After the latest round of market jitters, the final few trading sessions of May 2024 certainly seem like some sort of “last call” to “sell in May and go away” before something ominous has a chance to strike.
Investor sentiment doesn’t seem nearly as “pumped” as it was when we entered the month, with concern that we may still have a few more quarters of today’s high-rate environment. Indeed, rate cuts look to be off the table, not just for June, but perhaps the rest of summer. And if future inflation data doesn’t play ball with the Federal Reserve, I’m sure rates could stay unchanged for the year.
As markets retreat a bit as those eager about looming rate cuts throw in the towel over their disappointment, long-term investors may have an opportunity to pick up some top-performing parabolic movers at a slight discount as momentum reverses course slightly or, in some cases, violently.
Williams Sonoma (WSM)
Williams Sonoma (NYSE:WSM) is a discretionary retailer that’s been doing quite well of late despite inflation and the challenged state of the consumer. Indeed, it was a surprise to see WSM stock blast off the way it did over the past year, rising by around 144% in the timespan.
Despite the many headwinds facing consumers, they still seem to be spending money, just more selectively, on quality goods at what they deem as reasonable prices. Even cyclical consumer discretionary firms have been able to power higher if their value proposition remains.
With a classy, upscale brand that can command margins while still resonating with customers amid inflation, I find Williams Sonoma a rather intriguing stock to consider owning following its latest first quarter. Margins have looked rather good, even as most other firms choose between taking a gut punch to either sales or margins in response to inflation.
At 17.38 times trailing price-to-earnings (P/E), WSM stock still looks cheap despite its parabolic past-year gains.
Alphabet (GOOG, GOOGL)
Alphabet (NASDAQ:GOOG, GOOGL) has been on a magnificent run in the past year, and it is fit for a member of the Magnificent Seven. Over the past year, the stock is up more than 42%.
Despite the hot surge on the back of impressive new generative AI innovations, like OpenAI Sora rival Google Veo, and the slew of high-tech changes coming to Google Search and large language model Gemini, I still think the stock’s way too cheap at 27.2 times trailing P/E. That’s not an obscene price to pay for a company shaping up to be one of the leaders in AI software. I think GOOG stock’s a bargain ahead of summer.
Recently, Google was criticized again as its AI search tool, AI Overviews, produced various misleading or outright false responses to questions. The feature isn’t ready for prime time.
The good news is Alphabet may be able to pull the plug on the feature altogether if it can’t right Overview’s wrongs. At this juncture, its issues may not be a quick fix, so say some pundits.
Microsoft (MSFT)
Speaking of AI leaders from the software side, we have Microsoft (NASDAQ:MSFT), which has been keeping investors and users happy with new AI features, like those recently added to the Edge browser, in recent months.
Unlike Google, Microsoft seems to be doing a good job of minimizing the public and embarrassing shortcomings of its latest generative AI technologies. Sure, AI isn’t polished right now, but perhaps Microsoft was smart to roll out OpenAI’s ChatGPT across its offerings before incorporating its own AI models, which will be coming soon.
Either way, Microsoft seems like the undisrupted AI software leader right now. And with that comes a steeper price tag. At writing, MSFT stock is up 58% from the past two years and is going for 37.22 times trailing P/E—a fair price for a company poised to dominate in AI for years.
On the date of publication, Joey Frenette held shares of Microsoft and Alphabet (Class C). The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.