PLD - 4 Top Stocks To Buy In October 2023

2023-09-29 09:42:00 ET

Summary

• September was a rough month for stocks, with the technology sector down 8% and high valuations causing concern.
• Despite the pullback, stocks are now more attractive and there are opportunities for long-term investors.
• All 4 stocks we cover today are all trading at great valuations following a pullback over the past month.

The month of September is behind us, and it's safe to say, the month lived up to its reputation as being the worst month for stocks. Whether it was due to seasonality, high interest rates, a looming government shutdown, or other reasons, September was not fun for most investors.

During the month, here is how the major averages have performed:

The technology sector ( XLK ), which largely makes up a good chunk of the Nasdaq Composite ( IXC ), is down roughly 8% on its own in the month of September.

Valuations have been quite high, so maybe it's a healthy pullback or do we think there is more pain ahead. Regardless, stocks look MUCH more intriguing than they did a month ago and being that I am a long-term investor, we are going to highlight 4 of the BEST stocks to buy after this pullback.

These 4 stocks, we are not covering because we think they are at the exact bottom of their respective fall, instead, we believe they are trading at solid valuations and have very positive upside for long-term investors.

4 Of The Best Stocks To Buy In October

October Stock #1 - The Boeing Company ( BA )

Boeing is one of the largest industrial stocks on the market today, operating more directly within aerospace and defense. Boeing currently has a market cap of $118 billion and over the past 12 months, shares have climbed 53%, but still well off their all-time high of around $450 per share reached back in 2019.

Boeing has been a bit more volatile than normal as we just saw the stock is up 53% over the past 12 months, but year-to-date, the stock is flat. Over the past 2 months, shares are down 20%.

Over the past few years, Boeing has gone through a number of issues from the tragic accidents overseas, to 737 Max recall issues that saw those planes grounded for a number of months.

More recently, as demand seemingly looked ready to turn the corner, Boeing stated that their anticipated 737 full year deliveries were likely to come in at the low end of their guidance, which again spooked investors in the month of September.

This sounds more like a short-term issue, as the company still maintains its guidance to generate free cash flow of $10 billion by FY 25/26.

This is certainly a positive as will be the recovery over in China, in which the company increased its long term guidance for that region.

If you are willing to be patient with the volatility, and believe in plan the management team is executing, Boeing can pay big dividends for investors moving forward.

Speaking of dividends, if the company reaches its $10 billion free cash flow goal, it could see them once again reinstating their dividend they once paid.

Another reason to be bullish on shares of BA is due to their valuation. Analysts are calling for 2024 EPS of $5.00 and 2025 EPS of $9.04 per share which equates to a forward earnings multiple of 39x and 21.5x. Again, it's a comeback story for a company that operates in a duopoly with the likes of Airbus.

Analysts have a 12-month average price target of $256 for the stock, implying 31% upside from current levels. I may look into some cash secured puts I could sell in order to enter into a position of Boeing.

October Stock #2 - The Coca-Cola Company ( KO )

The Coca-Cola Company is the largest beverage company in the world today, operating within the consumer staples sector. Shares of KO have hit a rough patch dating back to late July, to which the stock has fallen 11%, which essentially has wiped away all the gains the stock had for the past 12 months.

As you are aware, the Coca-Cola company has a global reach, selling products all across the planet. For years, it has been one of those staples in many dividend investors portfolios as they have produced consistent results to go along with a stable dividend.

Speaking of the dividend, The Coca-Cola Company is known as a dividend king, as they have hiked their dividend for more than 50 consecutive years. In fact, KO has hiked their dividend for more than 60 consecutive years, which is a testament to their consistency.

Currently, shares of KO yield a dividend of 3.25%, but a payout ratio on the high-end of the range. The dividend is not in danger by any means, but a high payout ratio keeps the company from being able to grow the dividend at a fast pace, which is evident based on their 5-year dividend growth rate of less than 4%.

During 2023, much of the focus for investors has been focused on risk on stocks, which tends to mean less defensive names like KO and more technology names.

Fundamentally, the business is still performing quite well, and management has done a nice job over the past few years trying to lessen the number of SKUs to focus more on the best-selling and highest margin items.

Given that the stock is often widely owned, it also often trades at a premium. It is not a company that grows revenues or EPS all that fast, but the earnings multiple would often suggest must faster growth.

