7 Most Obvious Stocks to Buy in August

The market just delivered one of its most violent rebounds of the year. Amazon gained more than 20% in just a matter of days. Microsoft, well, that surged and several semiconductors, they've moved sharply higher. But underneath these headline gains, when we take a look at just the last 30 days, the market remains completely divided. Some stocks have already recovered while others are still trading deeply below where they began at the beginning of the year. And that creates the most important question for August. Are investors still being offered genuine opportunities or are they simply chasing the stocks that have moved first? And we can note that Amazon has suddenly become the best performing Magnificent 7 stock this year. Meta remains negative. Netflix is down more than 20% while Nvidia Broadcom continue to benefit from the AI investment cycle. But the Magnificent 7's collective return has fallen from more than 100% in 2023 to just 4% so far this year. So simply buying every famous technology stock, that's just no longer enough. So today I'm analyzing seven companies across how computing semiconductors advertising streaming, and mobility. Some have already searched, but others remain under pressure. And by the end, I'm going to rank all seven based on business quality, expected growth, valuation, and the amount of risk that's already reflected in the current price. And the highest ranked stock may not be the one that you expect. You know, I think August is a month to recover what how June and July have been sort of flat months, but earnings have >> earnings investments have gone up a lot. So, the stock market's kind of a coiled spring. And then we had a huge deleveraging as you're talking about because of the AI unwind in Korea's policy makers panicking. So I I think the markets could actually rebound strongly this month. Like maybe we get to 7,800. So Tom Lee believes the market could rebound strongly in August, but historically August and September have been the two weakest months of the year for the S&P 500. The good news here, however, is that the rally is broader than the headline index suggests. The average S&P 500 stock is up around 12% ahead of the cap weighted index. And much of this year's performance, well, it's come from higher earnings expectations rather than investors just simply paying increasingly expensive multiples. And this is particularly true across semiconductors because we can see here that the underlining demand is real. Data center electricity requirements are projected to increase dramatically through 2035 as AI computing spreads throughout the economy and the largest cloud companies while they now have hundreds of billions of dollars in contracted backlog. But they also committing unprecedented sums to infrastructure. We can see in fact that combined hypers scalar capital expenditures risen from around 150 billion to 358 billion and at the same time combined free cash flow has fallen and that is where the risk begins. >> Companies are continuing to invest in capex like they're go like it's going out of style. The first one is still a concern. And I was just looking even at the MAG five with the you [laughter] know outside of Tesla and Nvidia and I was looking at the marginal return you're making on invested capital the change in operating income over the change in invested capital and you look at Meta you look at Alphabet you look at Microsoft the drop off in returns on capital is pretty amazing given how big these companies are so unless they start delivering earnings commensurate with the tens of billions of investment capex you're you're going to see a very different kind of company emerging from the mix, more capital inensive, lower return invested capital company. That is honestly the tension at the center of this video. Technology now represents roughly half of the S&P 500, a level far beyond the concentration seen during the dotcom bubble. But also, high concentration doesn't automatically mean these companies are overvalued. The answer depends on whether their earnings and cash flows can grow quickly enough to justify today's price. So, for every stock, I'm asking three questions. Is the underlining business improving? What growth is already priced in? And does the valuation leave enough room for something to go wrong? So, let's dive in with number seven, and that's Amazon that closed yesterday at $284, although we can see it down in the pre-market as of recording at $276. This company, in fact, was up just 20% as we highlighted in a few days. Year to date, it's sitting up 23% trading pretty much yesterday at a new all-time high. Well, we still get even at this level double strong buy from Wall Street Quant with a very respectable buy from Seeking Alpha. And this rally has pushed Amazon beyond a 3 trillion market cap capitalization for the first time. But honestly, the rise here is not driven by hyper alone. AWS revenue growth, well that's reacelerated from only 12% at its weakest point to around 37% in the latest period. That is an enormous improvement. And their overall revenue, well, that's grown from just 8 billion two decades ago to more than 700 billion with further growth expected over the next several years. In fact, by 2028, analysts are forecasting 1 trillion of