5 top stocks to buy in October

With the first three quarters of the calendar year in the books, investors are walking into October with the major indices at record highs and gains of more than 20% since the start of the year. S&P500 And Nasdaq Composite. If we go back even further, we see that the S&P 500 is up a whopping 50% since the beginning of 2023.

Efficiency improvements and artificial intelligence (AI)-powered innovations are sending ripple effects through the stock market – from changing the way legacy companies do business to preparing 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 interest rate cuts. With the cost of capital becoming cheaper, there is reason to believe that consumer spending could get a much-needed boost this fall.

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

Image source: Getty Images.

It’s time to jump on affordable Berkshire stocks

Anders Bylund (Berkshire Hathaway): It’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 in the long run.

But you know what Buffett says about prices. He prefers to buy shares in great companies at a fair price. That is his secret recipe for keeping business risks low and returns for investors high. This wisdom-filled quote applies perfectly to Berkshire’s own stock right now.

The company isn’t putting much money into the market these days. Berkshire’s cash and short-term investment reserves increased to $277 billion, breaking the previous record of $150 billion in the fall of 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 percentage since the aftermath of the dot-com bubble burst.

I find that exciting. I can’t wait to see what the investing legend will invest in when the time is right. But Berkshire’s market makers have a different view, driving the stock 3% lower in September. Whether you buy the expensive Class A shares or the more affordable Class B shares, Berkshire today trades at just 14.6 times trailing earnings.

Berkshire Hathaway is therefore preparing for a buying wave in the near future. Meanwhile, the shares are changing hands well below the ten-year average price-to-earnings ratio (P/E) of 21. It’s the best of both worlds: a great company trading at a great price. The time is unusually right to invest in Berkshire Hathaway.

Shop for deals

Demitri Kalogeropoulos (Shopify): Investors should now take a closer look at Shopify stock. Shares of the e-commerce platform have risen since the company reported stellar operating results in August. It’s easy to see why Wall Street welcomed this update. Sales volumes increased by a healthy 22% during this period, and there is room for that figure to grow for many years to come as e-commerce rises from its current level of 16% of retail spend. But the stock is still well below its all-time high and has lagged the broader market in 2024.

This underperformance should not last long. Revenues are rising faster than sales as Shopify benefits from the growth of its subscription services and payment processing. It has also not yet finished reaping the financial benefits of the spin-off of its logistics activities. Gross profit margin improved to 51% of sales last quarter, compared to 49% of sales a year earlier.

Shopify executives are calling for another quarter of rising margins and ample cash flow for the sales period that ends at the end of October. That positive momentum helps explain why Wall Street has placed such a premium on this stock, which today is valued at more than 13 times sales. But for growth stock investors who don’t mind volatility, Shopify looks like an attractive long-term buy.

Buy this stock while there is still time

Neha Chamaria (Albemarle): 2024 was a rough year for Albemarle shares, dropping 50% and hitting a 52-week low in mid-August. Although lithium stocks have since recovered, they are still down about 45% this year at the time of writing. I still believe the sell-off is overdone, and it’s an opportunity to buy a great value stock that could soar if end markets recover.

The problem is not with Albemarle. It’s weakness in the lithium markets that caused stocks to plummet. Lithium prices peaked in 2022 and have fallen more than 90% since then. The 2022 rally, driven by a supply shortage, was unsustainable as prices rose too much, too fast. Soon, global lithium supply began to catch up with demand, anticipating a boom in the electric vehicle (EV) market. Lithium prices cooled, but before they could stabilize, the global EV market started to slow in 2023. Albemarle’s top line and bottom line would undoubtedly take a hit, as the company is one of the world’s largest producers of lithium for EV batteries.

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

When business cycles turn, Albemarle could become one of the fastest growing stocks in the industry given its position and financial discipline. The company has also increased its dividend for 30 consecutive years. With recent industry developments renewing hopes for a recovery in lithium prices, now is the time to purchase Albemarle stock.

A home run for home building

Keith Speights (DR Horton): The Federal Reserve is cutting interest rates for the first time in four years. More rate cuts are likely on the way. As a result, mortgage interest rates are also falling. If you think this news is great for homebuilders, you’re right. It’s especially great for the US’s largest homebuilder by volume: DR Horton.

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

DR Horton has been able to operate successfully even in the high-speed environment of recent years. However, the company has had to offer incentives, such as mortgage interest buyouts, to make the houses it builds more affordable. Management expects that the Fed’s rate cuts will allow the Fed to reduce its use of stimulus to some extent, 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 US still faces a major housing shortage. Zillow estimates that the country needs another 4.5 million homes.

Finally, the US elections in November could give new impetus to DR. Horton. Vice President Kamala Harris has proposed tax breaks for homebuilders who sell homes to first-time homebuyers. Should she win the presidential election, DR Horton’s shares could soar even higher.

Chevron and its growing dividend are built to last

Daniel Foelber (Chevron): West Texas Intermediate crude oil prices – the US benchmark – have fallen below $70 a barrel, the lowest level in 2024. The sell-off is dragging down the energy sector, including big names like Chevron, which is now less than 9% . away from a 52-week low.

Chevron has performed significantly worse than its American counterpart, ExxonMobilin 2024, due to uncertainties surrounding the acquisition of an exploration and production company Hes. Chevron and ExxonMobil both announced major acquisitions in October 2023 to strengthen their cash flows and boost oil and gas production. ExxonMobil completed the deal in May, but Chevron faced a series of challenges that kept the deal from going through.

On September 30, Chevron got some good news: the Federal Trade Commission completed its antitrust investigation and concluded that the Hess deal could go through, provided that Hess CEO John Hess would not be appointed to Chevron’s board of directors ( but could serve as an advisor). .

The market hates uncertainty, so the sooner Chevron can move forward with the deal, the better. While Hess would give Chevron better global diversification and access to cheap reserves in offshore Guyana, that’s not really the case. need the deal to go through. Chevron has a very efficient portfolio and can generate enough cash flow to cover its dividend and capital expenditures even with lower oil prices. It also has an excellent balance sheet with very little debt, given Chevron’s size.

Chevron has paid and increased its dividend for 37 years in a row – meaning it has increased the dividend even in years when growth has slowed or has suffered a net loss. Chevron has achieved this feat because it invests through 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 so that it can be more flexible for the next recession.

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

CVX data on net total long-term debt (quarterly) according to YCharts.

Chevron remains one of the well-rounded purchases in the oil patch. With a dividend yield of 4.5%, it stands out as a great buy for passive income investors this October.