Top 5 Stocks October 2024

Good Evening! 👋

October is here, and we’ve got our eyes on some top stocks that could make big moves this month. From tech giants to energy leaders, these are the companies to watch as the market shifts in the final quarter of 2024. Let’s dive into the opportunities!

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Before we discuss the specific stocks on our radar this month, let me clarify one thing: just because these stocks made the list doesn’t mean they’ll explode in October.

We aim to identify strong, financially sound companies that show long-term value. The whole point of this specific newsletter is to help you identify companies for your watch list.

However, at the end of this newsletter, we do put two stocks that have a chance to move in the short term.

In our monthly deep dives, we cover companies in much greater detail.

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But for now, we’re using two key metrics as a quick "cheat sheet" to help us build our watch list:

Return on Invested Capital (ROIC) of 25% or higher and a Price-to-Earnings (P/E) ratio below 20.

Why We Focus on ROIC and P/E To Build A WatchList

ROIC and P/E are powerful metrics that help us assess how efficiently a company is using its capital and whether it’s trading at a fair price relative to its earnings. These indicators give us a snapshot of the company’s financial health and potential for long-term growth.

• ROIC (Return on Invested Capital) shows how much profit a company generates for every dollar it invests back into its business. A higher ROIC, like the 25%+ we’re looking for, indicates the company is efficiently using its resources to generate strong profits. Let’s say Company A has an ROIC of 30%. This means for every $1 the company invests, it earns 30 cents in profit. Compare this to Company B, which has an ROIC of 10%, earning only 10 cents on the dollar. Naturally, we prefer companies that make the most of their investments just like we do with our own portfolios.

• P/E ratio compares a company’s stock price to its earnings. A P/E ratio under 20 suggests the stock may be undervalued, which means there could be more upside potential compared to its earnings. It’s not a guaranteed signal, but it helps us identify stocks trading at a discount. Now, let’s look at the P/E ratio. If Stock X has a P/E of 15, that means investors are paying $15 for every $1 of earnings the company generates. If another stock in the same industry has a P/E of 25, investors are paying significantly more for the same level of earnings. By targeting stocks with a P/E under 20, we aim to find companies that are trading at a discount relative to their peers.

1. GoDaddy ($GDDY)

ROIC: 30% | P/E: 12x

GoDaddy is a name you probably know, especially if you’ve ever thought about starting a website. While most people recognize them as a domain registrar, that’s just the tip of the iceberg. Their bread and butter comes from selling domain names, web hosting, and website-building services to small businesses and entrepreneurs. But GoDaddy has expanded beyond just being a place to get a website. They now offer digital marketing tools, online storefronts, and business email services. This makes them a key player for any small business looking to establish an online presence. They face competition from companies like Wix and Squarespace, but GoDaddy’s strength lies in its deep integration across multiple services, making it a one-stop shop for small business owners.

2. Molina Healthcare ($MOH)

ROIC: 39% | P/E: 18x

Molina Healthcare isn’t a company you’ll see advertised on prime-time TV, but it plays a crucial role in the healthcare sector. Molina primarily provides managed healthcare services for Medicaid and Medicare beneficiaries. Essentially, they make money by managing government-sponsored health plans. With the rising demand for affordable healthcare and the growing number of people relying on Medicaid and Medicare, Molina is in a strong position to keep growing. They compete with other major health insurers like Centene and Anthem, but what sets Molina apart is its focus on managing lower-income populations, giving them a niche that’s critical in the healthcare space.

3. Ulta Beauty ($ULTA)

ROIC: 30% | P/E: 16x

Ulta Beauty is more than just a store—it’s a beauty destination. They sell everything from drugstore makeup to high-end skincare, and they’ve turned their stores into one-stop shops for beauty products and salon services. This business model attracts not only customers looking for a variety of price points but also those who want the convenience of getting beauty services like haircuts or facials in-store. Their loyalty program, Ultamate Rewards, has been a key driver in retaining customers and boosting sales. Ulta competes with retailers like Sephora and department stores, but their unique blend of affordable products and premium beauty services gives them a competitive edge.

4. FMC Corporation ($FMC)

ROIC: 105% | P/E: 5x

FMC Corporation may fly under the radar, but they’re a major agricultural and chemical industry player. They generate revenue by producing crop protection products—think pesticides and herbicides that help farmers protect their crops and increase yields. With the global population rising and the demand for food increasing, FMC is positioned to play a vital role in feeding the world. Their main competitors include Bayer CropScience and Corteva, but FMC’s focus on innovation and its wide range of products keeps them competitive. Agriculture might not be glamorous, but it’s critical, and FMC’s products are an essential part of the supply chain.

5. Vector Group ($VGR)

ROIC: 48% | P/E: 11x

Vector Group is a bit of an unusual company with two distinct revenue streams: tobacco and real estate. Through their subsidiary, Liggett Group, they’ve been selling cigarettes for decades. On the other side of the business, they own Douglas Elliman, a luxury real estate brokerage. This mix of industries makes Vector an interesting company to watch. While their tobacco segment provides steady cash flow, the real estate side has benefited from the boom in luxury properties, especially in cities like New York and Miami. Competitors in the tobacco industry include giants like Altria, but in the real estate world, they’re up against big-name brokerages like Sotheby’s and Compass.

Stocks with Upcoming Catalysts

In addition to the value picks we’ve already discussed, let’s take a look at two stocks that have significant upcoming catalysts. These companies could see major movement due to external events in the market, making them worth keeping a close eye on.

1. Marathon Digital ($MARA)

Marathon Digital is one of the largest Bitcoin miners in the world, and their performance is heavily tied to the price of Bitcoin. As a miner, Marathon earns revenue by validating Bitcoin transactions and adding them to the blockchain, receiving newly minted Bitcoin as a reward. This means that the higher Bitcoin’s price goes, the more valuable Marathon’s mining rewards become.

The catalyst here? We’re coming off the Bitcoin halving that occurred in May 2024. Historically, Bitcoin enters a bull run about six months after a halving, and we’re nearing that timeline. The end of October often marks the beginning of a significant price surge in Bitcoin, as reduced supply due to the halving drives up demand. If Bitcoin begins to rally, you can bet that Marathon Digital will follow suit. For investors who believe in the next Bitcoin bull run, MARA could be a strong stock to watch.

2. Devon Energy ($DVN)

Devon Energy is an oil and gas company that makes its money by producing and selling crude oil and natural gas. The more oil prices rise, the more Devon benefits, and right now, there’s a major catalyst brewing in the Middle East. Tensions between Iran and Israel have escalated, and Iran has recently made threats to strike Israel’s oil refineries. If this happens, the global oil supply could take a hit, causing oil prices to soar.

Devon, like many energy companies, thrives when oil prices are high, as it boosts their profit margins. With geopolitical tensions on the rise and the potential for oil supply disruptions, Devon Energy is one stock that could see significant upside if the situation escalates further. While no one can predict the outcome, monitoring the situation between Iran and Israel could offer insights into where oil prices—and Devon’s stock—are headed.

Talk to you on Sunday!

Cheers,

The Bean Team

Disclosure

The author of this research article owns stock in Marathon Digital Holdings, which may create a conflict of interest. Additionally, a principal owner of our company also holds a position in Marathon Digital Holdings. We are disclosing these relationships to comply with all applicable disclosure obligations, including those mandated by the SEC, and to ensure full transparency so readers are aware of potential biases that could influence the analysis presented in this article.

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