October was a much better month for stocks. Blue-chip stocks led the rally, with the Dow Jones Industrial Average outperforming the other major market indexes. As earnings from the technology sector have continued to disappoint, investors are rotating into more industrial, blue-chip and defensive holdings. A change is in the air and investors should adjust their portfolios accordingly.
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After the big rebound, you might think that the best opportunities are gone, as many stocks are now well off their lows. However, these five stocks for November haven’t had big rallies yet, and thus are positioned to catch up as the market continues to rotate into different sectors heading into year-end:
— Estee Lauder Cos. Inc. (ticker: EL)
— American Tower Corp. (AMT)
— Verizon Communications Inc. (VZ)
— West Pharmaceutical Services Inc. (WST)
— First Republic Bank (FRC)
Estee Lauder Cos. Inc. (EL)
Estee Lauder is one of the world’s leading cosmetics companies. Historically, this has been an industry that has grown much more quickly than the broader economy. Companies such as Estee Lauder have seen dramatic growth in emerging markets such as China and Brazil, where consumers are gaining the purchasing power to spend on upscale cosmetics. The pandemic disrupted this development, however. People who were stuck at home felt less of a need to buy premium beauty products. And COVID-related closures of shopping malls and other brick-and-mortar retail venues also hurt sales. Throw in supply chain problems and inflation, and it’s been a volatile couple of years for Estee Lauder. This is more than reflected in the share price, however, as Estee Lauder shares are down more than 40% this year. That makes this long-term demographics play a buy at today’s newly discounted valuation.
American Tower Corp. (AMT)
American Tower is one of the country’s largest real estate investment trusts, or REITs. It focuses primarily on communications-related real estate. The company built its business by owning towers that provide service to cellphone carriers. Recently, American Tower has diversified into related fields such as data centers. Cell towers have usually been a great business, as the demand for mobile data has grown steadily over time. The company has expanded internationally as well and has benefited from rapid smartphone adoption in markets such as Latin America. Many investors own REITs primarily for their dividends and thus have sold off the sector this year amid the Federal Reserve’s continued rate-hiking campaign. American Tower shares are off by more than 25% this year, which has pushed AMT stock’s dividend yield up to 3%. That’s a higher-than-usual starting point for this fast-growing commercial landlord.
Verizon Communications Inc. (VZ)
Verizon Communications is one of America’s three largest mobile carriers. This industry typically does well regardless of economic conditions. After all, even in a downturn, most folks aren’t willing to go without data and voice access on their phones. However, telecom’s defensive nature has been tested in 2022. Shares of several telecom companies, including Verizon, have plunged amid the rate hikes and inflationary environment. On the one hand, this makes sense as investors demand higher yields on stocks to compensate. But at some point, buyers should step in. With Verizon, for example, shares are now going for less than eight times forward earnings while offering a 7% dividend yield. That’s a tremendous value for such a stable recession-resistant stock. Shares sold off again in October following a mixed earnings report. However, for investors capable of looking past short-term noise, this is a tremendous opportunity.
West Pharmaceutical Services Inc. (WST)
West Pharmaceutical Services is a medical supplies firm that primarily deals with drug packaging and delivery. The company makes packaging materials for drugs along with tools such as syringes, stoppers and auto-injection devices. West generates more than 80% of its revenue from proprietary products while having a nearly even split between U.S. and international revenues. West has been a tremendous growth machine, posting earnings growth at a high teens compounded annualized rate. This led to amazing stock price results, with West shares rising exponentially in the past decade. Now, however, West has seen an earnings slowdown related to a decline in sales of COVID-19-related products. Throw in declining valuations for high-growth stocks, and West shares are down by nearly half this year. That makes for an attractive entry point, as this outstanding firm is now selling for about 30 times forward earnings.
First Republic Bank (FRC)
Like West, First Republic is another firm that has traded at a premium valuation thanks to its exemplary growth track record. First Republic has grown both its deposit base and its outstanding loan book at double-digit rates over the past decade. This is simply incredible in the traditionally slow-moving banking industry. First Republic has a unique approach. It focuses on high-income clients and treats them with white glove customer service. In return for providing superior relationship banking, clients have given First Republic a large and fast-growing deposit base. Throw in higher interest rates, and First Republic’s earnings have been booming. The correction in high-valuation stocks hasn’t spared First Republic, however. Shares are down about 40% this year, pushing its price-earnings ratio from above 20 to just 14. It’s clear that First Republic has a great business plan; the issue was always valuation compared to rival banks. With the latest stock price decline, however, shares are now in the buy zone.
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5 of the Best Stocks to Buy for November originally appeared on usnews.com
