Good morning investors!

Our goal is to provide high quality content that gives our IE+ members an EDGE in the market. We strive to not only adapt, but refine, perfect, and elevate our content week after week.

Last month we introduced our latest addition to the Investor’s Edge catalog: a monthly “Top Stocks to Watch” report. In this exclusive article we will break down 10 stocks that we are watching in the upcoming month and beyond so you can be prepared for what lies ahead.

Grab your coffee and let’s dive in.

Watchlist Performance - May 2024

First, let’s take a look at how our top stocks to watch in May performed:

By comparison, here is how the major indexes performed in May:

Overall, it was another strong month for our watchlists. However, it is always important to remember that this is a WATCHLIST and not a BUY NOW list. Many of these names are stocks we like, but whose current valuations don’t necessarily meet our buying thresholds.

You can see why we were watching these stocks and what we expected to happen here:

Top 10 Stocks to Watch - June 2024

Here is our June watchlist along with several key valuation metrics that we like to use for our stock analysis:

Salesforce

Salesforce, Inc. is an American cloud-based software company headquartered in San Francisco, California. The company was founded in 1999 by former Oracle executive Marc Benioff, together with Parker Harris, Dave Moellenhoff, and Frank Dominguez as a software-as-a-service (SaaS) company. Salesforce provides customer relationship management (CRM) software and applications focused on sales, customer service, marketing automation, e-commerce, analytics, and application development.

Salesforce is currently down -9.4% this year after being +27% at one point. The move lower can be attributed to the company’s latest earnings report.

Salesforce reported first quarter 2025 earnings on May 29, 2024. The company’s revenue rose 11% to $8.25 billion, marking the first revenue shortfall since 2006. Net income surged to $1.53 billion, up from $199 million a year ago.

The company faced budget scrutiny and longer deal cycles, and changes in its go-to-market strategy impacted bookings. While all product areas grew, revenue from Professional Services and Other fell 9%, missing expectations.

For the current quarter, Salesforce forecasts adjusted earnings per share of $2.34 to $2.36 on $9.2 to $9.25 billion in revenue, below analysts' expectations.

However, Salesforce raised its fiscal 2025 adjusted earnings forecast to $9.86 to $9.94 per share, maintaining revenue guidance at $37.7 to $38 billion. Analysts expected $9.76 in adjusted earnings per share and $38.08 billion in revenue.

Over the last 5 years, Salesforce’s EPS CAGR is 22.6%. Salesforce’s forecasted EPS growth rate for 2024 is 135% and analysts estimate an 16.2% CAGR over the next 5 years.

Salesforce announced its first-ever dividend of 40 cents per share in the first quarter and shareholders were paid on April 11. The board also authorized a $10 billion increase to its share repurchase program, both of which demonstrate confidence in its financial position and commitment to returning value to shareholders. 

Salesforce continues to grow at an impressive rate, but what’s even more impressive is that valuations are still pretty attractive here. Salesforce is currently trading at a P/E ratio of 42.4x, which is well below both its historical average P/E of 143.8x and the industry average of 65.6x. When accounting for future growth, the forward P/E ratio is 21.4x.

Over the last 12 months, Salesforce has generated $1.6B in free cash flow, or $11.71 per share, resulting in a P/FCF of 20.2x. That is lower than its 10 year historical average of 30.5x as well as below the industry average of 32.9x.

When we combine both our DCF and relative value models, Salesforce has an intrinsic value of 306.93. With CRM shares currently trading at 236.29, that means the stock is currently undervalued by 30%.

The sell-off after the results from the recent quarter was an overreaction in our opinion. While the company may have missed revenue estimates for the first time since 2006, it still managed to raise earnings expectations for the year and provided strong guidance for the current quarter.

We saw this move lower as an opportunity and Chris even added to his position last week. Edge+ members on the Discord received the notification immediately.

We will continue to monitor the stock but we expect investors will realize their mistake and shares will rebound in June.

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