revenue. Now, current consensus expects around 14% of forward revenue growth, 23% of EBITDAR growth and around 23% of earnings per share. And those are excellent numbers for a company of this size. Now, Amazon trades at roughly 23 times expected 2026 earnings. It multiple then falls around 21 times based on 2028 earnings and below 19 on 2029. And we can see when we look at the percentage difference to the sector, well, it still trades above the consumer discretionary sector on most of the valuation measures. But the comparison, it doesn't fully reflect the value of AWS and its higher margin advertising operation is also worth pointing out when we incorporate growth PG ratio. It sits at 1.2, which is actually at a 22% discount to the overall sector. And Amazon's advertising revenues grown from 51 billion in 2024 to now sitting around 76 billion. It's now a meaningful high margin business in its own right. And my medium valuation, well, it produces an estimate around $36 per share from a price sitting around 278. It leaves around a 9 to10% margin of safety. When we look at this in detail which has been updated based on analyst estimates the low scenario here produces a value of around 269 medium as we said 306 and the higher growth rate assumption at $347. The biggest uncertainty here is free cash flow. Amazon is spending aggressively to build AI capacity and the valuation depends on that investment eventually producing much stronger cash generation. So, I personally still consider Amazon Investable, particularly for a long-term investor building the position gradually, but after the recent surge, I like the business more than I like the current entry price. And it's worth pointing out that after the surge, Wall Street sees around 14% upside over the next 12 months. Although, there's a massive near $200 difference between the bottom end at 207 and the upper target at 400. So, for me, Amazon ranks seventh. It remains a cautious buy in tanches, but it no longer offers the strongest riskreward among the seven companies today where given that surge now on a reversed ECF, the market is currently pricing in around 9%. Now, before we continue, just to let you know, yesterday I released my latest weekly article where we ran through 76 dividend stocks, although focusing on those that ranked highest, top five, and eventually the one that I believe out of this group is a buy. As always, you can click below, sign up, and read these straight away by clicking on the pin comment. We release one weekly covering not just undervalued stocks, but also an update to the overall market. At number six, we've got Uber, and the stock is down around 12% year to date, trading around $771, near 52-E lows of $65, where not only do we get a strong buy from Wall Street, but see Alpha very near the 4 and a half to also flip this into a strong buy. There is however one crucial stipulation which is why this one isn't sitting near the top two top three and that's because Uber's reporting earnings tomorrow before the market opens. So this conclusion is based entirely on the information that's available today and we can see their operating momentum while is entering the report looking strong. Uber Eats booking growth has accelerated from around 15% to 28% over the latest four quarters. And they've also transformed from a company that consistently consume cash into one producing more than 2 billion of quarterly free cash flow. Their revenue, well, that's also grown from around 4 billion in 2016 to more than 50 billion with estimates here showing continued expansion through to 2028. and Wall Street. Well, they're fairly bullish over the next year. 45% implied upside from their average price target of $104. We can see the low end pretty much around where it sits today at the $70 mark. More bullish sit around $150. And consensus expects around 15% forward revenue growth, 28% EBIT dollar growth, and nearly 57% of forward EBIT growth. Even long-term earnings per share, that looks very promising. Analysts are forecasting 33% over the next 3 to 5 years. And this is a company that trades around 21 times forward non-GAAP earnings and around 24 times when we look at forward gap earnings. Forward PG we just saw earlier Amazon that was sitting slightly above one. While Uber when we incorporate growth that's sitting at 65 a massive 61% discount when we compare it to the sector median at 1.7. And based on consensus estimates, the multiple could fall towards 16* 27 earnings, 13 time 2028, and down to only 11 based on 2029. And my DCF generates an estimated value of $125 compared with where it sits. That's around 75% potential upside with a 43% margin of safety. As we said, Wall Street very bullish. They see around $104. But the valuation does deserve a bit of caution. We have used an 8% discount rate which is relatively generous for a company facing regulatory competitive and autonomous driving risks. And you'll also notice though on a reverse basis we're talking negative.7 pretty much not expecting any growth moving forwards and therefore using the lower end as we said 76% upside if you believe this is too conservative. And if we're talking the middle rate where we're talking a near double at $141. So, the opportunity is significant, but the uncertainty is higher than the headline upside. And tomorrow's