We're only a few days into June, and already market-watchers have plenty to gab out.
Trade tensions have expanded from China to Mexico as President Trump has threatened to levy tariffs on our neighbors to the south, and regulators surprised the market a few days ago by opening antitrust investigations against some of the country's biggest tech companies. Dovish words from the Fed on Tuesday sent the S&P 500 up more than 2%, and pushed a number of growth stocks up double digits.
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Volatility usually presents opportunity for investors, and today's market has plenty of uncertainty. Keep reading to see why our contributors think Sirius XM Holdings (NASDAQ: SIRI), Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), and Nike (NYSE: NKE) could all present big opportunities this month.
Don't turn that dial
Sean Williams (Sirius XM Holdings): With June presenting somewhat of a lull in earnings reports, one U.S. stock worth keeping a close eye on this month is satellite radio provider Sirius XM Holdings.
Recently, Sirius XM pushed to a new 52-week low, with the company's share price coming dangerously close to dipping below $5 per share, which would represent a more than two-year low. Dropping below $5 may also take it off the radars of institutional investors that traditionally invest only in stocks above $5 per share on major U.S. exchanges.
The problem for Sirius XM looks to be a combination of general market malaise sending its share price lower, as well as concerns about near-term costs as it integrates Pandora Media, which was officially acquired for $3.5 billion at the beginning of February. Although these very short-term costs do have the ability to cause Sirius XM's bottom-line figures to disappoint, the long-term future for the company remains bright.
One of the primary factors that makes Sirius XM such an attractive stock in really any economic environment is its focus on subscription revenue. Even though its acquisition of Pandora adds to its advertising revenue -- Pandora's music platform is an ad-driven model -- Sirius XM generated almost 84% of first-quarter sales from subscriptions. Since ads tend to be very reliant on the state of the economy (i.e., advertisers will rein in spending when growth slows) but subscription revenue is far less elastic to changes in the economy, this makes for steady and predictable cash flow year in and year out.
Sirius XM also has relatively predictable costs. With the exception of talent acquisition costs, which can vary wildly from one year to the next, Sirius benefits from the fact that its satellite network has more or less fixed transmission and operating costs. In other words, no matter how many subscribers the company nets, it's not going to cost Sirius XM any extra to deliver that content over its network. That's a recipe for long-term margin expansion as its subscriber count rises.
Given its reasonably strong pricing power, steady churn rate of only 1.8%, and operating cash flow that's totaled nearly $1.9 billion over the trailing 12 months, I wouldn't suggest turning the dial, and would consider nibbling on this beaten-down stock if its share price were to continue declining.
Time for a breakup? Could be a great time to buy
Jason Hall (Alphabet): As of this writing, shares of the company behind Google, YouTube, Waze, and a litany of other apps and websites used by billions of people every day have lost 10% of their value over the past year, and are down nearly 20% from the all-time high.
While there are several reasons behind the sell-off, one of the most prominent is concerns that U.S. federal regulators have put the tech titan squarely in their crosshairs. Some are even convinced that we could see the tech behemoth, which is one of the most-valuable companies on earth, broken up into several much smaller individual companies.
I, for one, think the sell-off is a real buying opportunity; it's one that I personally took advantage of, increasing my stake by 25% when shares fell more than 5% on June 3 on reports that Alphabet was soon to be subject to a Department of Justice antitrust investigation.
My reasoning is simple: Even if the company does eventually get broken up, its individual components would remain powerful, profitable businesses in their own right that I'd be happy to own. Moreover, it's likely to take years for any resolution to be reached, and Alphabet will remain a top-shelf company that's worth owning even with this overhang. Being able to buy shares for 20% less than they sold for only a few months ago is a rare opportunity I wasn't going to pass up.
Whether you're ready to buy or not, I think investors would do well to take the opportunity to watch Alphabet closely right now, and learn more about what it faces. I expect many of you will reach a similar conclusion to mine.
A big-brand indicator
Jeremy Bowman (Nike): One U.S. company I'll have my eye on this month is Nike. Not only is the Swoosh the biggest apparel-and-footwear company in the world, but it also sits at the nexus of a number of news items and other events this month.
First, Nike has a lot at stake in the ongoing trade war with China, a crucial market and supplier for Nike. Through the first three quarters of Nike's current fiscal year, Greater China has contributed 16% of its total revenue, and it's also its most profitable region and fastest-growing one, as currency-neutral revenue has jumped 25% so far this year. However, that momentum could be in jeopardy, as Chinese consumers have shown a willingness to abandon American brands in the face of rising trade tensions -- Apple has recently experienced this. Nike could find itself in a less vulnerable situation than the iPhone maker as tech has been a particular focus of negotiations following threats from the Trump administration against Chinese smartphone maker Huawei. Investors will want to pay particular attention to Nike's results in China when it releases its full-year earnings report on June 27 to see how performance is faring during the trade war. Nike has made its feelings on tariffs known -- it was one of nearly 200 signatories to a letter to the Trump administration protesting import taxes on shoes from China, which is the source of 26% of Nike's footwear.
Elsewhere, June is a big month in the world of sports. Though Nike finds itself on the outside looking in during the NBA Finals as its star Kevin Durant is sidelined with an injury, and the two on-court leaders, Steph Curry and Kawhi Leonard, are aligned with Under Armour and New Balance, respectively, the Women's World Cup set to kick off June 7 presents a golden opportunity for the sportswear champ. Women represent a huge growth market in the industry, but Nike has struggled in the past to capture that market and has been dogged more recently by concerns about the company's treatment of women internally. The global soccer tournament offers a chance for Nike to change that narrative. While rival Adidas is the official FIFA sponsor for the tournament, Nike is the maker of uniforms for 14 of the Cup teams, including the U.S., and its World Cup ad is already generating buzz.
Finally, during a quiet period in earnings, Nike's report will be one report to watch at the end of the month. Analysts are expecting revenue to tick up 3.7% to $10.17 billion but for earnings per share to slide from $0.69 to $0.66. Investors should also look out for commentary on the China situation and the Women's World Cup.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Jason Hall owns shares of Alphabet (A shares), Under Armour (A Shares), and Under Armour (C Shares). Jeremy Bowman owns shares of Nike and Under Armour (C Shares). Sean Williams has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Apple, Nike, Under Armour (A Shares), and Under Armour (C Shares). The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends Sirius XM Radio. The Motley Fool has a disclosure policy.