Historically the stock market doesn’t tend to move much in July and August as many people are on holiday. However, given that the world is still in the middle of a pandemic, I think it’s fair to say that history might not repeat itself in 2021. This means there could be several lucrative investments to make this month. So, let’s look at two companies that might be the best stocks to buy in July for my portfolio.
Is GlaxoSmithKline becoming a growth stock?
For many years, GlaxoSmithKline (LSE:GSK) hasn’t been a particularly stellar performer. Looking over the past decade, the GSK share price has increased by a grand total of 7%. Total shareholder returns have obviously been much higher thanks to its sizable dividends. But under the new leadership of CEO Emma Walmsley, the company is now undergoing a massive transformation in which dividends are expected to suffer.
The plan is to spin out its consumer healthcare division into its own entity in 2022. The remaining business will be focused entirely on the development of vaccines and new medicines. And given that such products can be highly profitable, the management team expects to achieve a 5% compound annual growth rate.
If successful, total sales are expected to reach £33bn by 2031. That’s a 37% increase compared to what its pharmaceutical and vaccine divisions generated in 2020. Today the company has a market capitalisation of around £72bn. So, taking this forecast, the stock looks exceptionally cheap in my eyes. However, there are some major risks involved in becoming a pureplay drug developer. The main one being a clinical trial failure. In the end, all it takes is one phase III trial to fail to make a multi-billion-pound investment go down the drain. But given Glaxo’s track record and experience, I think this risk may be worth taking. That’s why it’s on the list of best stocks to buy this July for my portfolio.
A new Saga?
Saga (LSE:SAGA) is another business currently undergoing transformation. After years of mismanagement, the company’s original owner decided to make a comeback and turn the ship around. As the board’s new chairman, Sir Roger De Haan revamped the management team and has swiftly begun restructuring the entire business.
While unpleasant for many now-ex-employees, this process seems to have saved the company from the brink of bankruptcy. Total losses have been cut by 80%, its cruise line travel division has seen 20% growth in bookings, and Saga’s long-time underperforming insurance business finally saw some improvement. It’s quite an impressive turnaround, in my opinion. And with the rapid progress of the vaccine rollout easing travel restrictions, this growth might continue throughout the rest of 2021. That’s why it’s on my portfolio’s best stocks to buy list this month. But it’s hardly going to be smooth sailing from here.
As promising as its progress is, there remain some significant issues with the balance sheet. Currently, the business has around £823m of debt to contend with and not much cash available. It did recently complete a tender offer that raised £100m of capital. But this was far less than the anticipated £250m. Needless to say, if Saga is unable to bring its debts under control over the long term, it could be the end of its turnaround story.
Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.