hybrid business continues to grow nicely and offers a middle ground between pure ICE vehicles and electric vehicles.

As for its valuation, Toyota has a price-to-earnings (P/E) ratio of just 7.3.

As inexpensive as that may seem, it’s actually lower than its historical median P/E over various periods over the last 10 years. But it’s worth mentioning that automakers tend to have low valuations due to their capital-intensive nature, dependence on debt, global competition, and the industry’s cyclical nature.

Toyota is committed to growing its dividend. However, its priority is the growth of the core business. Toyota makes semiannual dividend payments in March and in September, with the March payout usually being higher than the September payout — likely because it is closer to the end of the company’s fiscal year. Due to the variances in the payout, it’s tricky to know precisely what Toyota’s yield will be in a given year, but I would say investors can expect around a 2% to 2.5% annual yield based on the current stock price.

All told, Toyota is a great choice for value investors looking for a proven legacy automaker that approaches sustainability by utilizing existing infrastructure while also considering the demand for lower-carbon fuels and climate goals.

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The market is being too negative over Delta Air Lines

Lee Samaha (Delta Air Lines): The stock trades at less than 7 times its estimated earnings in 2024 and only 7.5 times the midpoint of management’s full-year 2024 free-cash-flow guidance. Whichever way you look at it, Delta’s valuation is extremely attractive.

However, there’s usually a reason for the lowly valuations. In this case, the market is probably stressed about the current overcapacity in the airline market and the potential for a disappointing second half for Delta.

In addition, Delta suffered an estimated $500 million loss of revenue due to a technology outage and is believed to be seeking compensation from Microsoft and CrowdStrike over the issue.

Any deterioration in the earnings outlook is not good news for Delta, considering it has a market cap of just $26.4 billion and debt and finance lease obligations standing at $18 billion at the end of the second quarter.

That said, the market may be too pessimistic. While losing revenue at any time is disappointing, the $500 million represents less than 1% of its expected revenue this year.

Moreover, both Delta Air Lines and United Airlines believe that the industry is already reacting to overcapacity by rationalizing routes, leading to capacity growth moderation. If Delta’s and United’s management are right, then pricing should firm up, and Delta can meet its full-year guidance. As noted above, the stock looks like a great value based on the expected numbers.

Brookfield Infrastructure Partners LP is a powerful way to pump passive income into your portfolio

Scott Levine (Brookfield Infrastructure Partners LP): Hiking its distribution higher for the past 14 years, Brookfield Infrastructure Partners LP has demonstrated a steadfast commitment to rewarding shareholders. It seems highly unlikely, moreover, that the global operator of infrastructure assets is going to end its streak anytime soon. In fact, management aspires to raise its payout between 5% to 9% annually. And if all of this doesn’t excite investors looking to generate stronger passive income flows, consider this: Shares of Brookfield Infrastructure — currently offering a 4.9% forward dividend yield — are not richly valued.

Operating a variety of infrastructure assets, from midstream to electric utilities, Brookfield Infrastructure Partners LP has a considerable presence worldwide, and it seems poised to grow further in the near future. In its second-quarter 2024 letter to shareholders, management noted that its backlog of capital projects stands at $7.7 billion, a high-water mark for the company and a solid indication that the company is well positioned to continue raising its dividend.

The company’s high dividend yield may give conservative investors pause as it’s not uncommon that high yields are actually perilous dividend traps. This, however, is not the case with Brookfield Infrastructure Partners LP. For one, the company has an investment grade balance sheet rated BBB+ by Fitch Ratings. Also, management has espoused a circumspect approach to raising the distribution, targeting a funds from operation payout ratio of 60% to 70%.

Currently, shares of Brookfield Infrastructure Partners LP are changing hands at 3.2 times operating cash flow, a discount to their five-year cash-flow multiple of 4.5. Between the stock’s inexpensive valuation, management’s goal of boosting its payout higher each year, and the company’s solid financial footing, loading up on Brookfield Infrastructure Partners LP stock is a compelling option right now.

Should you invest $1,000 in Toyota Motor right now?

Before you buy stock in Toyota Motor, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Toyota Motor wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $731,449!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of August 26, 2024

Daniel Foelber has no position in any of the stocks mentioned. Lee Samaha has no position in any of the stocks mentioned. Scott Levine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CrowdStrike and Microsoft. The Motley Fool recommends Brookfield Infrastructure Partners and Delta Air Lines and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

3 Bargain-Basement Value Stocks With Growing Dividends to Buy in September was originally published by The Motley Fool

TOKYO (AP) — Asian shares were mixed in cautious trading Monday ahead of the Labor Day holiday in the U.S., when stock exchanges will be closed.

