The 7 Best Stocks to Buy Now
Looking for the best stocks to buy for November is akin to finding a needle in a haystack. There are so many possibilities that it’s hard to pick just seven stocks.
While the markets are down significantly in 2022, the S&P 500 is coming off one of its best months of the year, with the index gaining nearly 8% in October. As far as I know, in 2022, only July, when the S&P rose 9.1%, was a better month for the index in 2022.
A little more than halfway through November, the index has carried on where it left off, as it was up 3.2% for the month as of yesterday’s close.
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Can you say, “rally?”
The seven best stocks to buy in November are companies whose businesses are performing well but have yet to be rewarded by investors for their excellent work.
The seven names are from seven sectors. Each of the stocks is trading at a reasonable price-sales ratio and has a return on invested capital of 15% or higher.
Here are my seven best stocks to buy for November 2022.
Williams-Sonoma | $127 | |
Alphabet | $99,$98.90 | |
Diamondback Energy | $159 | |
Molina Healthcare | $313 | |
Nucor | $141.60 | |
Marcus & Millichap | $37.20 | |
Medifast | $119 |
Williams-Sonoma (WSM)
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One company that has managed to avoid the weakness of e-commerce businesses is Williams-Sonoma (NYSE:WSM), the home furnishing and kitchenware retailer. Like most stocks, WSM hasn’t fared well in 2022, as it’s down 24% in 2022.
To make matters worse, Jefferies analyst Jonathan Matuszewski downgraded the company in late October to an “underperform” rating from “hold,” as he thinks that furniture spending among the upper-middle class may come to a screeching halt in the event of a recession. As a result, WSM’s revenues and profits will fall, the analyst predicted.
“Based on these prior recessions, going forward, we believe it’s not unreasonable to expect the furniture spend for WSM ’s core demographic to decline in the [mid-single digit percentage] range next year,” Barron’s reported the analyst as saying in his Oct. 24 research note.
Worse still, he cut his target on WSM by $60 to $100.
Is the analyst right?
Williams-Sonoma’s revenues dropped 15% from $3.94 billion in 2007 to $3.36 billion in 2008, a 14.8% decline YOY. They fell again in 2009, before rebounding by 12.9% in 2010.
So there’s a risk that the company’s business will be hurt by a recession. However, keep in mind that its gross margins today are close to the mid-40s. Before the Great Financial Crisis, the highest they got was 39.9% in 2006.
Buy some WSM stock and then buy more shares if it falls into the low $100s or high double digits. Over the long term, its CEO, Laura Alber, has always delivered the goods.
Alphabet (GOOG,GOOGL)
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The 47 analysts who cover Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) have an average rating of “buy” on the shares, and their median target price on the name is $126.11. Its return on invested capital is 23.68%, while its price–sales ratio is 4.51, The latter ratio is 31% lower than the five-year average of GOOG stock.
Before describing the positive aspects of Alphabet, I will note that UK-based investor TCI Fund Management Ltd. yesterday disclosed its open letter to Alphabet CEO Sundar Pichai. In the document, TCI requested that the company cut jobs and reduce the amount it spends on its employees. TCI believes that Alphabet has unnecessarily grown its headcount by an average of 20% annually over the past five years.
Alphabet’s shares rose on the news. Sometimes it’s good to have an activist investor applying a little pressure on a company’s management.
On a positive note, YouTube appointed Leo Olebe as its head of gaming in October after an eight-month search. Olebe was most recently Google Play’s head of games partnerships. Olebe has more than 20 years of experience in the gaming industry.
Gaming is a big part of YouTube.
In Q2 , consumers spent 1.13 billion hours on YouTube Gaming. YouTube as a whole generated more than $28 billion of revenue for Alphabet in 2021, up from $1.3 billion a decade ago.
Since YouTube launched YouTube Premium in 2018, the latter service’s annual subscriber base jumped fivefold to 50 million in 2021. The hiring of Olebe should keep YouTube on the path to greater revenues and profits, helping to lift GOOG stock in the process.
Diamondback Energy (FANG)
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The 32 analysts who cover Diamondback Energy (NASDAQ:FANG) have an average rating of “buy” on the company, and their average price target on the name is $180.37. Its return on invested capital is 23.76%, while its price-sales ratio is 3.02, The latter ratio is 35% lower than the five-year average for FANG.
Diamondback is one of the biggest independent oil and natural gas companies operating in the Permian Basin in West Texas. FANG and FANG stock are both on a roll.
On Oct. 11, the company announced that it would buy Firebird Energy LLC for $1.6 billion of cash ($775 million) and stock (5.86 million shares). Firebird has more than 350 locations that are adjacent to Diamondback’s holdings in Midland, Texas. The purchase adds more than a decade of oil inventories to Diamondback’s assets.
Firebird’s properties generate 22,000 barrels of oil equivalent per day. The latter metric is expected to increase by nearly 3,000 barrels in 2023.
FANG generated $1.2 billion of free cash flow in Q3 and $3.2 billion of free cash flow in the 12 months that ended on Sept. 30. In Q3, it declared a permanent cash dividend of 75 cents a share. It also announced a special cash dividend of $1.51 a share. Its current dividend of $2.26 yields 9.2%.
