3 Large-Cap Stocks to Buy in October
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Small-cap stocks might lure you with their growth potential, but they don't come with the safety that a large-cap stock can offer. With market capitalizations above $5 billion, these are typically well-known companies that have established themselves in their respective industries.
Of course, picking the right stocks isn't as easy as choosing the ones with the biggest market cap. We asked three of our Fool contributors to share one large-cap stock that they believe is a compelling buy today. We've got some really interesting names here: Alphabet, Sherwin-Williams and Priceline.
Jamal Carnette:For many businesses, October represents a transition from the lazy days of summer into the critically important fourth quarter. Not surprisingly, companies and brands substantially increase marketing during this heavy shopping period. In this environment, search and advertising giant Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) is poised to outperform.
Alphabet is benefiting from a broad shift to digital marketing. Earlier this year, market research company eMarketer forecast that digital marketing would surpass television marketing in total U.S. ad spend in 2017, as many brands are spending big on mobileadvertising. The biggest beneficiaries of this reallocation of digital marketing dollars, including into the high-growth mobile arena, are Alphabet andFacebook. Combined, they raked in nearly 50% of all digital marketingdollarslast year, according to eMarketer.
In the short term, Alphabet could benefit from an unforced error on the part of the social media giant.The Wall Street Journal reported recently that Facebook had provided inflated average viewing times for its video ads. Ad agency Publicis Media thinks it exaggerated viewing times by 60% to 80%. This could spell trouble for Facebook, considering average viewing time is a key part of the engagement metric, and engagement is what digital advertisers pay dearly for.
In the long run, I expect this will come to be viewed as a minor misstep by Facebook, not a thesis-altering event. For the fourth quarter, however, ad agencies on the fence about advertising on Alphabet or Facebook will most likely shift some spend to the former until the social media giant re-establishes that it's trustworthy. The combination of long-term industry shifts and any stumbles by its biggest competitor should help Alphabet top expectations in the upcoming quarters and it looks like a large-cap stock worth buying now.
Time to paint your portfolio
Neha Chamaria: The 8% drop in Sherwin-Williams' (NYSE: SHW) stock in the past couple of months is a classic example of the market failing to see the bigger picture beyond quarterly earnings headlines. The paint and coatings maker missed analysts' revenue and profit estimates in the second quarter, but delivered where it matters: same-store sales and growth plans.
Same-store sales is an important metric for retailers -- especially those in expansion mode -- as it reflects only the sales that a company generates from stores that have been open for more than a year.Sherwin-Williams' same-store sales improved 5% and 7% year over year in Q2 and the first half of the year, respectively, meaning it is doing brisk business at existing stores, not banking on new stores to drive revenue growth. That validates Sherwin-Williams' brand power and foothold in the industry, which is only likely to strengthen further once it acquires Valspar in a deal expected to close early next year. The acquisition is expected to be immediately accretive to Sherwin-Williams' earnings, give it a huge headway in markets outside the U.S., and secure its position as the dominant player in the industry.
Given the growth prospects, there's no reason Sherwin-Williams shouldn't be able to drive its margins, cash flows, and shareholder returns higher in coming years. Its dividend streak is more than impressive already, as the chart below illustrates.
Sherwin-Williams' dividend history. Source: Company financial overview presentation, May 2016
Sherwin-Williams' dividend yield of 1.2% might not be as impressive, but you can count on the company to raise its payouts. The stock's recent drop is giving you just the right opportunity to get in.
High quality, reasonable price
Brian Feroldi:With the markets trading at frothy valuations, I think it is wise for investors to double down on quality when they are searching for stocks to buy. One stock that I think is as about as high-quality as they come is The Priceline Group (NASDAQ: PCLN).
Your hunch might be to think that Priceline is just another "me too" travel site, but you'd be wrong. This company actually runs a collection of industry-leading brands including Kayak.com, Rentalcars.com, and Opentable.com, but its crown jewel is Booking.com.
Image Source: Priceline Investor presentation, September 2016
Booking.com is the leading player in online travel in Europe, which gives it a huge leg up over rivals. The reason is that the European hotel market is very fragmented, and many hotels are run by individual owners. That means that they lack the expertise and scale tomarket their hotel to online travelers, so they've happily signed on to Booking.com's platform to help fill rooms.
This is a win-win relationship, and since Booking.com was the first mover in Europe, it has built out a massive network of properties. That makes it the go-to site for millions of travelers who want the biggest selection of hotels, which in turn attracts more properties. That's a powerful network effect that helps keep competitors at bay.
Booking.com's success is a big reason why Priceline Group's profits have grown so quickly. Over the last five years,profits have compounded at more than 20% annually. Better yet, analysts are currently projecting more than 16% growth annually over the next five years, which is a number I think is achievable.
Priceline's forward P/E ratio of 18 might not seem "cheap," but I'd say that's a fair price to pay for a wonderful business that is poised for prosperity.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Brian Feroldi owns shares of GOOG, GOOGL, FB, and PCLN. Jamal Carnette owns shares of GOOG and FB. Neha Chamaria has no position in any stocks mentioned. The Motley Fool owns shares of and recommends GOOG, GOOGL, FB, and PCLN. The Motley Fool recommends SHW. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.