Investors were also looking ahead to the U.S. employment report set for release Friday for an indication of the strength of the American economy.

Japan’s Nikkei 225 gained 0.4% in morning trading to 38,797.61, after the Finance Ministry reported capital spending by Japanese companies in the April-June quarter increased 7.4% from the previous year.

After a period of stagnation, Japan’s economy is showing signs of a recovery. Next week, Japan will release revised gross domestic product, or GDP, data, a measure of the value of a nation’s goods and services. The preliminary data released earlier showed the first growth in two quarters.

Australia’s S&P/ASX 200 declined 0.3% to 8,067.00, while South Korea’s Kospi gained nearly 0.1% to 2,676.28. Hong Kong’s Hang Seng slipped 1.3% to 17,752.09. The Shanghai Composite dipped 0.5% to 2,828.84.

A bit of pessimism rolled in over China’s growth prospects over the weekend, as its National Bureau of Statistics reported that August manufacturing PMI, a barometer of industrial output, fell from 49.4 to 49.1. That was weaker than market forecasts.

Wall Street finished last week broadly higher. The S&P 500 rose 1% during the week, with about 76% of the stocks in the index notching gains. The benchmark S&P 500 closed August with a 2.3% gain for the month. It’s now up 18.4% so far this year and is within 0.4% of the all-time high it set in July.

The Dow Jones Industrial Average rose 0.6% on Friday, setting its fourth all-time high this week. The Nasdaq composite ended 1.1% higher.

Recent reports on the U.S. economy, including inflation, consumer spending and income, have been encouraging. The Commerce Department said its personal consumption and expenditures report showed prices rose 0.2% from June to July, up slightly from the previous month’s 0.1% increase.

That means price rises are slowing down, and that’s likely to lead to the Federal Reserve cutting interest rates for the first time in more than four years. The market expects the Fed will start cutting rates later this month.

In other encouraging news, Friday’s Commerce Department report showed Americans stepped up their spending by 0.5% from June to July and incomes rose 0.3%, faster in July than the previous month.

Bond yields were mixed. The yield on the 10-year Treasury rose to 3.92% from 3.86% late Thursday.

The S&P 500 rose 56.44 points to 5,648.40. The Dow rose 228.03 points to close at 41,563.08. The Nasdaq gained 197.19 points to 17,713.62.

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In energy trading, benchmark U.S. crude fell 47 cents to $73.08 a barrel. Brent crude, the international standard, lost 50 cents to $76.43 a barrel.

In currency trading, the U.S. dollar inched down to 146.16 Japanese yen from 146.18 yen. The euro cost $1.1055, up from $1.1053.

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Yuri Kageyama is on X: https://x.com/yurikageyama

While bull and bear markets are a normal part of the stock market cycle, it’s never fun to deal with turbulence when it hits your portfolio. The market has been enjoying a prolonged bull period that’s continued into the first half of 2024, even as the recent volatility has some investors feeling nervous.

All markets can present opportunities for the long-term investor. If you have cash to put to work, money that you don’t need for bills or other near-term financial obligations, it’s always a good time to start or add to a position in a quality company.

For example, if you have $1,000 to invest in stocks right now, here are two no-brainer names to consider that could be an excellent place to park some or all of that capital for the next five years or more.

1. Eli Lilly

Eli Lilly (NYSE: LLY) has been on a winning streak recently, with shares popping up by roughly 60% since the start of 2024 alone. The company has been a long-standing fixture in the pharmaceutical industry, but its recent successes have reignited interest from investors.

These successes include its market-leading weight loss drug Zepbound and diabetes drug Mounjaro (both of which have the same active ingredient, tirzepatide, a GLP-1 inhibitor). Eli Lilly just won another regulatory victory with the long-awaited approval of Kisunla for the treatment of early symptomatic Alzheimer’s disease in adults. Then, there are other established winners in the company’s portfolio, such as Verzenio, Jardiance, and Taltz.

In the second quarter of 2024, Eli Lilly brought in total revenue of $11.3 billion, a 36% increase from the same quarter in 2023. Mounjaro sales accounted for approximately 28% of that top-line figure, bringing in a total of $3.1 billion in the three-month period alone. Eli Lilly’s Q2 net income rose by a sizzling 68% year over year to just shy of $3 billion.

