3 Top Stocks to Buy in Q2

By Todd Campbell Markets Fool.com

if you're looking for new stocks to add to your portfolio now, then it might be time to consider why this could be the perfect time to be a buyer of Constellation Brands (NYSE: STZ), Cabot Oil & Gas (NYSE: COG), and Vertex Pharmaceuticals (NASDAQ: VRTX). These companies may be very different from one another, but each has catalysts that could propel its shares higher, and that could make tucking them into portfolios this quarter wise.

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Pouring profits

Constellation Brandshas built up a product portfolio that includes top-selling beer, wine, and spirit brands, and growing demand is driving substantial returns for investors.

IMAGE SOURCE: GETTY IMAGES.

This week, the company updated investors on its fiscal fourth-quarter performance and offered up guidance for fiscal 2018 that was better than industry watchers' expectations. In the quarter, Constellation Brands' sales were $1.63 billion, up 5.8% from the same quarter a year ago. Rising margins resulted in earnings per share of $1.48, or $0.12 better than analysts' forecasts. As you can see in the following chart, the quarter's growth wasn't an anomaly. Constellation Brands has been one of the steadiest growing companies in consumer goods for years.

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STZ Revenue (TTM) data by YCharts.

The company's fiscal full-year 2017 revenue was $7.3 billion, up 12% from fiscal 2016, and its operating income surged 36% to $2.4 billion as operating margin expanded 5.7% to 32.7%. Driving the performance were beer sales, which jumped 17% because of organic growth from top brands including Corona and craft brewer Ballast Point. Wine and spirits sales grew a healthy 6%, too, and in fiscal 2018, management thinks comparable earnings per share will grow more than 10% to at least $7.70 from $6.76 in fiscal 2017.

Consumer beverage trends change, but Constellation Brands' exposure across beer, wine, and spirits helps protect its revenue and profit from that fickleness. And the company's ability to produce solid top- and bottom-line growth over time is compelling, particularly when we consider that its improving financial flexibility has it returning more money to investors. This week, the company boosted its quarterly dividend payout by 30% to $0.52 per share, and last fiscal year, management repurchased 7.4 million of its shares.

Overall, a larger and wealthier population should boost demand for beer, wine, and spirits, and because this is one of the best-run companies in this industry, and it's shareholder-friendly, I think it's a perfect addition to portfolios. If I'm right, this could be a fine time to pick up shares, because historically, the stock has run up ahead of summertime seasonal demand for beer and wine. Over the past 10 years, shares have posted a positive second-quarter return nine times, and while the past is no guarantee of the future, I think this company has a good shot at delivering yet again this year.

Thinking independently

Admittedly, independent oil and gas stocks like Cabot Oil & Gas have struggled because of lower commodity spot prices caused by oversupply, but I believe there's reason for optimism, especially for low-cost oil and gas producers like Cabot.

Cabot Oil & Gas has built up impressive exposure to some of the most economically viable shale-producing regions in the country, and recently, a pipeline that should boost take-away from its Marcellus Shale properties won a regulatory OK.

As fellow Fool Tyler Crowe pointed out in February, Cabot's production costs are among the best in the business, and that means it can turn in a handsome profit if oil and gas prices pick up ground and production volume climbs. Natural gas prices remain low, but oil prices are up year over year, and Cabot's production is helped by the approval of theWilliams CompaniesMarcellus Shale Atlantic Sunrise pipeline.Cabot has signed on to be an anchor tenant on the pipeline, and it's committed to transporting 1 billion cubic feet of natural gas per day through it.

Cabot Oil & Gas' Marcellus-only all-sources finding and development costs are just $0.26 per thousand cubic feet (Mcfe), and overall, its operating expenses total only $2.17 per Mcfe. In 2017, production is forecast to grow 5% to 10%, and crude oil production is expected to increase 15%.

In 2016, its equivalent production ticked up 4% from 2015, and proved reserves increased 16% in the period. Despite industry headwinds, Cabot Oil & Gas was still cash flow positive, and if prices hang tough and production volume improves, its efforts to pay down debt and keep a lid on costs could return it to profitability. Because oil and gas stocks tend to perform nicely in the second quarter as refineries complete maintenance associated with the switch-over to summer-grade fuel, I think now's the right time to buy this company's stock.

Targeting a big need

Vertex Pharmaceuticals has been on a roll, and I think this year could be an important year for the company as it becomes consistently profitability on a GAAP-accounting basis.

Vertex Pharmaceuticals is a leader in treating cystic fibrosis, a life-shortening disease affecting about 75,000 people worldwide, and while its existing medications only address about one-third of patients, efforts to help all cystic fibrosis patients are progressing.

Two of the company's drugs, Orkambi and Kalydeco, are already top-sellers, generating a combined $1.7 billion in sales last year, and recently, management outlined its plans to develop a three-drug combination therapy that could significantly improve its revenue by treating up to 68,000 patients.

A trial evaluating Kalydeco plus its newly developed drug -- tezacaftor -- was a success, and if approved, it will expand Vertex Pharmaceutical's addressable market by 1,500 patients. Importantly, the company plans on using this doublet as the foundation for its planned triplet therapy. If that plan pans out, then a more-than-doubling in its addressable patient population could send sales and profit much higher.

This year, Vertex Pharmaceuticals is modeling for $1.8 billion in sales and operating expenses of no more than $1.7 billion. If it delivers on that forecast, it will turn in a profit on a GAAP basis. Given that this company is already a significant player in this indication, there's a big unmet need to treat more patients, and it's on track to profitability, adding it to portfolios now could be savvy.

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Todd Campbell has no position in any stocks mentioned. His clients may have positions in the companies mentioned.The Motley Fool recommends Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.