September has a reputation as a challenging month for the S&P 500, and August didn’t fare much better. The S&P 500, a major stock market index, experienced a 1.5% decline after an impressive 19.5% gain over the previous seven months.
Despite this setback for the S&P 500, there were some notable winners in August. If you’re considering investing, should you be looking at the top-performing stocks from August? Let’s take a closer look at them, including their advantages and disadvantages.
- Arista Networks
In August, Arista Networks’ (NYSE: ANET) stock surged by nearly 26%, making it the best performer in the S&P 500 for the month. Impressively, Arista’s stock has already gained over 60% this year.
Most of Arista’s gains in August came from a strong start to the month. The company reported record-breaking revenue and earnings growth for the second quarter, which was announced after the market closed on July 31, 2023. Arista is benefitting from organizations shifting their applications and data to the cloud, and the growing interest in artificial intelligence (AI) is further boosting its prospects. The company now anticipates annual revenue growth of around 30%, up from its previous estimate of 25%.
However, Arista faces fierce competition, particularly from companies like Cisco and Juniper Networks. Additionally, its stock is relatively expensive, trading at 28.5 times expected earnings. Nonetheless, many see Arista as a promising way to capitalize on the AI-driven cloud trend.
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- Eli Lilly
Eli Lilly (NYSE: LLY) secured the second spot among the top-performing S&P 500 stocks in August. The pharmaceutical giant’s shares skyrocketed by 22% last month, contributing to a year-to-date gain of 60%.
Eli Lilly’s strong performance in August was primarily driven by its second-quarter update, where it reported robust results and raised its full-year revenue guidance by $2.2 billion. A significant portion of this increase came from recent business development activities, including three acquisitions that closed shortly after the Q2 earnings announcement.
One of the main reasons to consider investing in Eli Lilly is its groundbreaking drug, Mounjaro, which is already a key growth driver for the company in treating type 2 diabetes. Regulatory approval is pending for Mounjaro’s use in weight loss, and some analysts predict it could become one of the best-selling drugs of all time. However, the downside is that Eli Lilly’s stock already trades at a high forward price-to-earnings ratio of 46 times.
While it might be challenging for Eli Lilly to maintain the same momentum it has seen this year, it could still have room for long-term growth, making it a reasonable choice for investors with a long-term horizon.
- Global Payments
Global Payments (NYSE: GPN) witnessed a substantial 15% increase in its stock price in August, earning it the third spot among the S&P 500’s top performers for the month. Year to date, this payment technology stock has climbed almost 27%.
Similar to Arista Networks and Eli Lilly, Global Payments’ strong performance in August can be attributed to its second-quarter update, which showed a 7% year-over-year increase in net revenue and an 11% rise in adjusted earnings per share. Even more encouraging, Global Payments raised its full-year net revenue and earnings guidance.
Global Payments’ appeal lies in the ongoing growth of digital payments, particularly in emerging markets as the middle class expands. Currently, the stock is attractively valued, trading at a forward-earnings multiple of only 10.6 times and a price-to-earnings-to-growth (PEG) ratio of 0.64.
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However, the company’s fortunes are closely tied to macroeconomic factors, and any resurgence in recession fears could impact its performance. Nevertheless, for long-term investors, Global Payments remains a compelling stock worth considering.
In conclusion, while September may historically be a challenging month for the S&P 500, the top-performing stocks from August offer unique opportunities and challenges for investors to consider as they navigate the financial markets.