5 Best Investment Stocks to Buy in July 2021

With the S&P 500 posting a streak of 7 consecutive all-time highs lately, it might be easy to feel as if you are missing out on the best days of the US stock market.

However, there are still many companies out there that appear to be under-appreciated by market participants and they could still offer some sizable upside potential despite this latest advance in the market as a whole.

Here’s a list of five names you may want to take a look at if you are looking for places to invest your money in July 2021.

1. Zoom Video Communications (ZM)

The popular video conferencing platform has emerged as a clear pandemic winner and the tailwind that lifted its results during 2020 seems to be outliving the virus crisis as reflected by the management’s optimistic forecasts for 2021.

According to the guidance provided during the company’s first-quarter earnings call, total revenues for Zoom (ZM) are expected to land at nearly $4 billion while non-GAAP net earnings should come in at approximately $1.43 billion by the end of 2021.

Based on the company’s historical free cash flow conversion ratio of 200%, that would result in free cash flows of approximately $2.8 billion which results in a forward price-to-cash-flow ratio of 40. Although this ratio seems high, Zoom has managed to grow its free cash flows at a rate of over 100% even before the pandemic started while this year-on-year forecast would result in another 100% leap.

That indicates a potential undervaluation of the firm’s cash flow generation capacity as long as the company can continue to generate this kind of growth in the following years.

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2. Salesforce (CRM)

Salesforce continues to consolidate itself as one of the strongest CRM providers in the world, with sales growing at an average rate of 25% per year for the past 5 years at least. Meanwhile, the firm has proven its ability to turn a profit already even though net margins remain a bit volatile.

At current levels, Salesforce is trading at 56 times its 2021 free cash flows (excluding acquisitions). In the past five years, cash flows have grown from $900 million to $4.1 billion last year, which results in a 35% CAGR.

Although those metrics don’t necessarily point to Salesforce as an obviously undervalued stock, they are attractive enough considering that this is a company in a promising sector that may experience significant growth on the back of what could be a long-lasting pandemic tailwind.

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3. FuboTV (FUBO)

Categorized by some as “the Netflix of sports”, FuboTV is a hidden gem in the streaming space that is gaining significant traction after delivering promising first-quarter results.

During the first three months of 2021, FuboTV revenues jumped to their highest level on record at $119.7 million, up 14% compared to the previous quarter and 16 times higher compared to the same quarter of 2020 on the back of a strong jump in subscriptions.

Meanwhile, the company has been securing rights to stream high-end soccer competitions including the 2022 South American World Cup Qualifiers.

The management upped its revenue guidance for 2021, now seeing sales landing at around $530 million by the end of this year. This results in a forward P/S ratio of 8 that seems to be quite conservative based on these latest quarterly results and the firm’s growth prospects.

In this regard, Fubo has been working to introduce a sports betting feature that promises to open up a whole new revenue stream for the business that could further boost its top-line performance in the following years.

That said, it is important to note that FuboTV ended the first quarter of the year with $327 million in long-term debt on assets of $1.19 billion that include $696 million in intangibles and goodwill. 93% of that debt came from a convertible issue that will mature on February 2026 while carrying an interest rate of 3.25% per year. The strike price for this issue is $57.78 or 93% above the current price.

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4. Logitech International (LOGI)

Logitech is a mature business that manufactures top-notch computer and gaming equipment. The pandemic provided what could be a long-lasting tailwind to the business as consumers were forced to work from home, which resulted in the purchase of multiple devices including webcams and high-end peripherals to support their activities.

Last year, sales rose as much as 77% and, even though the management team has maintained a conservative outlook for this year, the company seems to be entering a new normal marked by higher sales volumes compared to historical figures coming from the implementation of hybrid work methodologies by corporations around the world.

By the end of 2021, Logitech generated $947 million in net earnings, which results in a conservative trailing P/E ratio of 22. Meanwhile, the company bought back as much as $200 million in stock last year and the Board has already authorized the management to ramp up its buybacks to $1 billion until July 2023.

Market participants seem to be expecting that Logitech sales will remain near to where they landed last year even though more people will now be shifting to a hybrid work model for the long run. This might result in a surprising turn of events if it turns out that more and more consumers are propping up their home offices as a result of these spaces becoming their usual place to work rather than a one-off pandemic getaway.

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5. Alibaba Group Holdings (BABA)

This Chinese e-commerce giant has been swept into a whirlwind of negative news following the disappearance of its founder and an increasingly hostile attitude from the Chinese government toward its business model.

However, the fundamentals of this company are as robust as any value investor would expect, with net profits more than doubling in the past five years as they moved from $11 billion in 2016 to almost $23 billion by the end of 2021.

Moreover, Alibaba’s long-term debt is only a third of the company’s cash reserves and those holdings account for 12.5% of the firm’s $590 billion market cap. Excluding those cash reserves from the valuation, Alibaba’s business is being valued at only 22.5 times last year’s earnings and approximately 17 times its free cash flow.

For a company that has managed to grow its bottom-line profitability at a rate of 16% in the past five years, this valuation multiple seems very conservative and possibly presents an interesting opportunity for those who have the stomach to withstand this latest wave of negative news.

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