So far, 2024 has carried over similar themes that were popular last year. Megacap companies continue to drive the S&P 500 and Nasdaq Composite to new heights.
After being the best-performing stock in the S&P 500 in 2023, Nvidia has staged an encore unlike any other with a more than 120% year-to-date gain -- pole-vaulting it to the third-most valuable company in the world and within striking distance of surpassing Apple and Microsoft.
But long-term investors know that drifting too far into the spotlight can distract from better opportunities. These Motley Fool contributors are particularly excited about SoundHound AI (NASDAQ:SOUN), Adobe (NASDAQ:ADBE), Vertex Pharmaceuticals (NASDAQ:VRTX), Home Depot (NYSE:HD), and Brookfield Infrastructure (NYSE:BIPC)(NYSE:BIP).
Here's why all five companies have what it takes to be solid long-term investments and are worth buying in June.
Image source: Getty Images.
Why SoundHound is a smart bet on the AI opportunity
Anders Bylund (SoundHound AI): SoundHound AI transforms your voice into a powerful tool, letting you effortlessly search, discover, and interact with the world around you. Its Houndify voice analysis software has been around for two decades, and is now found in places like Stellantis cars, the automated drive-thru windows of Chipotle Mexican Grill, and customer service phone menus for dozens of household names.
Powered by several layers of artificial intelligence (AI) analytics, SoundHound's voice controls offer high accuracy in noisy environments. Then, it passes a cleaned-up command on to machine learning processes for a deep analysis of the speaker's intended meaning. It's a unique and heavily patent-protected approach.
This little company is going places in the long run. Long-term voice control contracts with several large automakers will start generating revenue over the next couple of years. At the same time, SoundHound AI keeps adding marquee names to its roster of restaurant clients. A deep partnership with fellow high-growth phenom Toast should give both businesses a significant boost.
SoundHound AI's stock isn't cheap today, trading at 32 times sales. Earnings and cash flows are negative, pushing value investors even further away. But the company runs a classic high-octane growth strategy right now, funneling its modest revenue and robust cash reserves into a generous marketing budget and even richer research and development expenses.
And the growth-oriented tactics are working. SoundHound AI's first-quarter sales rose 73% year over year. Keep scaling up those revenue streams, and the bottom-line profits should follow eventually. Its services tap into the AI boom, addressing the need for accurate voice commands across several trillion-dollar markets.
As SoundHound AI continues to execute its aggressive growth plans, the rewards could be substantial for those willing to ride out the early volatility. Skimming just a small revenue slice off the top of global car sales and restaurant operations could easily lift SoundHound AI's annual sales into billion-dollar territory over time.
By then, you'll wish you had picked up a couple of shares in 2024 while they were still cheap.
Adobe is too cheap to ignore
Daniel Foelber (Adobe): Salesforce stock fell a staggering 19.7% on May 30 -- sending out ripple effects that slammed other cloud computing stocks from Adobe to Snowflake, Atlassian, Workday, and others. Adding insult to injury is the fact that many of these stocks had already fallen due to their own slowing growth. Adobe is now down nearly 22% since reporting fiscal 2024 first-quarter results. That's a big move for one of the five largest U.S.-based software companies.
To save you the trouble of combing through the earnings reports and transcripts of Adobe and its peers, the simple takeaway is that growth is slowing, and these companies have largely missed out on the AI-induced growth wave. If you take a step back and think about their business models, it's easy to see why.
Nvidia is the poster child of AI growth, and for good reason. It provides the processing backbone to run complex AI models through its data center business. The thing is, Nvidia doesn't necessarily care if these models are useful so long as they demand more computational power.
Many software companies are investing in AI to improve their products and services. Adobe is one of them, and it deserves credit for unveiling some excellent improvements and new tools in a relatively short amount of time. The problem is that Adobe ultimately needs to make money on these investments to justify the increased expenses.
In other words, AI must generate a strong return on invested capital. And for the most part, that return has yet to materialize in the software space, which is a core driver of the broad-based sell-off that was amplified by Salesforce's weak guidance.
Admittedly, it's a bit of an unfair setup for software companies in the short term. Investments take time to pay off. Cost-cutting efforts have been a popular trend no matter the sector, which leads to slower growth and a potential lag factor for implementing AI-based product improvements.
As Salesforce Chief Operating Officer Brian Millham said on the company's recent earnings call: "We continue to see the measured buying behavior similar to what we experienced over the past two years and with the exception of Q4 where we saw stronger bookings, the momentum we saw on Q4 moderated in Q1. And we saw elongated deal cycles, deal compression, and high levels of budget scrutiny."
Given all the bad news, you may wonder why Adobe stands out as a good software stock to buy in June. The primary reason is Adobe has a multi-decade runway with AI and is making more strides than Wall Street is giving it credit for. The second reason is that Adobe has an excellent valuation -- trading at a forward price-to-earnings ratio of under 25. Granted, Adobe's actual earnings could disappoint and lead to revisions in earnings forecasts.
But all told, investors are getting the chance to buy a proven industry-leading growth stock for a great price. Adobe is my top pick in the space because of its competitive advantages and attractive valuation.
Multiple reasons to be enthusiastic about Vertex
Keith Speights (Vertex Pharmaceuticals): With all due respect to Larry David, I can't curb my enthusiasm about Vertex Pharmaceuticals. This big biotech has so much going for it that I nearly don't know where to start.
