The 5 top stocks to buy in October

With the first three quarters of the calendar year in the books, investors stroll into October with major indexes at all-time highs and up more than 20% year-to-date S&P 500 And Nasdaq Composite. Let’s go back even further: The S&P 500 is up an incredible 50% since the start of 2023.

Efficiency improvements and artificial intelligence (AI)-based innovations are impacting the stock market – from changing the way legacy companies do business to creating the conditions for greater demand for energy and electricity to power data centers .

The Federal Reserve just announced its first interest rate cut in four years, which was quickly followed by a Chinese stimulus package and rate cuts. As the cost of capital falls, there is reason to believe consumer spending could get a much-needed boost in the fall.

Despite all the momentum in October, investors should still take a long-term approach. They should only invest in companies that they believe can deliver on their promises, ride out the cycle, and are worth holding for at least three to five years. Here’s why five contributors were chosen by Fool.com Berkshire Hathaway (BRK.A -0.93%) (BRK.B -0.81%), Shopify (BUSINESS -1.21%), Albemarle (ALB 0.26%), DR Horton (DHI -0.18%)And Chevron (CVX 0.20%) as top stocks to buy in October.

It’s time to pounce on affordable Berkshire shares

Anders Bylund (Berkshire Hathaway): There’s rarely a bad time to invest in Berkshire Hathaway. Warren Buffett’s insurance-based investing machine almost always seems poised to beat the stock market over the long term.

But you know what Buffett says about pricing. He prefers to buy shares in great companies at a fair price. This is his secret recipe for keeping business risks low and investor returns high. This wise quote currently applies perfectly to Berkshire’s own shares.

The company is currently not investing much money in the market. Berkshire’s cash and short-term investment reserves have grown to $277 billion, breaking the previous record of $150 billion in fall 2021. More than 21% of Berkshire’s assets are held in the form of cash or liquid government bonds. That’s not exactly a record, but it is the highest rate since the dot-com bubble burst.

This is exciting for me. I can’t wait to see what the investment legend will invest in when the time is right. But Berkshire’s market makers disagree, sending the stock down 3% in September. Whether you buy the high-priced Class A shares or the cheaper Class B shares, Berkshire trades at just 14.6 times trailing earnings today.

So Berkshire Hathaway is preparing for a buying spree in the near to medium future. The stock is now changing hands well below its ten-year average price-earnings ratio (P/E) of 21. It’s the best of both worlds – a wonderful company trading at a wonderful price. It is unusually cheap to invest in Berkshire Hathaway.

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Demitri Kalogeropoulos (Shopify): Investors should take a closer look at Shopify stock now. Shares of the e-commerce platform have rallied since the company reported stellar operating results in August. It’s easy to see why Wall Street welcomed this update. Sales volumes rose a whopping 22% during this period, and there is room for this number to increase further as e-commerce increases from its current level of 16% of retail spending. But the stock is still well below its all-time high and has underperformed the broader market in 2024.

This underperformance shouldn’t last long. Earnings are rising faster than sales as Shopify benefits from growth in its subscription services and payment processing. It has also not yet been possible to reap the financial benefits from spinning off the logistics business. Gross profit margin improved to 51% of sales in the most recent quarter, up from 49% of sales a year ago.

Shopify executives are calling for another quarter of rising margins and ample cash flow for the sales period ending in late October. This positive momentum helps explain why Wall Street has given such a premium to this stock, which is now worth more than 13 times sales. However, for growth stock investors who don’t mind volatility, Shopify appears to be a compelling long-term buy.

Buy this stock while there’s still time

Neha Chamaria (Albemarle): 2024 was a tough year for Albemarle stock – it plunged 50% and hit its 52-week low in mid-August. Although lithium stock has since recovered, it is still down about 45% this year at the time of writing. I still believe the selloff is overdone and that it’s an opportunity to buy a great value stock that could soar as its end markets recover.

