TIMOTHY A. CLARY / AFP via Getty ImagesAugust typically kicks off a weaker stretch of the year for stock gains. Morningstar flagged three stocks to buy and three to sell this month based on current valuations. The firm's Dave Sekera likes ServiceNow, while he recommends selling Nebius stock. The markets are headed into a historically anemic stretch of the year, and Morningstar has some recommendations for how investors can reshuffle their portfolios in August. The August to October period tends to be the weakes three-month stretch for markets in the calendar year, with stocks typically seeing the lowest returns in the months leading up to the mid-fall.Since 1928, the S&P 500 has seen an average loss of 0.02% during those months, with the average correction in down years being 7.35%, Bank of America strategists wrote in a recent analysis.But there are a few strong trading opportunities based on current valuations, Morningstar says.David Sekera, the chief US market strategist at the market research firm, laid out three of the best buying and selling opportunities for investors in August. Here's what he recommends buying and selling. SELL: Ciena CorpGary Smith, CEO of Ciena CorpBloomberg/Getty ImagesTicker: CIENYTD performance: +57%Morningstar rating: ★ ★Rationale: Ciena trades at over a 50% premium to fair value, Sekera said. The network solutions company also has "very high uncertainty" and a narrow economic moat, meaning it has a small buffer against outside competition."They've been a huge beneficiary of this AI buildout boom. But we think the market just got carried away here with the amount of growth that they're posting," Sekera said.SELL: Nebius GroupRoman Chernin, co-founder of Nebius GroupBloomberg/Getty ImagesTicker: NBISYTD performance: +114%Morningstar rating: ★ ★Rationale: Nebius is also "significantly" overvalued, with shares trading at around a 57% premium to their estimated fair value, Sekera said.Shares of Nebius jumped another 24% on Wednesday as traders took in its earnings beat for the second quarter."I think there are a lot of red flag warnings on this one," Sekera said, adding that he didn't expect the firm to be earnings-positive until 2028, and to remain free cash flow-negative until 2030.SELL: Delta AirlinesDelta stock looks "significantly overvalued," Sekera said.Kevin Carter/Getty ImagesTicker: DALYTD performance: +31%Morningstar rating: ★Rationale: Delta shares look "significantly overvalued," Sekera said, adding that the company also had "very high uncertainty."As an airline stock, the firm isn't able to build an economic moat, he said."Delta was a pick of ours back in 2022 and in 2023. It was really a pandemic recovery play, but with as much as that stock's traded up, it's now in the area where it's too expensive and really should be taking profits," he said.BUY: ServiceNowServiceNow has a long runway for future growth, Morningstar said.Bloomberg/Getty ImagesTicker: NOWYTD performance: -13%Morningstar rating: ★★★★Rationale: Shares of ServiceNow are likely trading at around a 24% discount, Sekera estimated.The company also has a long runway for future growth, he added, pointing to massive growth in ServiceNow's AI deals over the last year."Longer term, we think that this company's probably going to be a key software beneficiary of AI," Sekera said.BUY: Mondelez InternationalThe snack producer Mondelez is likely trading at around a 20% discount to fair value, Morningstar says.Kevin Carter/Getty ImagesTicker: MDLZYTD performance: +15%Morningstar rating: ★★★★Rationale: The snack producer Mondelez is benefitting from low uncertainty and a wide economic moat. The stock is also likely trading at around a 20% discount, and offers a "pretty good dividend yield" at 3.2%, Sekera said.Shares have also seen "pretty good momentum" this year, Sekera added, pointing to the stock's year-to-date gain."Fundamentally, the company's doing very well. I think it's actually doing better than a lot of the other food companies that we follow," he said.BUY: MedtronicMedtronic stock is likely trading at around a 22% discount.Pier Marco Tacca/Getty ImagesTicker: MDTYTD performance: -7%Morningstar rating: ★★★★Rationale: Medtronic stock is likely trading at around a 22% discount, and fundamentals for the company are starting to improve, Sekera said."We're looking for 5% average revenue growth over the next couple of years. As that happens, we're looking for some gradual operating margin expansion as well; you combine that, and you're getting over 8% earnings growth over the next five years on average," he added.Read the original article on Business Insider
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