5 Top Stocks to Buy in October

With the first three quarters of the calendar year in the books, investors are cruising into October, with major indices at all-time highs and a gain of more than 20% year-to-date in S&P 500 and Nasdaq Composite. Go back even further, and the S&P 500 is up 50% since the start of 2023.

Efficiency improvements and artificial intelligence (AI) innovations are sending ripple effects through the stock market — from changing the way legacy companies do business to setting the stage 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. As the cost of capital gets cheaper, there’s reason to believe that consumer spending could get a much-needed boost this fall.

Despite all the momentum heading into October, investors should take a long-term approach. They should only invest in companies that they believe can deliver on promises and navigate the cycle and are worth keeping for at least three to five years. Here’s what five Fool.com contributors chose Berkshire Hathaway (BRK.A -0.93%) (BRK.B -0.81%), Shopify (STORE -1.21%), Albemarle (WHITE 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 pounce on affordable Berkshire stocks

Anders Bylund (Berkshire Hathaway): There’s rarely a bad time to invest in Berkshire Hathaway. Warren Buffett’s insurance-based investment machine almost always seems poised to beat the stock market over the long term.

But you know what Buffett says about prices. They prefer to buy shares in amazing companies at a fair price. This is his secret recipe for keeping business risks low and investor returns high. This wise quote applies perfectly to Berkshire’s stock right now.

The company isn’t putting much money into the market these days. Berkshire’s cash and short-term investment reserves rose to $277 billion, smashing the previous record of $150 billion in fall 2021. More than 21% of Berkshire’s assets are held in cash or liquid government bonds . That’s not quite a record, but it’s the highest ratio seen since the dot-com bubble burst.

That’s exciting for me. 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 down 3% in September. Whether you’re buying high-priced Class A shares or more affordable Class B shares, Berkshire trades at just 14.6 times trailing earnings today.

So Berkshire Hathaway is gearing up for a buying spree in the near to medium future. Meanwhile, the stock is changing hands well below its 10-year average price-to-earnings ratio (P/E) of 21. It’s the best of both worlds — a great company that trades at a great price. Now is an unusually good time to invest in Berkshire Hathaway.

Shop for deals

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

That underperformance shouldn’t last long. Earnings are growing at a faster pace than sales as Shopify benefits from growth in its subscription services and payment processing. Nor is he done reaping the financial rewards from his logistics business spinoff. Gross profit margin improved to 51% of sales in the latest quarter from 49% of sales a year earlier.

Shopify executives are calling for another quarter of growing 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 is valued at more than 13 times sales today. However, for growth stock investors who don’t mind volatility, Shopify looks like a compelling long-term buy.

Buy this stock while you still have time

Neha Chamaria (Albemarle): 2024 has been a rough year for Albemarle shares — down 50% and hitting 52-week lows by mid-August. Although the lithium stock has recovered since then, it is still down about 45% this year as of this writing. I still think the selloff is overdone and an opportunity to buy a magnificent value stock that could rise when its end markets recover.

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

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

When business cycles turn, Albemarle could become one of the fastest-growing stocks in the industry given its outlook and financial discipline. The company has also raised its dividend for 30 consecutive years. With recent industry developments renewing hope for a rally in lithium prices, now is the time to load up on Albemarle stock.

A homerun for house 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 rates are falling. If you think this is great news for home builders, you’re right. It’s especially great for the largest US homebuilder by volume — DR Horton.

Shares in DR Horton are up 25% year to date. However, this nice gain has come since July, when anticipation of a future interest rate cut began 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 rate environment of the past few years. However, the company had to offer incentives, such as mortgage buybacks, to make the homes it built more affordable. Management expects the Fed’s rate cut to allow it to reduce its use of stimulus to some extent, which would improve profitability.

While rate cuts serve as a short-term catalyst for DR Horton, there is an even more important long-term tailwind for the stock. The US continues to face a major housing shortage. Zillow estimates that the country needs another 4.5 million homes.

Finally, November’s US election could provide another spark for DR Horton. Vice President Kamala Harris has proposed tax incentives for homebuilders who sell homes to first-time homebuyers. If he wins the presidential election, DR Horton’s stock could rise even higher.

Chevron and its growing dividend are built to last

Daniel Foelber (Chevron): West Texas Intermediate crude prices — the U.S. benchmark — fell below $70 a barrel, the lowest level since 2024. The sell-off is dragging down the energy sector, including big names like Chevron, which is now below 9% away to a 52-week low.

Chevron significantly underperformed its US peer, ExxonMobilin 2024 due to uncertainties regarding the acquisition of the exploration and production company Hess. Chevron and ExxonMobil both announced successful acquisitions in October 2023 to bolster their cash flows and boost oil and gas production. ExxonMobil closed its deal in May, but Chevron has been caught up in a series of challenges that have prevented the deal from closing.

On September 30, Chevron got some good news: The Federal Trade Commission completed its antitrust review and concluded that the Hess deal could go ahead, provided Hess CEO John Hess was not appointed to Chevron’s board (but can 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, not really need the business to follow. Chevron has a very efficient portfolio and can generate plenty of cash flow to cover its dividends and capital expenditures, even at lower oil prices. It also has an excellent balance sheet with very little debt given Chevron’s size.

Chevron has paid and raised its dividend for 37 consecutive years, meaning it has raised its dividend even in years when growth slowed or it reported a net loss. Chevron has achieved this performance because it invests throughout the cycle and does not structure its business to depend 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 downturn.

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

CVX Total Long Term (Quarterly) data by YCharts.

Chevron remains one of the well-rounded buys in the oil space. With a dividend yield of 4.5%, it stands out as an excellent buy for passive income investors in October.