6 Stocks to Buy in August


If you clicked on this article, you want stock ideas. As an analyst for the Motley Fool, I spend each day of my work week (and many nights and weekends) looking for candidates to satisfy your stock hunger.

In this column, I'll quickly present the results of my research -- six stocks that Iook like great buys today. Stick around 'til the end and I'll also share my favorite of the favorites.

A blue chip on sale
I love when bad things happen to good companies. At least bad things that are temporary. As longer-focused investors, that's where we can really take advantage of short-term blips. Such is the case with major trash collector and recycling specialist Waste Management (NYS: WM) , a strong operator that's been on my watchlist for quite a while.

Last week, it disappointed analysts with its second-quarter earnings report. After missing earnings estimates by $0.04 and trotting out lower-than-expected full-year guidance, Waste Management is trading down more than 10%.

However, I didn't note any permanent impairments. Waste Management is being proactive about cutting costs, and it announced the $425 million acquisition of smaller competitor Oakleaf Global Holdings. In short, Waste Management's stock has dropped to its 52-week lows without any signs of long-term fundamental weakness.

According to its lowered full-year guidance, Waste Management is trading for under 15 times expected earnings, and it's throwing off a nice 4.3% dividend yield.

This is a good price for a quality company.

A family of big-dividend stocks
Because of their eye-rubbingly high dividends (some approach 20% yields), mortgage REITs have been very popular recently.

I've had a difficult time deciding whether there's true opportunity here. The mortgage REITs are making a killing because the current government interest rate policy allows them to borrow cheaply in the short term to buy higher-interest rate mortgage-backed securities.

That situation, while lucrative now, can turn quite quickly. For example, at the height of the debt ceiling fears last week, Annaly Capital (NYS: NLY) fell 19% in just a few minutes on fears that the short-term lending market would freeze up. It wasn't alone. Shares recovered quickly, but it was a stark reminder that troubles in the short-term credit markets or rising interest rates in general can hammer these stocks.

That said, I admire Annaly Capital and the two other mortgage REITs it manages, Chimera (NYS: CIM) and Crexus (NYS: CXS) . Annaly primarily invests in government agency-backed mortgages and pays a 15.5% yield; Chimera invests in higher-risk non-agency-backed mortgages and pays a 16.9% yield; Crexus invests in commercial real estate mortgages and pays a 9.5% yield.

Founded in 1996, Annaly was the pioneer of this oft-copied business model. Although it still hasn't seen a truly high-interest rate environment, management here seems to be prudent about anticipating problems via portfolio strategy, hedging, and conservative-for-the-industry use of leverage.

For advanced investors, this a good play on generating high dividends in a low interest rate environment. Today's prices are reasonable. Some more price weakness like last week's would be all the better.

1 unloved company with a nice catalyst
No one likes when I defend the merits of RadioShack (NYS: RSH) . It's just not a sexy stock. But believe it or not, it's been a strong, profitable operator that has successfully shifted from being a glorified spare-parts warehouse for the audio-visual club to a mobile-focused electronics convenience store. Its public image may not have quite caught up to reality, but The Shack continues to impress me.

The latest coup is signing up Verizon. Starting Sept. 15, RadioShack will add Verizon to its mobile offerings from AT&T and Sprint Nextel. Note that RadioShack's also severing its relationship with T-Mobile, but Verizon's about twice the size of T-Mobile (and AT&T is in the process of trying to buy T-Mobile anyway).

Now consumers can go to RadioShack to browse services and phones for each of the Big 3 -- Verizon, AT&T, and Sprint Nextel. They can also find their favorite Apple mobile devices.

The market reacted with a 20% pop on the Verizon news last week. Since then, it's given most of that pop back. I think the market's initial gut instinct was correct. Radio Shack is improving operationally and is undervalued as a stock.

1 big bank on sale
I have to admit I've gotten caught up with the cheap prices Bank of America (NYS: BAC) has been sporting recently, and it has overshadowed the opportunity in Citigroup (NYS: C) . I do like both at current prices, but I want to highlight Citi today.

Because of the enormity of the Citi bailout during the financial crisis, the government had a major equity stake in the bank until December 2010. Many of us thought the government's gradual sell-off of the stock was depressing Citi's share price. But Citi's shares are actually down from the final December sale.

I believe there's a buying opportunity here. As I've stated many times before, Citigroup and its too-big-to-fail cohorts are impossible to really know. Their balance sheets are opaque, and Citigroup is possibly the worst of the worst in that regard. In addition, there is the cloud over how much the big banks will owe when the foreclosure mess resolves. Making the shady practices of yesteryear go away will cost them.

That said, at a price-to-book ratio of 0.64, Citigroup is trading as almost as cheaply as Bank of America. Unlike Bank of America, Citigroup is turning a profit (its trailing P/E ratio is 12.3), and while it has its own problems, it didn't add to its headache by acquiring a huge, terribly run mortgage specialist (that's Bank of America's 2008 purchase of Countrywide).

File this one as a blind but educated bet for investors who can deal with great uncertainty.

The stock I'm most bullish on
Each of the six stocks above are worthy of your consideration, but I promised to name my favorite of the favorites. For the buy-and-hold investor who wants to buy into a solid dividend-paying company for a good price, Waste Management is my favorite. For folks who can bear more risk, I believe Citigroup has the most upside.

Thanks for allowing me to share my latest research. I didn't touch on the energy sector today, but as a thank you for reading along, you can click here to access a free copy of our latest research report: "3 Stocks for $100 Oil." Enjoy!

At the time thisarticle was published Anand Chokkaveluowns shares of Radio Shack, Apple, Citigroup, and Bank of America.The Motley Fool owns shares of Waste Management, Apple, Chimera Investment, RadioShack, and Annaly Capital Management. The Fool owns shares of and has opened a short position on Bank of America.Motley Fool newsletter serviceshave recommended buying shares of AT&T, Waste Management, and Apple, as well as creating a bull call spread position in Apple. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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