earnings could change the revenue, cash flow, and guidance assumptions immediately. So, Uber, it ranks sixth. I'd only consider a small starter position before earnings, leaving substantial capital available to reassess the company after the report. At number five, is the first stock that has very little to do with the AI infrastructure boom. Netflix is down around 22% this year trading around the 727 $73 mark. We can see it also not too far off 52- week lows where we get a respectable buy from Wall Street much weaker from Seek Alpha and Wall Street. There is some respectable upside from their target price of $94 29 with the range sitting $70 at the low end. Again, pretty much like we just saw from Uber. This is where the company sits around those levels today at the higher end 135. And the underlining business is still expanding across every major region. Quarterly revenues growing from around 5.4 billion in 2019 to 12.6 billion today. And the United States and Canada remains the largest market, but EMA, Latin America, and Asia Pacific are all contributing meaningfully to growth. This is no longer a one region story. And they've also completed one of the most important financial transformations in the market. The company's move from burning cash to generating consistent free cash flow and returning capital through buybacks. Now forward revenue growth is expected to sit somewhere around 13 to 14% while both EBITD and in fact EBIT are looking in excess of 20% forward EPS growth coming in at 24% and Netflix trades around 20 times expected 2026 earnings. Now it does remain we're talking around 54% above the communication sector median but Netflix is growing far more quickly than the typical company in the group and again incorporating growth while is sitting at a PG pretty much spot on at one which is 20% cheaper to the sector and 27% lower than the historical 5-year average. The multiple is also expected to fall to around 16 times based on 28 numbers and 14 on 2029 where Netflix's forward enterprise value to EBIT multiple is now close to the 16 mark. That is pretty much the lowest level that we've seen across the last decade. And my medium DCF produces an estimated value of $86 $87 given where the share price sits today. That's around 20% upside with a 17% margin of safety. And the conservative scenario produces a value around $63, meaning there is still meaningful downside if longerterm free cash flow falls to only 5% is on a risk-free setup. But we can see the reverse DCF sits around 7.1% where when we look at just the last 6 years, free cash flows compounded around 36% annually. And we can see that consensus also expects EPS growth to slow sharply in 2027 before accelerating again. So the next stage will depend on advertising, pricing power, engagement, and continued margin expansion. So Netflix ranks fifth at this valuation. I see it as a buying trenches, but I would not mistake a lower multiple for a guarantee that the stock has already reached its bottom. At number four, we've got Taiwan Semiconductor. The stock has already gained around 34% this year, but the underlying business has improved almost as quickly. is also trading around the mid to uptrend 52- week high sitting at $479. We get a strong buy rating from Wall Street, four out of five from Seiki Alpha. And the reason the stock has done very well, well, it's fairly simple. Nearly every major AI platform requires more advanced computing capacity, regardless of which chip designer ultimately wins the largest share. We can see that high performance computing has increased from just 29% of TSM's revenue in 2019 to around 61% in the latest quarter. And that changing product mix is improving their profitability. Their quarterly operating margin has now risen to around 60%. This was sitting in the high 20s, low30s not that long ago. And their return on investment capital, well, that sits around 45% significantly higher than it was before the current AI investment cycle accelerated. and Wall Street. Well, even after the surge we've seen year to date, still see nice upside 33% over the next year, we can see average price $540. Again, very wide range, 430 to 700 from the more bullish analysts. And consensus expects around 36% forward revenue growth, 39% EBIT dollar growth, and more than 45% earnings per share. These figures are exceptional and depending on the earnings methodology, TSM trades around 21 to 24 times Ford earnings. That's close to their historical norm rather than extreme premium. And that's important because the company's current growth is materially stronger than the growth it delivered during much of the historical period. When we look at the blue tunnel from Simply Safe Dividends that points out the fair value intrinsic price, well, it sits right there towards the bottom end indicating a potential undervaluation signal. something we have seen a few times over the last 5 years. And my medium DCF produces an estimate of around $57. From where it sits today, we're talking 25% upside, a 20% margin of safety, and the low growth scenario produce a value of $378, higher end at $676 with the market currently priced in around 16% long-term free cash flow growth. So TSM it can benefit whether the dominant AI chip is designed by Nvidia, Broadcom, AMD, Apple or one of the major cloud companies. It