Since I need to begin somewhere, I'll first note that Vertex commands a monopoly in treating the underlying cause of the rare genetic disease cystic fibrosis (CF). Thanks mainly to its CF therapy Trikafta, the company generated revenue of $2.69 billion and a profit of nearly $1.1 billion in the first quarter of 2024.
Vertex awaits U.S. and European approvals of a triple-drug combination therapy feature, vanzacaftor. I look for this combo to be the company's most successful and profitable CF therapy yet.
Moving beyond CF, Vertex has already launched what's likely to be its next blockbuster drug -- Casgevy. The gene-editing therapy is a one-time cure for the rare blood disorders sickle cell disease and transfusion-dependent beta thalassemia.
The big biotech should have a huge commercial opportunity for suzetrigine (VX-548), a non-opioid pain drug, if it's approved. Vertex expects to wrap up its rolling U.S. regulatory submission for the drug this quarter.
It has a highly promising late-stage candidate with inaxaplin. This experimental drug targets APOL1-mediated kidney disease (AMKD). There are no approved treatments for the underlying cause of AMKD. The disease affects more patients worldwide than CF.
Vertex's pending acquisition of Alpine Immune Sciences will give it another late-stage kidney disease program. Alpine's povetacicept targets IgA nephropathy, a serious autoimmune kidney disease.
Want more? Vertex is also developing a potential cure for type 1 diabetes. The company is already evaluating two experimental therapies in phase 1/2 studies that use islet cells to restore insulin production.
Curb my enthusiasm about this biotech stock? No way.
Improve your portfolio
Demitri Kalogeropoulos (Home Depot): Don't let Home Depot's sluggish sales growth keep you away from this stellar stock in June and beyond. Sure, the home improvement retailer has posted uncharacteristically weak results during the latest industry slump. High interest rates have soaked up lots of the excess cash many people had been directing into home projects, leading to a 3% drop in comparable-store sales in the most recent quarter.
Look closer, and you'll see signs of stabilization, though. The chain's customer traffic fell just 1% last quarter compared to a 3% decline in the prior quarter. Home Depot achieved a higher gross profit margin, as well, and operating income is strong at nearly 14% of sales. All of this occurred despite a delayed start to the critical spring shopping season.
"The team executed at a high level in the quarter, and we continued to grow market share," CEO Ted Decker told investors in mid-May.
Home Depot will share the detailed results of its spring kick-off in its next earnings report in August. But investors don't have to wait until then to buy the stock. Shares look attractive today at 2.2 times revenue (down from 2.5 times revenue several months ago).
And, while there might be more bumps in the road ahead for the home improvement market, shareholders can feel confident that the industry leader will deliver above-average returns, just as it has through previous cyclical upturns and downturns over the last several decades.
A rock-solid dividend growth stock to own
Neha Chamaria (Brookfield Infrastructure): Shares of Brookfield Infrastructure -- both units of the partnership and corporate shares -- are in the red so far this year despite all-time highs reached by the S&P 500 index. The infrastructure giant, however, is on solid footing, and its latest numbers should encourage investors to scoop up some shares now.
Brookfield acquires and operates infrastructure assets globally, focusing on sectors and industries like utilities, transportation such as rail and toll roads, midstream energy, and data infrastructure, all of which are regulated and generate cash flows under long-term contracts. Contracted assets mean the company can generate steady cash flows even during challenging times to invest in growth and pay dividends to its shareholders.
The company has already started 2024 on a strong note, having grown its funds from operations (FFO) by 11% year over year in the first quarter. It appears the company is on track to deliver a much stronger year compared to 2023 as management projected earlier.
Make no mistake though: 2023 was also a solid year, with Brookfield Infrastructure's FFO growing 10% to $2.3 billion, including organic growth of 8%. Its strong first-quarter numbers, though, are just one reason why you'd want to buy Brookfield Infrastructure stock now.
Brookfield periodically sells mature assets, and it has lined up assets worth nearly $2 billion for sale this year. It already has some acquisitions in the pipeline, including a huge network of telecom towers in India. Driven by new investments and regular capital recycling, the infrastructure giant expects to grow its FFO per unit by at least 10% and annual dividend by 5% to 9% in the coming years.
The stock has increased its dividend every year for the past 15 consecutive years, and that dividend growth has hugely contributed to shareholders' returns. For perspective, here's a chart showing the stock's total returns from 2019 when Brookfield Infrastructure Corporation was formed.
With a forward dividend yield of 4.7% for shares of the corporation and 5.6% for units of the partnership (buying corporate shares has some tax advantages), Brookfield Infrastructure is a top dividend stock to double up on right now.
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Anders Bylund has positions in Nvidia, SoundHound AI, and Toast. Daniel Foelber has no position in any of the stocks mentioned. Demitri Kalogeropoulos has positions in Apple, Chipotle Mexican Grill, and Home Depot. Keith Speights has positions in Apple, Brookfield Infrastructure Corporation, Brookfield Infrastructure Partners, Microsoft, and Vertex Pharmaceuticals. Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adobe, Apple, Atlassian, Chipotle Mexican Grill, Home Depot, Microsoft, Nvidia, Salesforce, Snowflake, Toast, Vertex Pharmaceuticals, and Workday. The Motley Fool recommends Brookfield Infrastructure Partners and Stellantis 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.
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