Every month, we ask our freelance writers to share their top US stocks with investors — here’s what they would like to buy for February!
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Adobe
What it does: Adobe provides software products that help individuals and businesses create and optimise digital content.
By Ben McPoland. Software giant Adobe (NASDAQ: ADBE) is now 40 years old, but it’s far from a spent force. Its products – such as Photoshop, Illustrator, and Acrobat – remain in high demand. And the trends of software and digitisation only seem to be getting stronger.
Yet the stock is down 50% since November 2021. Partly this relates to its proposed $20bn acquisition of Figma, a fast-growing rival design software firm.
Though that’s a hefty price tag, Adobe did generate $7bn in free cash flow last year. That’s enough to fully digest the Figma acquisition within three years, assuming current profits continue.
One risk I see is competition from AI-powered creativity platforms like DALL-E. They could threaten Adobe’s wide moat in creative software. However, I fully expect the company to also infuse its products with artificial intelligence. It has very deep pockets and isn’t going to be disrupted without a fight.
Ben McPoland owns shares in Adobe.
Amazon
What it does: Amazon is the world’s largest online retailer and marketplace.
By G A Chester. Amazon (NASDAQ: AMZN) shares are down by around a third since this time last year. That’s around 50% below their all-time high. The decline has put the stock on price-to-sales and price-to-book valuation measures that have not been seen for many years.
Amazon may be a colossus of a company, but I think it can continue to deliver good growth in the current decade and beyond. It enjoys a structural tailwind from expanding online shopping. Amazon Web Services, its cloud computing platforms business, is going great guns. And it has its fingers in other tasty pies, including artificial intelligence and autonomous vehicles.
However, the macroeconomic backdrop is currently unhelpful for its core retail business. Management cut revenue growth guidance for the last quarter from 15% to 5%. If growth were to become persistently anaemic, there’s a risk the market could de-rate the stock still further from its already historically low valuation.
G A Chester does not own shares in Amazon.
Apple
What it does: Apple is a technology company that designs and manufactures smartphones, computers, tablets, wearables, and accessories.
By Edward Sheldon, CFA. Apple (NASDAQ:AAPL) shares have experienced weakness in recent months and I’m viewing the pullback as a buying opportunity.
In the near term, Apple is facing a few challenges. Supply chain issues are one. Inflation and its impact on consumer spending is another.
However, I think the company has a lot of potential in the long run. One area that could drive growth going forward is healthcare. Here, Apple is making great strides with its Watch.
One thing Apple has going for it right now is share buybacks. Last financial year (ended 30 September 2022), the company bought back $90bn worth of stock. Buybacks should support earnings per share going forward.
Of course, there’s always the chance that Apple’s share price could continue falling in the short term. Tech stocks don’t have a lot of momentum at present. However, in the long run, I expect the share price to climb higher.
Edward Sheldon owns shares in Apple.
eBay
What it does: eBay operates auctions and other online marketplaces in a variety of markets worldwide
By Christopher Ruane. A lot of customers use eBay (NASDAQ: EBAY) hoping to snag a bargain buy. But I reckon the potential bargain right now might be eBay itself. The online giant’s shares have fallen a fifth in the past year.
I think there is work to do at the company, to improve the user experience and lifetime customer value. Revenues in the last quarter fell 5% year on year. But it is a free cash flow machine. The business generated $633m of free cash flow in the quarter, which I think makes its market capitalisation of $25bn look cheap.
With 135m active buyers and the network effects of a strong market position, eBay has substantial pricing power.
Earnings could fall if eBay further alienates its user base. But a strong brand and existing user base give it the sort of moat Warren Buffett likes when investing. That helps eBay throw off sizeable profits and cash flow.
Christopher Ruane does not own shares in eBay.
Goldman Sachs
What it does: Goldman Sachs is a US investment bank specialising in trading, investment banking, and asset management.
By Stephen Wright. My top US stock to buy in February is The Goldman Sachs Group (NYSE:GS). In the current economic climate, this might seem like a strange choice, but I’m looking to get in while the stock is out of fashion.
The stock currently trades at a price-to-book (P/B) ratio of 1.14. Over the last decade, Goldman has averaged a return on equity (ROE) of around 15.
Dividing the ROE by the P/B ratio gives a return of around 13%. Going forward, I think that’s attractive.
