Top Investment Options to Consider in November
2024 continues to be a prosperous year for significant indexes like the *S&P 500 (^GSPC^* 0.89%), currently up by 20% year to date. Some investors might choose to capitalize on the ongoing upward trend by investing in the current market leaders, while others might be looking for more appealing deals or income generation opportunities.
Microsoft (MSFT 1.35%), Coca-Cola (KO 0.91%), and Roku (ROKU 2.26%) have experienced a decline in stock prices following their earnings reports. Meanwhile, Vertex Pharmaceuticals (VRTX -0.79%) has maintained its exceptional performance throughout the year, and Chinese electric vehicle (EV) manufacturer BYD (BYDDY -0.41%) has become one of the best-performing automakers.
Here's why these five companies caught the attention of five Fool.com contributors as their top investment picks for November:
Microsoft is a hidden gem
*Daniel Foelber* (Microsoft): Although Microsoft may seem inexpensive according to traditional valuation metrics, it presents significant value considering its solid earnings performance and the several ways it rewards shareholders.
In light of a record fiscal 2024 earnings, investors anticipated a strong first-quarter fiscal 2025 report from Microsoft. And the company delivered, as its sales and earnings surpassed Wall Street projections. However, the stock dropped by 6.1% on October 31 due to the warnings for Intelligent Cloud and Azure growth, which suggested that growth might slow.
Intelligent Cloud significantly contributes to Microsoft's enhanced profit margins and top-line growth rate. The potential slowing growth, coupled with increased capital expenditures for artificial intelligence investments that may take years to recoup, led to a mass exodus of short-term-focused investors.
Yet, even with more expenditures, Microsoft continues to grow revenue and earnings at double-digit rates. The company is returning substantial amounts of capital to its shareholders through dividends and share buybacks and is not achieving growth by incurring debt but instead using its profits to reinvest in the business. As a result, its balance sheet remains extremely robust – finishing the quarter with $78.43 billion in cash, cash equivalents, and short-term investments compared to only $42.87 billion in long-term debt.
The positive results, coupled with the decline in Microsoft stock, have brought its price-to-earnings ratio down to just 33.9, which is around the median P/E average of the past five years. As Microsoft has significantly improved as a business compared to in previous years, the valuation now appears more than reasonable.
In summary, Microsoft is an excellent blue chip growth stock to invest in during November.
Profits are increasing
*Demitri Kalogeropoulos* (Coca-Cola): With the festive red Christmas packaging already visible in stores, it's not too late to consider Coca-Cola stock as a promising investment for 2024 and beyond. Several indicators from the late-October earnings report suggest even brighter days ahead for this dominant beverage titan.
Sales for the Q3 period, running until late September, jumped by 9%, with strong growth in both the U.S. and Latin American markets. Consumers show no signs of abandoning the company due to price increases. The 9% sales growth encompassed a 11% increase in prices and a marginal 1% decline in volume. The gains highlight Coke's brand recognition, as customers prefer its products even amid tightening budgets.
"Our business keeps demonstrating resilience in the face of a dynamic external environment," CEO James Quincey mentioned. Coke managed to increase its market share, despite a slight reduction in sales volume.
The financial results were equally impressive. Coke achieved a 31% operating profit margin, up from 30% the previous year. This performance compares favorably to competitors such as PepsiCo, which are grappling with more price-sensitive shoppers in the snack food segment.
But why consider Coke stock now? Shares were priced at 6 times sales in late October, roughly in the middle of its average trading range over the last few years. Investors could have bought the stock at 5 times sales at the end of 2023, but the valuation also reached 7 times sales at multiple points in 2021 and 2022.
Stock growth might slow in 2025 as the growth from price increases fades. However, this risk is balanced against Coke's market share gains, high profit margin, and a dividend that currently yields 3%. Therefore, for most dividend investors seeking a balance between growth and income, Coke remains an attractive option.
In conclusion, the mid-market valuation and promising growth make Coke an appealing option for many investors.
Roku stock offers an appealing entry point
*Anders Bylund* (Roku): Media-streaming technology leader Roku is widely perceived as a Wall Street secret. The company consistently performs well, and pessimistic investors continue to find reasons to keep the stock price in check.
Roku's stock momentum increasing from early August to late October was largely driven by the company's bullish second-quarter report and positive analyst assessments. The bears reemerged when Roku released another strong earnings report last week.
Roku exceeded Wall Street's consensus earnings estimates, reaching near-break-even earnings after several years of losses. Revenues also surpassed expectations, with dramatic growth in the platform segment that includes software licensing, ad sales, and subscription fees obtained through the Roku platform.
When examining this company, one cannot ignore its appeal despite the hesitancy of some investors. Wealth creation does not happen overnight, and investing in Roku now might yield significant profits in the future. The negativity surrounding this stock also creates an appealing entry point for those looking to invest in a promising company.
Ad revenue is surging, largely due to a recently established partnership with The Trade Desk. Roku's digital payment service is bringing in substantial earnings and assisting streaming services in boosting their subscriber numbers. However, Roku's shares took a nosedive the following day as investors zeroed in on more reserved fourth-quarter forecasts and revised key performance indicators.