functions as the manufacturing toll road of advanced computing. The risk though is impossible to ignore. TSM's manufacturing concentration in Taiwan creates geopolitical exposure that cannot be eliminated through a valuation model. So TSM ranks fourth. The growth, margins, and return on capital make it a strong buy candidate, but geopolitical risk prevents it from ranking even higher. At number three, we've got Meta. And despite gaining 6% yesterday, the stock remains around 11% down on a year-to- date basis. Over the last 12 months, it's down 24% and still trades towards 52-E lows, where we get one strong buy rating from Wall Street, a weaker buy signal from Seek Alpha, and Wall Street see around 29% upside. They continue to lower their price targets after the release of their latest quarter. Now sitting on average $760 at the upper end still $1,000 at the lower end $580 which like many stocks today is pretty much where it's sitting at now. Meta it does remain one of the most powerful advertising businesses ever built. It's trailing advertising revenues increase from around 146 to 223 billion across the period where forward revenue growth is expected to be somewhere around the 23% region. EBIT dog growth that's expected grow around 21%. The core business here does still remain extremely healthy but quarterly capital expenditures climb from around 8 billion to around 30 billion. The increase is transforming Meta into a far more capital inensive company and explains why Meta's free cash flow and earnings aren't currently growing as quickly as revenue. The advertising engine is funding an enormous AI infrastructure buildout. And Consensus expects only around 13% forward EPS growth while levree cash flow growth. We can see in fact yearonar that's negative 34%. The gap between revenue and cash flow that's the key risk here. But it is worth noting that they trade around 18 to 19 times forward earnings below the 5-year which sits around 22 and that we also get the undervaluation signal when we look at the blue tunnel. But as always with Meta, we've seen this many times in the last 5 years especially during 2022. And my medium DCF produce a value of $734 given where it sits today, a 21% margin of safety implying around 26% upside. And then when we take a look at the lower growth scenario here at 10% while that produc a value of 690 still representing upside we're talking 18% it gives Meta one of the strongest apparent downside profile in today's list but also worth highlighting that the model which has been updated for analyst estimates after their earnings. Well, it assumes that free cash flow eventually recovers substantially after the current investment cycle. This recovery here, it's not guaranteed. And you can see currently what also makes it attractive, reverse DCF sitting at 4.7%. The entire thesis comes down to whether Meta's AI expenditure improves advertising conversion, engagement, and monetization enough to justify the capital that's being committed today. However, what I would say is the advantage that Meta already owns an exceptionally profitable business capable of funding this investment without threatening its balance sheet. Few competitors honestly have that luxury. So Ma ranks third at around 19 times Ford earnings. I consider it a buying tanches, but investors must be comfortable with several years of heavy spending as well as uncertain AI returns. At number two, we've got Broadcom. And this stock is trading below $400, up around 13% year to date, sitting around the midpoint of the 52- week range with a strong buy rating from Wall Street, 4 out of five from Se Alpha with analysts forecasting 35% upside over the next year, $528 average target price. The range insane 215 that is massively lower than the average with the upper showing a slightly lower disconnect at 675. And the most striking number is the growth of Broadcom's semiconductor operation. Quarterly semiconductor solutions revenue growth is accelerated to 79% and consensus expects nearly 50% forward revenue growth around 55% EBIT dollar growth and almost 59% forward diluted EPS growth. And remember, Broadcom is benefiting from the same data center investment cycle as Nvidia, but through networking, connectivity and increasingly important custom AI accelerators. Where as cloud companies invest hundreds of billions of dollars, Broadcom can sell the specialized infrastructure that connects and support those computing systems. Now, it currently sits around 25 times forward earnings, a massive drop from what we saw at the beginning of the year where it was sitting just below the 50 mark. it now sits not too dissimilar from its 5-year average. And when we look at the blue tunnel, it is sitting right there at the upper end. So, Broadcom is not conventionally cheap. However, my medium DCF produces a value of $55 from where it sits a 22% margin of safety just shy of 30% upside where the low growth scenario produces a value of $371. the higher end at 683 and the market's pricing in just shy of 16% long-term growth, which is well below the current forward growth rate. But today's 50 to 80% growth cannot continue indefinitely. So the question is how quickly Broadcom eventually normalizes. The bull case well is that Broadcom's custom accelerators and networking products become essential