The current economic climate is difficult for Goldman’s services. Tighter conditions have led to reduced IPO, SPAC, and merger activity, which has been weighing on investment banking fees.
I expect these headwinds to subside over time, though, and I think the company will do well when it does. The stock looks like great value to me at today’s prices, so I’m looking to buy it in February.
Stephen Wright does not own shares in Goldman Sachs.
Johnson & Johnson
What it does: J&J is the world’s largest healthcare company. It makes pharmaceuticals, medical devices, and consumer goods.
By Charlie Carman. Johnson & Johnson (NYSE:JNJ) stands out to me as an excellent defensive investment thanks to its rock-solid financials.
The company has hiked its dividends for 60 consecutive years. Provided it remains profitable, I expect I can rely on the firm as a core part of my passive income portfolio for many years to come.
The full-year 2022 results revealed steady progress. Worldwide pharmaceutical sales increased by 1.7% to $52.6bn and the MedTech division also delivered sales growth of 1.4% to $27.4bn. However, consumer health sales retreated slightly to $15bn — a 0.5% decrease.
Although I might be sacrificing the opportunity to buy more speculative growth stocks by holding Johnson & Johnson shares, that’s fine by me. The healthcare giant has always successfully weathered periods of macroeconomic turbulence throughout its 137-year history.
With the prospect of a global recession on the horizon, I’m glad to be a Johnson & Johnson shareholder.
Charlie Carman owns shares in Johnson & Johnson.
Masimo Corp
What it does: Masimo is a leading designer and manufacturer of non-invasive patient monitoring technologies.
By Zaven Boyrazian. Technology lies at the heart of modern healthcare, with companies like Masimo (NASDAQ:MASI) leading the charge. The company is a designer and manufacturer of high-precision non-invasive monitoring devices.
Its flagship Signal Extraction Technology (SET) is already being used in hospitals worldwide. What started as a relatively simple blood oxygen monitoring device has evolved drastically, and is now capable of reading carbon monoxide, haemoglobin, and methaemoglobin levels as well as changes in respiratory cycles without any needles.
Given the importance of patient monitoring, especially during the pandemic, it’s not surprising that Masimo has beaten analyst earnings forecasts for more than five years in a row. And with new hospital automation products hitting the market, this momentum doesn’t seem to be slowing down.
The valuation is undeniably lofty, opening the door to volatility, especially if earnings become adversely impacted, even if it’s temporary. Nevertheless, given the group’s long-term potential, it’s a price worth paying, in my opinion.
Zaven Boyrazian owns shares in Masimo Corp.
Nike
What it does: Nike designs, develops and manufactures and sells footwear, apparel and equipment.
By Paul Summers. The time to absolutely pile into sportswear behemoth Nike (NYSE: NKE) may have already passed. The stock has staged an excellent recovery since last September. Even so, this is still a company I’d want to own.
While the cost-of-living crisis may prove a temporary drag on earnings, Nike strikes me as quite defensive. A gym membership can be easily cancelled in tough times. But people will still want to exercise and need appropriate clothing to do so.
Regardless, it’s the long-term gains I’m interested in. On this front, Nike has been a clear winner thanks to its enduring brand. Consistently elevated returns on the money it puts to work point to a competitive advantage over rivals. These are the sort of things that can multiply my wealth over time.
Still down over 10% compared to this time last year, Nike gets a tick from me.
Paul Summers has no position in Nike.
TSMC
What it does: Taiwan Semiconductor Manufacturing Company is the world’s biggest and most advanced chip manufacturer.
By John Choong. Despite sliding more than 55% from its all-time high, TSMC (NYSE:TSM) stock has recovered admirably from its bottom. In fact, its shares are already up 25% this year. Despite analysts only pricing in a mere 10% upside from current levels for the year, I think the longer-term upside is much higher for several reasons.
The first being its strong moat. The Taiwanese foundry is head and shoulders above its competition and is already in the process of rolling out production for its 3nm chip. Additionally, it’s in the works of producing its revolutionary 2nm chips. This would put it two generations ahead of its closest competitors, Intel and Samsung. As such, it’s no surprise to see Warren Buffett snatch up a $4.1bn stake in the company as it’s seen meaningful margin expansion over the years.
Pair all of the above with its immaculate balance sheet, diversifying its geopolitical risks, and cheap forward multiples, and it’s easy to understand why the Oracle of Omaha started a position — which is why I own shares too.
John Choong has positions in TSMC.
