Winning November to Make Up for a Spooky October: 5 Picks

October has been a rocky month for equity investors. Fears of a longer trade spat between the United States and China along with rising interest rates are anticipated to show on corporate earnings.

But, economic growth is on track for a mind-boggling year that could come teasingly close to a 13-year milestone. This should certainly lift corporate earnings, leading to an uptick in share prices this November. Lest we forget, the stock market has, historically, witnessed the best stretch of growth from this month till spring.

Given the positives, investing in solid stocks that can make the most of a heartening November seems prudent.

October Marks Worst Month for Stocks in 7 Years

After hitting milestones in September, the stock market came to a sudden halt in October. The broader S&P 500 shed 6.9% and saw its steepest monthly decline since September 2011. The S&P 500, in fact, narrowly escaped ending up in the correction territory on Oct 29. The index is now down 7.5% from its all-time high reached on Sep 20.

The Dow Jones also recorded its biggest monthly drop since January 2016, while the Nasdaq Composite saw its worst monthly fall since November 2008. The tech-heavy index entered the correction territory for a brief period last month before recouping some of the losses this week.

So, what had spooked the markets last month? The United States and China have been imposing tariffs on each other’s products, driving costs for companies and eventually dampening profits. On top of that, a rapidly rise in benchmark bond yield fueled fears that the profit margins of U.S. corporates will get hurt by steeper borrowing costs.

Needless to say, the quarterly results of bigwigs like Amazon.com, Inc. AMZN, AT&T Inc. T and Alphabet Inc. GOOGL fell short of expectations. And some executives have cautioned that rising costs of essential commodities could further weigh on earnings in the near term.

Stocks Likely to Bounce Back in November

Let’s, however, admit that concerns related to corporate earnings were overblown. After all, total Q3 earnings are estimated to improve 23.2% from the same period last year on 7.6% higher revenues. Thus, earnings growth is expected in the double-digit territory for the sixth time in the last seven quarters. In fact, earnings for the 313 S&P 500 members that have reported results are up 22.7% from the same period last year on 8.4% higher revenues, with 78% beating earnings estimates and 62.6% surpassing the revenue mark (read more: 3 Takeaways from the Q3 Earnings Season).

Earnings are largely improving on healthy economic growth and this should help the stock market get back on track. In the last two quarters, the U.S. economy recorded the fastest six-month growth in four years and is on track to hit the Trump administration’s annual growth target of 3%. If that happens, it would be the best yearly performance since 2005, two years before the Great Recession.

The U.S. economy got a boost in the third quarter, with GDP increasing at an annualized pace of 3.5%, per the U.S. Commerce Department. In fact, the country’s total output of goods and services followed an even stronger 4.2% growth in the second quarter.

Midterm Elections Spells Good Times for Stocks

Midterm elections, by the way, are expected to provide some additional steam to the market. The stock market’s gain in the six months following a midterm election in the third year of a given term of a presidency, which is currently scheduled for Nov 6, has been quite impressive. During this period, the S&P 500 and the Dow Jones have gained an average 15.3% and 12%, respectively.

The stock market also, historically, gains in the November-through-May period, or the so-called “winter” months, while markets have been more or less flat during the “summer” months (May-October). For instance, the Dow Jones has registered an average gain of 7.5% during the November-April period, while the blue-chip index yielded a meager 0.3% in the May-October period.

5 Top Stocks to Buy in November

With November all set to dispel the darkness of October, investing in fundamentally sound stocks that are poised to gain in the near term seems judicious. We have selected five such stocks that flaunt a Zacks Rank #1 (Strong Buy).

Such stocks also boast of a VGM Score of A. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.

Archer-Daniels-Midland Company ADM procures, transports, stores, processes, and merchandises agricultural commodities, products, and ingredients in the United States. The Zacks Consensus Estimate for its current-year earnings has increased 0.9% in the last 60 days. The company’s expected earnings growth rate for the current year is 41.6% compared with the Agriculture - Operations industry’s projected rise of 36.6%. The stock has outperformed the broader industry so far this year (+17.9% vs +5.9%).

Best Buy Co., Inc. BBY operates as a retailer of technology products, services, and solutions in the United States. The Zacks Consensus Estimate for its current-year earnings has increased almost 2% in the last 90 days. The company’s expected earnings growth rate for the current year is 15.6% compared with the Retail - Consumer Electronics industry’s projected rise of 8.2%. The stock has outperformed the broader industry so far this year (+2.5% vs 0%).

Heidrick & Struggles International, Inc. HSII provides executive search, culture shaping, and leadership consulting services on a retained basis to businesses and business leaders in the Americas. The Zacks Consensus Estimate for its current-year earnings has increased 3.6% in the last 90 days. The company’s expected earnings growth rate for the current year is 84.4% compared with the Staffing Firms industry’s projected rise of 22.3%. The stock has outperformed the broader industry so far this year (+40.6% vs -4.3%).

Amedisys, Inc. AMED provides healthcare services in the United States. The Zacks Consensus Estimate for its current-year earnings has increased 1.5% in the last 60 days. The company’s expected earnings growth rate for the current year is 54.3% compared with the Medical - Outpatient and Home Healthcare industry’s estimated rise of 16.7%. The stock has outperformed the broader industry so far this year (+108.6% vs -5.1%).

RH RH operates as a retailer in the home furnishings. The Zacks Consensus Estimate for its current-year earnings has risen 14.7% in the last 60 days. The company’s expected earnings growth rate for the current year is 150.2% compared with the Retail - Home Furnishings industry’s projected rise of 13.4%. The stock has outperformed the broader industry so far this year (+34.2% vs -14.2%).