The market potential for tirzepatide for both weight loss and diabetes is immense. For example, while the tirzepatide formulation marketed as Mounjaro is currently approved for adults with type 2 diabetes only, it is currently being studied across other use cases, including as a mechanism to delay progression to diabetes in adults with pre-diabetes.

In Eli Lilly’s 176-week phase 3 study called SURMOUNT-1, which is so far the longest completed trial of tirzepatide, among adults with pre-diabetes or who were classified as obese or overweight weekly injections slashed the risk of progression to type 2 diabetes by 94% compared to the placebo. The same study also found that tirzepatide resulted in continued weight loss throughout the trial, with participants who received a 15 mg dose decreasing their body weight by 22.9% by the end of the treatment window.

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Eli Lilly had close to $3.4 billion in cash on hand at the end of the recent quarter, a nice stash as it continues to maintain its long-standing dividend. The company has paid a dividend in some form since the 19th century. While it currently yields less than 1%, Eli Lilly’s forward annual dividend is approximately $5.29 per share.

There’s plenty of room for this stock to run even after the Mounjaro/Zepbound buzz starts to die down, which, by all accounts, won’t be anytime soon. Some analysts think that tirzepatide could have peak annual sales potential in the ballpark of $25 billion and could be a lifetime drug for a broad swath of patients. Now looks like a great time to scoop up shares of this healthcare stock for the long run.

2. Upstart

Upstart (NASDAQ: UPST) is a marketplace that delivers lending decisions predicated on algorithms driven by artificial intelligence and machine learning. The platform uses over 1,600 variables, and its models are trained on more than 73 million repayment events to assess the creditworthiness of applicants.

Upstart’s platform leverages far more than traditional credit scoring models to determine loan approvals and is constantly calibrating to the macro environment at hand. It’s also more sensitive to changing economic factors as well as a heightened level of risk present when the potential of default is on the rise.

Upstart makes most of its money from sources like referral fees from serving as the middleman between applicants and the financial institutions that fund the actual loans. While the company has had to carry more loans than usual on its own balance sheet in recent quarters, third-party institutions that Upstart partners with still funds the lion’s share of loans.

Given the ongoing high state of interest rates, the fact that consumers are less inclined to apply for loans these days, and the reality that many institutions are more reluctant to fund loans given the increased cost of doing so, all of this has created an unfavorable lending backdrop. This reality has affected many companies, including Upstart, which, as previously stated, has a platform that is designed to constantly update to the macro situation at hand.

On the bright side, Upstart’s models are becoming increasingly accurate. Right now, 91% of all loans are fully automated without any human interaction. Upstart isn’t profitable yet, but it generated revenue of $128 million in the second quarter of 2024. Transaction volume totaled $1.1 billion, or 143,900 loans in the three-month period, down 6% from the year-ago quarter.

Upstart also reported 57% growth in its small-dollar loan program in the recent quarter. A newer product, its Home Equity Line of Credit (HELOC) program, is now available in 30 states and covers 51% of the U.S. population. Not only are 42% of HELOC applicants approved instantly, but management noted in the Q2 earnings call that it had experienced zero defaults on 300 originated HELOCs to date.

There’s no denying that Upstart’s reliance on the personal lending environment creates a level of risk that investors must be comfortable with in order to put cash into the stock. That being said, the lending environment is slowly but surely improving, and Upstart’s disruptive model hasn’t gone anywhere. These elements and Upstart’s improvements on multiple financial fronts could be enough to induce some investors to take a slice of the action.

Should you invest $1,000 in Eli Lilly right now?

Before you buy stock in Eli Lilly, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Eli Lilly wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $731,449!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of August 26, 2024

Rachel Warren has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Upstart. The Motley Fool has a disclosure policy.

2 No-Brainer Growth Stocks to Buy With $1,000 Right Now was originally published by The Motley Fool

When looking at the top bets of some of the most prominent billionaire investors, there is a common theme that stands out. These professionals are favoring highly profitable companies that dominate their industry. Most importantly, they are investing in the stocks that trade at reasonable valuations relative to future growth expectations.

Stephen Mandel of Lone Pine Capital, Chase Coleman of Tiger Global Management, and Andreas Halvorsen of Viking Global Investors have had successful investing careers, with their net worth ranging from $2.5 billion to $7 billion, according to Forbes. Let’s look at these firms’ largest holdings at the end of the second quarter and why investors should expect outstanding returns from these stocks over the next few years.

