September is historically the worst month for… S&P500. August wasn’t great though. The main index fell 1.5% lower after gaining 19.5% in the previous seven months.
Even as the S&P 500 stumbled slightly, there were some winners. Should You Still Buy August’s Best Performing Stocks From the S&P 500? Here they are, along with their pros and cons.
1. Arista Networks
Arista Networks’ (NYSE: ANET) shares rose almost 26% in August. That was enough to make networking equipment stocks the best performers in the S&P 500 this month. Arista shares are up more than 60% so far this year.
Nearly all of Arista’s big gains in August came on the first day of the month. The company announced its second-quarter results after the market closed on July 31, 2023. Arista reported record sales and profit growth in the second quarter.
Organizations continue to move their apps and data to the cloud. Growing interest in artificial intelligence (AI) is creating an even bigger tailwind for Arista. The company now expects to achieve annual revenue growth of approximately 30%, up from its previous forecast of 25% growth.
Arista faces a lot of competition, especially from companies including Cisco And Juniper Networks. The shares are also relatively expensive, with shares trading at 28.5 times forward earnings. However, I think Arista remains one of the better ways to leverage the AI-powered cloud opportunity.
2. Eli Lilly
Eli Lilly (NYSE: LLY) ranked as the second-biggest gainer among S&P 500 stocks in August. Shares of the major drugmaker rose 22% last month and are up 60% year to date.
The biggest catalyst for Lilly in August was the company’s Q2 update. Lilly reported strong second-quarter results and raised full-year revenue guidance by $2.2 billion. About $1.5 billion of the expected increase came from business development (including three acquisitions that closed just days after Lilly reported its Q2 earnings).
There are several reasons for investors to consider buying these big pharmaceutical stocks. Mounjaro tops the list. The drug is already Lilly’s biggest growth driver as a treatment for type 2 diabetes. The company is awaiting regulatory approval for Mounjaro in the treatment of weight loss. Some analysts predict that Mounjaro could become the best-selling drug of all time.
The main setback for Lilly is that significant growth is already priced into the stock price. The stock trades at a sky-high price-to-earnings ratio of 46 times.
I wouldn’t bet against Lilly’s momentum continuing at the pace we’ve seen so far this year. However, I think this stock should still have room and be a good choice for long-term investors.
3. Global payments
Shares of Global payments (NYSE: GPN) In August, the stock soared nearly 15% higher, making the stock the third-best S&P 500 performer of the month. Payment technology shares are up nearly 27% year to date.
As with Arista Networks and Eli Lilly, Global Payments’ Q2 update in August served as the key catalyst. The company reported year-over-year net sales growth of 7%, while adjusted earnings per share rose 11%. Better yet, Global Payments has raised its expectations for full-year net sales and profits.
Probably the biggest selling point of Global Payments is that digital payments will almost certainly continue to grow in the coming decades. The rise of the middle class in emerging markets in particular should provide a boost.
The share is also currently attractively valued. The stock trades at an earnings margin of just 10.6 times and a price-to-earnings-growth ratio (PEG) of 0.64.
However, the fate of Global Payments largely depends on macroeconomic factors. If recession fears resurface, fintech stocks could falter. However, I still think Global Payments is a stock that long-term investors should seriously consider buying.
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Keith Speights has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Arista Networks and Cisco Systems. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.