Investors had some initial hope that a strong rally in US stocks in July could be sustained. However, those hopes have been dashed by recent comments from Federal Reserve (Fed) Chairman Jay Powell.
As Singapore investors – who no doubt have US stocks in their portfolio – have noticed, higher interest rates are here to stay. That was the message from the US Fed last week.
With weakness in stock markets throughout August, it was no surprise to see they ended the month down.
The benchmark S&P 500 Index lost 4.2% in August, while the tech-heavy Nasdaq-100 Index declined by 4.6%.
So, what should investors buy in this environment of extreme uncertainty? There will always be interesting opportunities to deploy some of the “dry powder” we might have.
Without any further ado, here are five top stocks I think investors can consider buying for the long term in September.
1. Home Depot
One of the world’s biggest home improvement retail chains is Home Depot Inc (NYSE: HD). The go-to store for professional contractors has had a rough 2022, with shares falling nearly 30% so far this year.
However, that doesn’t detract from the unbelievable long-term backdrop for the business. Over half of homes in the US are over 40 years old.
While there’s no doubt a slowdown in the US housing market, given multiple interest rate hikes, the appetite for home improvement projects doesn’t look likely to wane as fast.
Home Depot’s earnings demonstrate that. In its latest Q2 FY2022 (for the three months ending 31 July 2022), Home Depot saw revenue of US$43.8 billion – up 6.5% year-on-year.
Even better was that net income expanded by 7.6% year-on-year to US$5.17 billion for the period. Diluted earnings per share (EPS) of US$5.05 easily beat consensus expectations of US$4.94.
While the number of transactions slipped during the period, the average ticket size (basically the average amount spent by consumers in one transaction) actually rose by 9% to US$90.02.
Finally, Home Depot pays a solid dividend. In fact, over the past decade it has managed to hike its dividend at a compound annual growth rate (CAGR) of 20.7%. Home Depot shares currently yield 2.6%.
2. Automatic Data Processing
Human resources management software doesn’t sound like an exciting business. But it’s an extremely lucrative one for Automatic Data Processing Inc (NASDAQ: ADP), also known as ADP.
The company provides services for everything from payroll to HR consulting. It’s also an extremely profitable business that serves over 990,000 clients and helps pay over 39 million workers across 140 countries.
In ADP’s latest Q4 fiscal 2022 (for the three months ending 30 June 2022), the firm saw revenue grow 10% year-on-year to US$4.12 billion.
Meanwhile, given its ongoing share buyback programme, ADP’s adjusted diluted EPS came in 25% higher year-on-year at US$1.50 for the quarter (see below).
Source: ADP Q4 FY2022 earnings presentation
Margin expansion was evident for ADP during the year, with its overall FY2022 adjusted EBIT margin rising 90 basis points.
Again, ADP – like Home Depot – is also a consistent dividend payer. In fact, the company is actually a Dividend Aristocrat, having raised its dividend for 47 consecutive years.
Based on its current share price (which is pretty much flat for the year), ADP shares are yielding 1.6%.
3. Atlantica Sustainable Infrastructure
Clean, or renewable, energy is one of the investing megatrends for this decade. One company that offers exposure to this is Atlantica Sustainable Infrastructure PLC (NYSE: AY).
The company owns a portfolio of 40 assets that includes over 2GW of renewable energy installed generation capacity, 343MW of efficient natural gas-fired power generation capacity, and over 1,200 miles of electric transmission lines.
With over 77% of its revenue coming from renewables, Atlantica is certainly a play on the future of green energy.
One of the key attractions of the company is its stable business profile. Nearly half of its revenue comes from North America, with around 31% from Europe and the rest from South America and the rest of the world.
By selling power to corporates and other end users, Atlantica has a very visible pipeline of revenue. In fact, the weighted average contracted life remaining for its portfolio is 15 years.
Domiciled in the UK as a PLC (meaning a 0% dividend withholding tax), and offering a yield over 5%, Atalantica Sustainable Infrastructure is only down around 6% so far this year.
One of the most reliable, and strong, retail names in the US is Costco Wholesale Corporation (NASDAQ: COST).
The wholesale discounter is a rock-solid business, even amid a potential recession in the US. While operating profit margins are thin, Costco’s whole business model relies on membership fees.
And it’s here that Costco excels. Its latest August sales number were impressive as it racked up US$17.55 billion in net sales over the month. This was up 11.4% year-on-year from the same month last year.
Comparable sales for August were also robust, rising 11.0% in the US and 11.6% in Canada. With membership retention of over 90% and offering a solid dividend, Costco is one retail stock that investors will want to own in any environment.
So far in 2022, Costco has proven its worth as a resilient business. Its shares are down just shy of 8%, easily outperforming the S&P 500’s year-to-date fall of nearly 18%.
The pioneer of Software-as-a-Service (SaaS) is widely seen as Marc Benioff and his company, Salesforce Inc (NYSE: CRM).
The customer relationship management-focused software provider has been a big winner from the transition to the cloud.
However, it has also suffered in the tech sell-off in 2022. Its shares are down nearly 40% so far this year.
Yet the business itself is doing just fine. In its most recent Q2 FY2023 earnings, Salesforce saw revenue rise 22% year-on-year to US$7.7 billion.
It also announced its first-ever share repurchase authorization programme of US$10 billion – displaying confidence in the cash-generative nature of its business.
With broad-based growth across all its geographic regions, Salesforce is a consistent grower. Finally, with US$13.5 billion in cash and marketable securities, the firm has a rock-solid balance sheet.
Think like a business owner
For anyone buying stocks for the long haul, it’s important to remember that we are buying into real-life businesses.
If we start thinking, and acting, like a business owner when we buy shares then we should be more measured in how we invest.
With Home Depot, ADP, Atlantica Sustainable Infrastructure, Costco and Salesforce, investors have five distinct businesses that could richly reward them over the long term.
Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips owns shares in Home Depot.
Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.
He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.
In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.