For 2024, analysts are estimating EPS of $2.83 per share, which is 7% growth from 2023, and equates to a forward P/E ratio of 19.7x, which is quite low for shares of KO. For comparable purposes, shares of KO have traded at 24x on average over the past decade.

With the stock correcting, shares of KO look quite intriguing at these levels and analysts agree, as they have an average 12-month price target of roughly $70 implying 24% upside from current levels. You do not see this often with stocks, but the lowest price target is still above the current stock price.

October Stock #3 - McDonald's Corporation ( MCD )

McDonald's is another iconic American company that has seen selling pressure in recent weeks and months. McDonald's operates within the consumer discretionary sector and currently has a market cap of $195 billion. Over the past 12 months, the stock is up 11% and in 2023, shares are flat.

McDonald's might seem like a weird company to include on my list of "Best Stocks To Buy In October 2023" given the gloomy outlook for the broader restaurant sector. After all, high inflation is still here, gas prices have been surging, and student loan repayments are starting back up, which all makes for less discretionary spending on things like eating out.

However, where I see MCD outperforming is not only based on the digitization investments they have made over the years, but also due in part to consumers moving lower down the value scale. Instead of going out to eat at a sit down restaurant, maybe they visit the likes of a McDonald's instead.

McDonald's has also been in the news lately as they recently hiked their royalty fee from 4% to 5% beginning January 1, 2024. This new hike only impacts new store locations. This is the first hike in roughly 30 years.

Although McDonald's is known for their Big Mac and fries, they operate more closely with that of a real estate company. The large majority of their stores are operated by third party franchisees in which the company collects this royalty fee from.

McDonald's is on the cusp of becoming a dividend king, like Coca-Cola, as they have hiked their dividend for 47 consecutive years. The company currently has a 2.3% dividend yield that has been growing at a 5-year CAGR of 8.5%.

Analysts are looking for MCD to generate EPS of $12.40 per share in 2024, which equates to an earnings multiple of 21.3x. This compares favorably to the company's 10-year average of 24.7x.

Analysts have a 12-month price target of $328 on shares of MCD, implying 25% upside from current levels.

October Stock #4 - Prologis, Inc ( PLD )

Prologis, for those of you unaware, is a REIT, or a Real Estate Investment Trust. Prologis is an Industrial REIT, which is a way to play the expected growth within e-commerce.

Prologis currently has a market cap of $105 billion and over the past 12 months the stock has climbed 9%. However, the past month has not been friendly to REITs in general, and PLD shares have fallen 10% over that timespan.

Right now, e-commerce accounts for roughly 15% of all retail sales, but that number is expected to climb, with e-commerce penetrating total retail sales by 1% every year over the next few years.

Whether you are a large retailer or a small online retailer, these companies need technology savvy logistics and warehouse locations, of which, PLD owns the highest quality properties within that category. After all, Amazon is the landlords largest tenant.

Although the commercial real estate sector has been under siege for the past 18 months with rising interest rates, many in the financial sector are looking for a turnaround story in 2024, particularly industrial real estate, so there is no better REIT to invest in than PLD in that sector.

Bank of America ( BAC ) analysts are high on the sector as they pointed to PLD's forecast to keep vacancy rates around 5% combined with a decline of new supply by 35% next year, both things that would be beneficial for Prologis.

Analysts are forecasting AFFO of $4.71 per share in 2024, which equates to an AFFO multiple of 23.6x, which is below the company's 10-year average of 27.5x.

Analysts are very high on the stock as they have a 12-month price target of $145, which implies 30% upside from current levels.

Investor Takeaway

September was a rough month for stocks, but many analysts are calling for a resurgence in earnings during Q4. Given that timing the market is a difficult game to win, I prefer dollar cost averaging into high-quality companies trading at intriguing valuations.

Risks to all of these positions include and economic slowdown leading to a potential recession. The angle here is that all four of these companies would be able to weather any economic headwinds, which is more alluding to the business rather than the stock price. Knowing that, again, we are not calling a bottom here for these stocks but rather calling out the current valuation to which I am comfortable with at current levels.

Buying today does not call a bottom, but as long as I am comfortable with today's valuation, knowing I am a long-term investor, that is how I plan to build wealth over time.

Comment Below: Which of these stocks for October do you like BEST?

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