The problem is not with Albemarle. It’s the weakness in the lithium markets that sent the stock plummeting. Lithium prices peaked in 2022 and have since collapsed by more than 90%. The supply deficit-driven rally in 2022 was unsustainable as prices shot up too much and too quickly. Soon, global lithium supply began to keep pace with demand in anticipation of a boom in the electric vehicle (EV) market. Lithium prices cooled, but before they could stabilize, the global electric vehicle market began to slow in 2023. Albemarle’s sales and profits inevitably took a hit because the company is one of the world’s largest producers of lithium for electric vehicle batteries.

However, lithium’s long-term growth potential remains intact as it is a crucial element for the electric vehicle industry. Albemarle is taking necessary steps to preserve liquidity while it waits for a recovery. Albemarle’s financial flexibility has been its greatest strength over the decades, and this time should be no different.

As economic cycles change, Albemarle’s resilience and financial discipline could make it one of the fastest-growing stocks in the industry. The company has also increased its dividend for 30 consecutive years. With recent industry developments renewing hope for a recovery in lithium prices, now is the time to stock up on Albemarle stock.

A house building home run

Keith Speights (DR Horton): The Federal Reserve is cutting interest rates for the first time in four years. Further interest rate cuts are likely. This also reduces mortgage interest rates. If you think this news is great for home builders, you’re right. Things are particularly good for the largest home builder in the US by volume – DR Horton.

DR Horton shares are up 25% year-to-date. However, all of these nice gains have occurred since July, when expectations of an impending rate cut began to build. Investors knew that lower interest rates typically lead to lower mortgage rates, making buying new homes more affordable for Americans.

DR Horton has also been able to operate successfully in the high interest rate environment of recent years. However, the company has had to offer incentives such as mortgage interest buybacks to make the homes it builds more affordable. Management believes the Fed’s rate cuts could allow it to reduce its use of stimulus somewhat, which would improve profitability.

While the rate cuts serve as a catalyst for DR Horton in the short term, there is an even more important tailwind for the stock in the long term. The United States continues to face a severe housing shortage. Zillow It is estimated that the country needs an additional 4.5 million homes.

Finally, the US elections in November could provide another spark for DR Horton. Vice President Kamala Harris has proposed tax incentives for homebuilders who sell homes to first-time buyers. If she wins the presidential election, DR Horton’s shares could rise even further.

Chevron and its growing dividend are built to last

Daniel Foelber (Chevron): West Texas Intermediate crude oil prices – the U.S. benchmark – have fallen below $70 a barrel, their lowest level in 2024. The selloff is weighing on the energy sector, including big names like Chevron, which is now at less than 9%. from its 52-week low.

Chevron performed significantly worse than its US counterpart, ExxonMobilin 2024, due to uncertainties regarding the acquisition of the exploration and production company Hess. Chevron and ExxonMobil both announced blockbuster acquisitions in October 2023 to bolster their cash flow and boost oil and gas production. ExxonMobil closed its deal in May, but Chevron faced a number of challenges that prevented the deal from closing.

On September 30, Chevron received good news: The Federal Trade Commission completed its antitrust review and concluded that the Hess deal could proceed on the condition that Hess CEO John Hess not serve on Chevron’s board is appointed (but could act as an advisor). .

The market hates uncertainty. The sooner Chevron can move forward with the deal, the better. While Hess would allow Chevron greater global diversification and access to low-cost reserves offshore Guyana, this is not the case need the deal you have to make. Chevron has a highly efficient portfolio and can generate plenty of cash flow to cover its dividend and capital expenditures, even with lower oil prices. Given Chevron’s size, the company also has an excellent balance sheet with very little debt.

Chevron has paid and increased its dividend for 37 consecutive years – meaning it increased the dividend even in years when growth slowed or reported a net loss. Chevron has achieved this feat because it invests throughout the cycle and does not structure its business to be dependent on high oil prices. When oil prices are high, Chevron tends to pay down debt and position itself to be more flexible for the next downturn.

In the chart below, you can see that Chevron’s total long-term net debt declined in years with higher operating cash flow, but its debt-to-capital ratio was still at healthy levels even during the industry downturn.

CVX Long-Term Net Total Debt (Quarterly) data from YCharts.

Chevron remains one of the most diverse buys in the oil sector. With a dividend yield of 4.5%, it’s a great buy for passive income investors in October.