In addition to paying out $526 million of dividends to shareholders in Q3, it also repurchased $472 million of its own stock.
FANG Stock is up nearly 50% in 2022.
Molina Healthcare (MOH)
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On Molina Healthcare’s (NYSE:MOH) Q2 earnings conference call, CEO Joe Zubretsky announced that all of MOH’s employees would permanently work from home. As a result, it is reducing its real estate footprint by approximately two-thirds. The move will lower its general and administrative expenses in the years ahead.
Molina Healthcare provides Medicaid and Medicare healthcare plans to lower-income individuals through state insurance marketplaces. At the end of September, it had 5.2 million members, 7% higher than in June 2021.
The company continues implementing a turnaround strategy that includes acquiring smaller healthcare plans. In the first nine months of 2022, Molina’s profit, excluding some items, climbed 30% to $808 million versus the same period a year earlier. For all of 2022, it expects earnings of $17.75 a share.
In May, I identified Molina as a blue-chip stock to buy for safety. MOH stock is flat since then. More importantly, since hitting a 52-week low of $249.78 in mid-June, it’s up nearly 25%.
The 16 analysts who cover Molina have an average rating of “overweight” on it, and an average target price of $367.53. Its return on invested capital is 17.93%, while its price-sales ratio is 0.59, which is in-line with its five-year average.
Nucor (NUE)
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I’ve admired Nucor (NYSE:NUE), a North Carolina-based steel producer for some time. In March, I recommended NUE, along with nine other S&P 500 stocks to buy. I also recommended NUE’s shares in September 2021 because I thought they were down, but not out.
While the past year has been a rollercoaster ride for Nucor’s shareholders, the stock’s performance has been very positive. In the last 12 month, the shares are up 29% compared to the 15% decline of the S&P 500 index. In the month that ended yesterday, NUE was up 18%, more than double the return of the S&P 500.
In mid-September, the company’s shares tumbled after it announced that its Q3 profits would be significantly below analysts’ average estimates and lower than those in the previous quarter. Within a couple of weeks, its shares fell to $100.
When Nucor reported its Q3 results on Oct. 20, they were better than the company’s September guidance, with its earnings per share coming in at $6.50, 10 cents above the high end of its guidance range.
“Nucor has already achieved a record-breaking year for earnings per share through the first nine months of 2022 and we continue to believe that we will set a new record for full-year earnings in 2022,” the firm stated in its Oct. 20 press release.
The analysts aren’t sold on Nue. The 13 analysts who cover Nucor have a “hold” rating on it, and their average price target is $131.92, below where it is currently trading. Its return on invested capital is 40.03%, while its price-sales ratio is 0.89, in-line with the company’s five-year average.
There is no question that Nucor’s results will not be as good in 2023 as they were in 2022. Nucor’s return on invested capital is more than double its five-year average of 18.57%.
Despite likely reverting to the mean over the next 6-12 months, Nucor remains an excellent long-term buy.
Marcus & Millichap (MMI)
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Marcus & Millichap (NYSE:MMI) is where businesses go when they need to sell commercial properties. It has been getting properties bought and sold since 1971.
In Q3, MMI had a so-so quarter, reflecting rising interest rates, which negatively affects real estate transactions.
MMI, however, can make some hay in the private-client market.
“The size and fragmentation of the Private Client Market segment continues to offer long-term growth opportunities through consolidation,” stated its Q3 2022 press release.
“This highly fragmented market segment consistently accounts for 80% of all commercial property sales transactions and over 59% of the commission pool. The top 10 brokerage firms, led by MMI, have an estimated 21% share of this segment by transaction count.”
The “private client market” refers to commercial real estate properties that cost between $1 million and $10 million. They account for 85% of Marcus & Millichap’s transactions and 58% of its commissions.
With zero debt and a strong balance sheet, MMI has an opportunity to grow the market share of its most important segment.
And its return on invested capital is a healthy 20.91%, 4.29 percentage points higher than its five-year average, while its price-sales ratio is 0.99, almost 50% below its five-year average.
Call this my contrarian pick.
Medifast (MED)
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Medifast (NYSE:MED, which focuses on health and wellness, is probably best known for its Optavia weight-loss program. Over the past five years, Optavia’s revenues have grown by more than 455%, while its overall revenue has tripled over the past three years to $1.53 billion.
Yet MED stock has underperformed the index by more than 34 percentage points over the past year, during which the shares have sunk nearly 50%.
Inflation has consumers picking and choosing what they spend their money on. Weight loss coaches and programs aren’t a priority for most, even though they probably should be, given the importance of avoiding obesity.
For all of 2022, Medifast’s revenue guidance range calls for $1.55 billion of sales at the midpoint , while it expects to earn $12.33 a share, excluding some items.
It finished Q3 with nearly $70 million of cash on its balance sheet and no interest-bearing debt. In the first nine months of 2022, it paid out almost $54 million of dividends and bought back $120 million of its stock.
If there’s a value play in this column, Medifast is it, with a price-sales ratio of 0.81, less than a third of its five-year average.
Recent history has shown that MED stock is volatile. Enjoy the 5.6% dividend until the stock goes on its next bull run.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
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