infrastructure for a growing number of hyperscalers. The bare case well is that much of the revenue is concentrated among a relatively small number of customers while the valuation still assumes excellent execution. So, Brocom ranks second. It offers exceptional growth profile and close to 30% estimated upside, but its higher valuation leaves slightly less room for disappointment than the final stock. And that one at number one is Nvidia. Now, that may sound like the most predictable name on the list, but the valuation is far less predictable than the company's 5 trillion market value suggests. In fact, Nvidia's forward P has fallen to around 20 times on this long-term chart. That is close to its lowest level in nearly a decade, where at the same time, quarterly revenues risen from around 26 billion to guidance of around 91 billion. Revenues exploded while the earnings multiples compressed. And you'll see Wall Street very bullish. Average price target $33 implying 47% upside. Some see it even as high as the $500 mark. And consensus are expecting around 63% forward revenue growth, 66% EBIT dollar growth and more than 62% forward EBIT growth with forward EPS coming in above 60%. Now consent estimates for the full year 2027 EPS coming in at $92.89 for 2028. It places Nvidia sitting around 23* 27 earnings and 16 times 2028. That is extraordinarily low. If these estimates end up being accurate and we can see here when we look at this data again, it shows the massive difference between their forward P against their 5year average. This we would say could be a signal for potential severe undervaluation. Just look at the disconnect which has remained massive. the underlying fundamentals moving in the right direction yet the share price pretty much stable over the last 12 months and my medium DCF produce a value of $263 that implies 28% upside a 22% margin of safety and when we look at the lower end while 194 not too far off today's price the higher end at 356 and the reverse DCF implies that Nvidia needs to deliver 11% long-term growth to justify today's price that is far below the company's present growth rate. The difference between current growth and implied growth is why Nvidia ranks first. The market cap is enormous, yes, but market cap alone does not determine whether a stock is expensive. The danger is that growth rates will naturally slow as Nvidia's revenue base becomes larger. Concentus already expects year-over-year EPS growth to decelerate across the coming quarters and Nvidia must also navigate export restrictions, intense expectations, competition, and the risk that customers eventually moderate their infrastructure budgets. For now, however, Hypers scale investment remains enormous. Contracted demand remains strong, and Nvidia continues to sit at the center of that spending cycle. Now, definitely worth pointing out that Nvidia reports their earnings on the 26th of August after market close. It creates significant event risk. So, I wouldn't establish an entire position before the report. But among today's seven stocks, Nvidia offers the strongest combination of current growth, implied expectations, and estimated upside. So, Nvidia ranks first. My preferred approach would be to begin with a partial position and preserve capital to add after earnings if the operating thesis here remains intact. So in terms of a conclusion for the ranking here at number seven, Amazon. It remains an excellent company but the recent rally has reduced the available margin of safety. At number six, it is Uber which offers enormous upside but it does report tomorrow and carries the greatest near-term uncertainty. At number five, Netflix, which combines improving cash flow, continue global growth, and a valuation approaching its historical lows. At number four, TSM, which is benefiting from AI regardless of which individual chip designer wins, but carries unavoidable geopolitical risk. At number three, well, that's Meta. The advertising engine remains exceptional, while the valuation reflects significant concern about AI capital expenditure. At number two, Broadcom is delivering some of the fastest growth in the market, supported by custom AI chips, networking, and software. And at number one, Nvidia's earnings are currently growing much faster than long-term growth implied by its valuation. The important conclusion here is that not every one of these stocks should be purchased immediately is that a rising market can still contain very different levels of risk. and August. While it's historically been difficult, and several of these companies face major catalyst, it makes position sizing just as important as stock selection. So, I'd avoid committing all available capital in one transaction, build positions gradually, demand a margin of safety, and keep enough cash available for volatility. So, let me know which of these seven stocks you believe offer the strongest opportunity for August and which company you think shouldn't have made the list today. And subscribe if you want more analysis that separates strong businesses from stocks that are generally attractive at today's price. And as always, don't forget to sign up to the free weekly newsletter. Click on the pin comment below, read these straight away. More importantly, have a great day. I'll see you all on the next one.