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Stocks  | May 6, 2019

The S&P 500 index is currently up more than 17% since the start of the year. That double-digit gain suggests that 2019 is going to be another great year for investors.

Even when the stock market is pricey, there are still lots of great businesses to buy. So which stocks look good right now? We asked a team of Motley Fool contributors to weigh in, and they picked Illumina (NASDAQ: ILMN), Tanger Factory Outlet Centers (NYSE: SKT), Adobe Systems (NASDAQ: ADBE), Whirlpool Corp (NYSE: WHR), and PayPal(NASDAQ: PYPL). 

A Game-Changing Enabler Of Genetic Discovery

Todd Campbell (Illumina): Shares in the gene-sequencing giant Illumina are trading 15% below their 2018 peak, and over the past few weeks, share prices have dropped about 8% on worry over decelerating operating margin. You shouldn't ignore this recent slowdown in profitability, but a longer-term view could be more profit-friendly.

Illumina's first-quarter earnings were hardly bad. Revenue rose 8% to $846 million and net income increased 11% to $237 million. The company expects revenue to grow 13% to 14% this year, resulting in adjusted EPS of at least $6.63 in 2019. That's up from its prior guidance for at least $6.50 per share, and it's up 16% from the $5.72 reported in 2018.

So why the sell-off? Illumina's earnings are being weighed down by an uptick in research spending, which accounted for 20% of sales in Q1, up from 17.5% last year. As a result, operating income fell to 24% of sales from nearly 28% last year.

Declining operating margin isn't good, but spending to solidify its status as the dominant player is savvy. Illumina's machines have already generated over 90% of the world's sequencing data, and momentum is increasing to discover new ways to leverage DNA discoveries. For instance, Illumina's systems are helping drug researchers understand the causes of genetic diseases and doctors to determine the best treatments for their patients. They're providing valuable prenatal and neonatal insight, and they're giving consumers a greater understanding of their ancestry and personal traits. They're even being used to improve farming.

I suspect that everyone will know their genetic profile one day, and if I'm right, the recent sell-off in Illumina's share price will prove to be an excellent opportunity to buy what could become a far more profitable company in the future.

The Right Kind Of Retail Stock At A Discount

Matt Frankel, CFP (Tanger Factory Outlet Centers): One stock I have my eye on as we head into May is Tanger Factory Outlet Centers, a real estate investment trust that owns and manages outlet malls.

Many investors are afraid to get involved with brick-and-mortar retail in any form, and it's no surprise. There has been a wave of retail bankruptcies and store closures over the past few years, and many once-powerful retailers are struggling to survive. However, it's important to realize that not all of retail is on the same sinking ship.

Specifically, retail businesses with either a discount-oriented business model or an experiential component are doing quite well. Outlet shopping fits into both of those categories. What's more, Tanger has been investing in technology and marketing, such as creating a mobile app shoppers can use to find deals and adding new experiences such as family fun events at its properties.

Despite the general retail headwinds, Tanger's properties are performing well. After a couple of years of declines, Tanger's tenants had more sales volume in 2018 than the year before, on a per-square-foot basis. Occupancy remains high at 97% and hasn't dropped below 95% in 25 years, no matter what the economy has done.

To be fair, the company has pumped the brakes on growth in recent years and is now in a wait-and-see mode while the new retail environment takes shape. However, with a share price that hasn't been lower since 2010 and a dividend yield approaching 7.5%, Tanger is paying very well for investors patient enough to hang on.

Growth At A Reasonable Price

Brian Feroldi (Adobe Systems): Adobe is best known for its creative software. Photoshop, Premiere, Illustrator, and Acrobat are all industry-standard products that have been dominant for decades. With more and more content moving online, all of these products have a bright future ahead of them.

But there's more to Adobe than just its creative products. The company has made serious inroads in the enterprise software market as well. Adobe recently acquired two big-name players in an effort to expand its presence in the e-commerce and business-to-business markets. These acquisitions have helped Adobe to roll out products like Marketing Cloud, Analytics Cloud, and Advertising Cloud that enable customers to more effectively manage their marketing and advertising spend. 

This two-pronged growth approach is working out brilliantly. Last quarter Adobe's creative and digital media revenue grew by 22% and 34%, respectively. The combination drove consolidated top-line growth of 25%. Best of all, 91% of Adobe's revenue is now recurring.

Wall Street believes that double-digit growth is here to stay. Current estimates predict that Adobe's profits will grow in excess of 22% over the next five years thanks to the combination of strong top-line growth, stock buybacks, and operating leverage. Meanwhile, investors don't have to pay an insane price to get their hands on that growth. Shares are currently trading hands for less than 29 times next year's earnings estimates.

For a high-quality business that is still growing like gangbusters, I think that's a bargain.

Discount Appliances

Tim Green (Whirlpool Corp.): Appliance manufacturer Whirlpool is doing surprisingly well, all things considered. Despite cost inflation due to raw material prices and tariffs, unfavorable currency effects, and soft demand in its core North American market, Whirlpool expanded its margins and grew earnings during the first quarter. The company also stuck with its full-year guidance, which calls for adjusted earnings per share between $14 and $15.  

While the broader stock market is back at all-time highs, Whirlpool stock is not. Shares of Whirlpool are down about 35% from their multiyear high, currently trading just below $140 per share. That's less than 10 times the company's earnings guidance, a steep discount to the overall market. On top of that depressed valuation, the stock sports a dividend yield of about 3.5%.

One thing to remember about Whirlpool is that it operates in a cyclical industry. The company depends on a strong housing market and strong demand for home renovations. If the housing market falters, Whirlpool's earnings could take a hit. Additional tariffs beyond what's already been announced could also derail the bottom line.

With those risks in mind, Whirlpool still looks like a solid investment. It may be a bumpy ride, but that's par for the course for long-term investors.

A Growing Payment Opportunity

Chris Neiger (PayPal): PayPal is just coming off its strong first-quarter 2019 results, whereby the company's earnings of $0.78 per share beat analysts' expectations and revenue popped 12% year over year. The company added 9.3 million net new accounts in the first quarter, and its total payment volume -- the amount processed through its platform -- jumped 22% from the year-ago quarter to $161 billion.

The company's phenomenal growth has boosted investor interest in PayPal and has helped the company's share price jump 178% over the past three years, compared the 48% gains from the S&P 500 index.

But it's not just the company's strong earnings and revenue growth that investors are impressed with. PayPal is still in the early stages of benefiting from consumers' shift to cashless transactions and person-to-person payments. To tap this growing market, PayPal repurchased P2P company Venmo in 2014, as part of its purchase of Braintree, and has been growing it ever since.

In the first quarter, Venmo accounted for 13% of PayPal's total payment volume, up from 4% three years earlier. The app has an annual revenue run rate of $300 million, and Venmo now has 40 million active accounts.

Why does all of that matter? Because total P2P money transfers are expected to reach $111 billion this year and jump to nearly $200 billion by 2023. With its early lead into this market, PayPal is already benefiting from the move to cashless payments, and as the market grows, PayPal's perfectly positioned to benefit.

Sure, there are cheaper stocks out there, as PayPal's shares are trading at about 32 times the company's forward earnings right now. But with PayPal already firing on all cylinders with its core payments business and the company just beginning to tap into the rapidly expanding P2P market, there appears to be plenty more room for PayPal to benefit.

A revolutionary initiative is helping average Americans find quick and lasting stock market success.

275% in one week on XLF - an index fund for the financial sector. Even 583%, in 7 days on XHB… an ETF of homebuilding companies in the S&P 500. 

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