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According to Warren Buffett, good investment opportunities rarely come along. But with August approaching, I think there is an unusually good opportunity to buy stocks at unusually low prices.
After a tumultuous month in the stock market, two stand out to me. Both are great firms that I think have good long-term prospects, but some recent problems make them unusually cheap.
Diageo
Diageo (LSE:DGE) shares fell sharply after the company reported earnings, but I'm not entirely sure why. Sales were down 1% and profits down 5%, but this is more in line with my expectations.
The company reported revenue declines in Latin America and the Caribbean, Africa, and the US. But in my mind, these highlight existing risks with the stock, rather than revealing new ones.
The biggest problem in Latin America and the Caribbean has been consumers trading down as spending power weakens. But this is well documented, causing the stock to fall since November.
In Africa, the main problem was the depreciation of the Nigerian naira against other currencies. But that shouldn't surprise us – Airtel Africa shareholders could have seen this coming.
Likewise, Goldman Sachs it was pointed out earlier this month that data from US retailers showed that Diageo's products were faltering there. And the latest report pretty much confirms this.
As a result, the report did not give me new reasons to worry about Diageo shares. And since I thought the stock was a good value previously, I'm looking to continue buying it here.
McDonald's
McDonald's (NYSE:MCD) again reported disappointing results earlier this week. But the stock market liked the look of things and drove the stock up 5%.
I think the market is right on this. Global sales were down 1% and earnings per share were down about 11%, but I see this as a short-term blip for a company in a strong long-term position.
As for what's causing the decline, GLP-1 drugs and commercial consumers are both reasons I've heard suggested. Both of these are risks, but I don't think either is the reason sales are down.
A major part of the company's customer base is youth, especially in the US. According to the Piper Sandler Teen Survey, US teens have less spending power than last year.
As far as I know, there is no evidence that this population is switching to healthy products and I don't think they are all taking anti-obesity drugs. They have little money available.
So it seems to me that McDonald's still has its dominant market position. That's why I'm looking to buy the stock while it's down 12% year-to-date.
Opportunistic investment
It's rare to find stocks like Diageo and McDonald's trading at bargain prices. The reason is that investors generally know that these are companies with long-lasting competitive advantages.
I think both stocks look like prospects at the moment. That's why I'm looking to add both to my portfolio in August.
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