1. Taiwan Semiconductor Manufacturing

Lone Pine Capital manages over $16 billion in assets. Its largest holding at the end of the second quarter was leading chip maker Taiwan Semiconductor Manufacturing (NYSE: TSM), also commonly known as TSMC.

TSMC is a widely held tech stock among the most successful investment firms. The company enjoys a lucrative position as the world’s top chip foundry. It manufactures chips for Nvidia, Advanced Micro Devices, Intel, and a host of other semiconductor companies and commands over 60% share of the global foundry market.

TSMC gives investors broad exposure to the trends driving growth in the semiconductor industry without the additional risks of picking the winners and losers among the Nvidias and Intels of the world.

TSMC’s advantages in advanced chipmaking positions it well for growth as companies invest in powerful chips to handle the demanding workloads of artificial intelligence (AI) training. The demand for high-performance chips drove a 32% year-over-year increase in revenue last quarter, and it should continue that momentum into 2025.

Management expects strong results in the near term driven by improving chip demand for smartphones and AI. Strong top-line growth should pad profits, as TSMC generates a high operating margin of 45% relative to revenue. This will fund the company’s plan to spend at least $30 billion this year in capital expenditures to support long-term demand for advanced chip technologies.

Wall Street analysts expect the company’s earnings to grow at an annualized rate of 26% over the next several years. With the stock likely to continue trading at its current forward price-to-earnings (P/E) ratio of 26, investors could earn a return on par with those estimates.

2. Meta Platforms

Meta Platforms (NASDAQ: META) estimates there are 3.2 billion people that use its family of apps every day. This is a strong advantage in the digital advertising market, which is how the company makes money.

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Chase Coleman’s Tiger Global Management has held a large stake in the social media leader since 2018, and it held $3.7 billion worth of shares in the second quarter, making it the firm’s largest holding.

Meta AI is already having a big impact on the user experience in Facebook and Instagram. The company’s AI models improved the quality of recommendations, which can have a big impact on the time spent on these platforms. As a result, ad impressions and price per ad were up 10% year over year last quarter, and that drove a strong revenue increase of 22% over the year-ago quarter.

Strong revenue growth will provide more profit for Meta to reinvest in advanced AI models and, therefore, keep the positive cycle of growth going. “We had a strong quarter, and Meta AI is on track to be the most-used AI assistant in the world by the end of the year,” CEO Mark Zuckerberg said.

Meta is a highly profitable business. It generated a profit of $51 billion on $149 billion of revenue over the last four quarters. Management plans to spend between $37 billion and $40 billion on capital expenditures this year, with a significant increase expected in 2025. This spending will support AI research and other products for long-term growth.

Wall Street analysts expect Meta to post annualized earnings growth of 17% in the coming years. Assuming the stock continues to trade at the same P/E, that’s enough growth for the shares to double in value within the next five years.

3. Amazon

Amazon (NASDAQ: AMZN) is a powerful brand in e-commerce and the enterprise space with the Amazon Web Services (AWS) cloud computing business. It generates most of its $604 billion in trailing 12-month revenue from retail-related services, including advertising, but around two-thirds of its operating profit comes from cloud services.

Viking Global Investors held $1.8 billion worth of Amazon stock in Q2, making it the firm’s largest holding, and it added significantly to its stake in the quarter.

“We’re continuing to make progress on a number of dimensions, but perhaps none more so than the continued reacceleration in AWS growth,” CEO Andy Jassy said in the second-quarter earnings report. Amazon is benefiting from companies migrating their on-premise data systems to the cloud, and a big incentive for this migration in 2024 is taking advantage of AI services.

AWS revenue increased 19% year over year last quarter, and Amazon should see this momentum continue. Amazon offers tools to help customers build their own AI applications with Amazon Bedrock, in addition to its proprietary AI chips like Trainium, to provide more cost-efficient computing power for AI training.

Amazon’s increasing AI capabilities position it well in a cloud market expected to reach $774 billion, according to Statista. Wall Street analysts expect the company’s earnings to increase at a 23% annualized rate. Investors should expect the stock to command a premium P/E multiple and hit new highs for years to come.

Should you invest $1,000 in Taiwan Semiconductor Manufacturing right now?

Before you buy stock in Taiwan Semiconductor Manufacturing, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Taiwan Semiconductor Manufacturing wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $731,449!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of August 26, 2024

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. John Ballard has positions in Advanced Micro Devices, Meta Platforms, and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Meta Platforms, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends the following options: short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.

3 Billionaire-Held Stocks to Buy Now was originally published by The Motley Fool