3 Top Stocks to Buy in September – The Motley Fool

Veteran investors likely know the stock market is prone to problems in September, losing ground more often than not. And the past three weeks have been bearish, with an uphill battle against rising interest rates, brisk inflation, and general economic malaise. 

However, a handful of stocks are not only still worth holding, but worth buying too. Each of these stocks to buy bring important virtues to the table right now, including an errant pullback that makes them too undervalued to pass up.

1. Altria Group

Sooner or later, the global smoking cessation will end the tobacco business. But that won’t happen until many years from now. A smaller proportion of the world’s population are smokers now, versus just a few years ago, but the World Health Organization says that — with global population growth — a record-breaking 1.3 billion people now regularly smoke tobacco. Within the United States, the Centers for Disease Control and Prevention says more than 30 million people still regularly light up. 

 You might know Altria Group (MO -0.96%) more through its core brands Philip Morris and Marlboro. It’s also a parent to or part owner of smokeless tobacco companies Helix Innovations and U.S. Smokeless Tobacco, as well as vaping outfit Juul Labs and cannabis company Cronos.

It’s a diverse mix, although its breadwinner remains cigarette smoking. Through the first half of the current fiscal year, nearly 90% of its net revenue stemmed from the sale of conventional cigarettes, and it generated just as much smoking revenue through that six-month stretch as it did during the first six months of 2021. While it sold about 9% fewer cigarettes, most of its customers remained willing to pay higher prices for its chief product.

The crux of the bullish argument is the cash flow and corresponding dividend that this reliable business creates. Altria has raised its payout every year for the past 53 years. You can plug into that payout while the yield is an incredible 8.3%, thanks to the stock’s mostly undeserved weakness since May.

2. Snap

The company is called Snap (SNAP -4.01%), although you’re apt to be more familiar with its app Snapchat.

While it hardly has dethroned social network stalwarts like Meta‘s Facebook and Twitter, the company at least made a dent in their businesses. As of the second quarter, 347 million people were checking into Snapchat on a daily basis, which is time and traffic not won by competing social media platforms. That’s pretty solid for a latecomer that only launched in 2011.

In retrospect, it was growth built on overly aggressive spending, a spree that’s now being corrected. The company announced early last week that it will be culling 20% of its workforce. It’s also halting a handful of developmental projects like video games and drones in order to better focus on its core business following its weakest-ever quarterly sales growth.

Largely lost in all the noise of the headlines, however, is the fact that the slowing sales growth could have as much to do with the company’s sheer size as it does with any economic headwind. And even then, last quarter’s year-over-year top-line growth of 13% is healthy, extending a streak of uninterrupted revenue growth that started with the company’s 2017 initial public offering. Profit progress has been just as reliable, and just as impressive. Analysts are calling for renewed progress on both fronts next year, too.

The stock’s bullish jolt prompted by last week’s news of restructuring and right-sizing faded as the week wore on. Snap stock is still down more than 80% over the course of the past 12 months; however, there’s plenty of room left for a recovery driven by the impending belt-tightening and tightened focus.

3. Target

Lastly, Target (TGT -0.62%) is still well down from its April peak, but shares are certainly acting like they’re ready to rally despite the market’s malaise.

The primary (but much smaller) rival to Walmart is still swimming in too much inventory, which is eating away at profit margins. Last quarter’s gross profit margin of just over 20% is the weakest for the company in years. It took a few quarters for this situation to develop, and it could take a few quarters to fully unwind, dragging on the bottom line the whole time.

The past and future impact of Target’s inventory woes might already be baked into the stock’s depressed price, which doesn’t reflect a couple of key edges the retailer enjoys on its competitors.

One of these is a strong position in home decor and kitchen goods at a time when Bed Bath & Beyond is regrouping again. Bed Bath & Beyond CEO (and former Target executive) Mark Tritton was recently ousted. It’s an opportunity for others in the same market. Not only are home goods a strong category for Target, but many of its brands like Opalhouse, Brightroom, and Casaluna are also the retailer’s private labels, which typically have higher profit margins than third-party brands.

The other edge that could light a fire under Target’s stock is easing inflation. While still uncomfortably high, the pace of price hikes is slowing, allowing consumers to feel more comfortable to resume splurges — particularly on clothes — that they stopped just a few months back. This environment plays right into Target’s sweet spot, which combines value, quality, and a good customer experience better than any comparable competitor.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms, Inc., Target, Twitter, and Walmart Inc. The Motley Fool has a disclosure policy.