A deeper analysis is necessary to fully grasp the guidance issue. Three months earlier, Roku had anticipated that the growth rate of its platform segment would accelerate in the fourth quarter. The third-quarter results, however, did not revise this projection, suggesting a 14% annual growth rate for the platform division's fourth-quarter revenue -- the same rate reported in the previous quarter and far from the anticipated acceleration.
This critical observation, unfortunately, overlooks an essential aspect. Although the platform sales growth from Q3 to Q4 may not be as pronounced as earlier projected, the third-quarter results had already achieved the planned growth surge, three months ahead of schedule.
In conclusion, Roku successfully advanced the growth timeline in its most profitable business segment. This development, however, was met with a negative response from pessimistic investors. To my perspective, the negative sentiment is unwarranted.
In addition, there was criticism regarding changes in fundamental metrics. Roku will cease disclosing subscriber counts and average revenue per user (ARPU) by 2025, instead focusing on streaming hours, platform revenue, adjusted EBITDA, and free cash flow in its financial reports.
This alteration in core metrics is reminiscent of a similar shift undertaken by Netflix in 2022. At that time, Netflix, a prominent video-streaming service and former parent company of Roku, revised its financial reporting and business model from pursuing maximum subscriber growth to prioritizing profitable revenue gains. This shift was opposed at the time; many investors grumbled when Netflix halted providing predictions for subscriber growth.
Netflix's new reporting arrangement, however, didn't hinder its growth trajectory. If an investor had purchased Netflix stock during the summer of 2022, they would have more than tripled their investment by now. Roku, though not following in Netflix's footsteps explicitly, is following a similar course.
In summary, Roku seems to have been unfairly penalized; rather, it should have experienced a significant price surge. This scenario suggests that Roku is an attractive investment opportunity at present.
A dependable biotech stock
Keith Speights (Vertex Pharmaceuticals):
Though many stocks are currently overvalued as the stock market approaches record highs, the incoming administration adds an element of uncertainty for the future. In such circumstances, it's wise for investors to focus on high-conviction stocks. Vertex Pharmaceuticals fits this description for me.
Vertex is the sole company marketing authorized therapies that target the fundamental cause of a rare genetic disorder called cystic fibrosis (CF). The corporation estimates generating revenue of approximately $10.8 billion this year. I anticipate robust revenue expansion over the next decade.
Vertex has recently obtained regulatory approval for Casgevy, a single-dose treatment for uncommon blood disorders such as sickle cell disease and transfusion-dependent beta-thalassemia. The company is actively promoting this new treatment.
Two additional growth drivers are in the pipeline. The U.S. Food and Drug Administration plans to make a decision on Vertex's vanzacaftor triple-drug CF combo by January 2, 2025. An approval for suzetrigine, a non-opioid therapy for moderate to severe acute pain, is scheduled for January 30, 2025. I believe both drugs have the potential to become blockbuster medications.
Vertex's pipeline includes two more late-stage candidates that could potentially bring in substantial earnings. Vertex is investigating inaxaplin in a phase 3 clinical trial aimed at APOL1-mediated kidney disease (AMKD). There are currently no approved treatments for AMKD, providing a larger market opportunity for Vertex than CF. Vertex is also investigating povetacicept in a phase 3 study targeting IgA nephropathy, a kidney disease affecting around 130,000 patients in the U.S. alone - surpassing the global CF patient population.
At first glance, Vertex might appear pricy with shares trading at 25.6 times forward earnings. However, its robust growth prospects make this biotech stock an attractive investment in my opinion.
A risingEV stock
Neha Chamaria (BYD):
The monthly sales figures for electric vehicles (EVs) have been released, and one company is leading the market with unparalleled success. China's BYD, in fact, recently surpassed Tesla in revenue for the first time ever. This could be just the beginning of BYD's dominance.
Notwithstanding the apparent global EV market slowdown, BYD reported five consecutive months of record deliveries in October, surpassing 500,000 sales units of new energy vehicles (NEVs) for the first time. NEV sales increased by 66.5% annually. NEVs encompass battery-electric vehicles, fuel-cell EVs, and plug-in hybrids. In just three quarters, BYD generated $28.2 billion in revenue, surpassing Tesla's Q3 revenue of about $25.2 billion.
These figures highlight BYD's immense size and scale of operations. It is currently the largest NEV manufacturer in China, has expansive operations in North America, Europe, and Asia, and also ranks as the second-largest EV battery manufacturer worldwide. In-house battery production has been instrumental in allowing BYD to navigate the high costs and supply constraints that have affected several EV manufacturers, even resulting in record profits during Q3.
Besides various passenger vehicle models, BYD also manufactures commercial vehicles such as buses and pickup trucks, maintaining production facilities across various global locations. As BYD continues to post impressive sales figures month after month, broaden its international reach, and strengthen its internal competencies, this electric vehicle (EV) share could be an excellent investment for the future.
While some investors are cautious about Microsoft's stock due to potential slowing growth, its strong financial performance and return to shareholders make it an attractive blue chip growth stock for November. The company's record fiscal 2024 earnings and robust balance sheet, as well as its reduced price-to-earnings ratio, offer a reasonable valuation for its growth potential.
Despite some price sensitivity among consumers, Coca-Cola's sales growth of 9% in Q3, strong market share, and high profit margin suggest it remains an attractive option for dividend investors seeking a balance between growth and income. With a mid-market valuation and promising growth, Coca-Cola could be a promising investment for 2024 and beyond.
