5 Large Caps To Own Through August

Includes: AAPL, CMI, MCD, MON, RL
by: Todd Campbell

Is your watch list getting stale? One of the risks you run as an investor is missing tomorrow's winners because your watch list reflects yesterday's winners instead.

For a decade, I've been helping professional money managers keep their watch lists fresh. And this month there are 5 large caps worthy of earning a spot on your radar.

According to the Seasonal Investor database, each of these stocks has a solid track record of posting gains for investors through August. Each also offers catalysts which support upside.

Apple Computer (NASDAQ:AAPL)

The market's favorite son has fell out of favor this past year as margins compressed and earnings stalled. As a result, you've likely removed the stock from your list in fear of buying too soon. But, summer is typically a good time to embrace Apple shares following the Worldwide Developer's Conference and ahead of the fall product launches. Whether Apple can reignite passion among non-hardcore Apple fans remains a risk. If Apple relies solely on an iPhone refresh, it will take a new, more modern user interface and a more unique design to excite. But, if Apple launches new devices or services - such as the long rumored TV - investors may find shares in the mid $400s price a bargain. After all, shares are trading a timid 10 times 2014 earnings estimates. And those estimates have finally started to tick higher, increasing to $43.74 from $43.70 during the past week. Couple valuation with a vast cash hoard, 2.5% dividend and a very low bar for expectations and you may have a recipe for upside.

Cummins Inc. (NYSE:CMI)

Regulations aren't the friend of many industries. But for engine maker Cummins, they're sparking orders as truck fleet operators modernize fleets. So far, fleet operators have been slow to embrace the latest technology for fear the economy will rollover. But, their hesitation has boosted the average age of rigs to 6.6 years - the high end of the historical range. Throw in the new Hours of Service regulations slated to begin July 1st and you have another reason operators may need to invest in additional capacity. After all, operators will need to make up for the 12% cut in average weekly hours a trucker can drive. Regulations are also sparking a slate of increasingly fuel efficient engines too, adding another incentive for operators to buy. Summertime construction work can help Cummins too. The housing recovery is boosting pickup truck sales, which is good news for Cummins powered Dodge Rams.

McDonald's (NYSE:MCD)

McDonald's is serving up sales alongside summer shakes and iced coffee. The trend in same store sales growth should improve as drivers hit the road for summer vacations. Global same stores sales rose 2.6% in May, with sales in the United States climbing 2.4%. The strength behind that growth appears to be breakfast and an ever-expanding menu. As more people hit the highways this summer, McDonald's is likely to see demand head higher.

Monsanto (NYSE:MON)

Last year was a tough one for farmers as drought ravaged fields crimped crop yields. But farmers came out mostly unscathed thanks to crop insurance. Those plowed under fields from last summer will still need to be seeded this season and a lot of those seeds will be supplied by Monsanto. The USDA is currently interviewing farmers to estimate how many crops will be planted this year. Those results will move agribusiness stocks when they get reported in the June 28th Acreage report. As of the June 2nd USDA Crop Progress report, 91% of corn had been planted this year, still slightly below the 5-year average. Regardless of absolute acreage, Monsanto feels comfortable with its prospects for the year. In its Q1 earnings release, the company boosted its sales forecast on the heels of better-than-hoped seed and Roundup sales, including seed and traits sales 16% ahead of last year.

Polo Ralph Lauren (NYSE:RL)

Hot weather supports golf and leisure attire, making the iconic polo shirt a signature of summer. Polo Ralph Lauren has enjoyed a tailwind from falling cotton prices, which have supported margins as retail sales have improved. As a result, earnings outpaced the consensus analyst forecast in each of the past 4 quarters. And lower costs helped operating margins increase 270 basis points to 11.1% last quarter. Same store sales at its stores improved 4% in constant currency as retail sales of $804 million improved 7% and offset sluggish wholesale sales tied to Europe. Solid consumer confidence should support solid apparel sales through summer and into the all-important back-to-school shopping season.

While each of these 5 ideas has a catalyst, it's impossible to know if they'll follow through and head higher. However, given the strong seasonal support and opportunity, you may find them worthy additions to your watch list as we move into summer.

Disclosure: I am long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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