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3 Top Stocks to Buy in October Despite Market Fears

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Today’s episode of Full Court Finance at Zacks digs into some key stock market levels and data as the market closes out September and the third quarter on a downbeat note. Despite the wave of selling in a historically weak month for stocks, the overall bullish backdrop remains, and some indicators appear to be flashing buy signals to investors who can handle more volatility and the possibility of near-term selling.

The three highly-ranked Zacks stocks we explore today are Textron (TXT - Free Report) , NXP Semiconductors (NXPI - Free Report) , and Construction Partners (ROAD - Free Report) .

The S&P 500 popped on Thursday to prevent it from having to test its 200-day moving average for the first time since March. It’s possible the bears ramp up the selling to start the fourth quarter and the benchmark is forced to test its 200-day, or even its 50-week or 200-week moving averages. But there is no denying that the S&P 500 appears to be rather oversold at the moment—at levels it last hit when the market bottomed at the end of Q3 2022.

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The bears keep waiting for earnings revisions to fall off a cliff. Yet, the earnings outlook is improving and the most recent Zacks data showcases that the S&P 500 is projected to return to growth in Q4 and then roar back in a big way in 2024 (+12.0%) and 2025 (+11.4%), which hardly signals a major U.S. recession is right around the corner.

On top of that, the Fed is near the end of its rate hiking efforts, even if it has to turn up the temperature a bit more as the U.S. labor market and economy remain sturdy. It is also worth remembering that many investors are the most excited to buy stocks at what will be the near-term highs and nervous to buy at the eventual near-term lows.

First up is Aerospace–Defense industry standout Textron ((TXT - Free Report) ) which also operates commercial segments. Textron’s Arctic Cat is a leader in the small off-road vehicle space, while Cessna is a major player in private aviation. TXT’s portfolio also includes Bell, which landed a potentially massive contract with the U.S. Army in late 2022 to make its next-generation helicopters.

Textron posted an impressive beat-and-raise quarter over the summer and its upbeat EPS outlook helps it land a Zacks Rank #2 (Buy) right now. Zacks estimates call for TXT to post 8% revenue growth this year and another 6% next year to help boost its adjusted earnings by 32% and 7%, respectively.

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Image Source: Zacks Investment Research

TXT stock is up 190% in the last 10 years to blow away its industry’s 7% and top the S&P 500’s 162%, including a 33% climb over the past 12 months and a 17% jump in Q3. Textron is attempting to hit new highs and break out of its current range. On the valuation front, Textron trades at a 24% discount to its industry and 33% below its own 10-year highs at 14.2X forward 12-month earnings.

Next up is Zacks Rank #2 (Buy) NXP Semiconductors ((NXPI - Free Report) ). NXP Semiconductors is a leading chip maker with huge exposure to the automotive industry, as well as industrial segments, IoT, mobile devices, wearables, energy infrastructure, and more. On top of that, Wall Street is starting to pay attention to NXP’s ability to benefit from the wider AI and machine learning revolution within self-driving vehicles and beyond. 

Zacks estimates call for the company to return to top and bottom line growth next year after it faces a slight downturn in 2023, with it up against a monster stretch of growth. NXPI trades at 14.8X forward 12-month earnings. This represents 45% value vs. its own highs, as well as a 16% discount to its industry and 34% value vs. the Zacks Tech sector despite its long-term outperformance of both. Plus, NXP Semiconductors’ dividend yields 2.1% at the moment, which is a nice bonus for a chip stock.

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NXPI shares have climbed roughly 400% in the last decade vs. the Zacks Tech sector’s 225% and its Semiconductor-Analog and Mixed industry’s 380%. The stock is up 60% during the past three years to blow away Tech’s 22%. And NXP Semiconductors is currently finding support at its long-term 21-week moving average.  

Last up is vertically integrated civil infrastructure firm Construction Partners, Inc. ((ROAD - Free Report) ) which specializes in road construction and maintenance across six states including Florida, North Carolina, and Georgia. Its core business is centered around publicly funded projects such as local and state highways, bridges, and more. ROAD also has a private sector, and it is one of the fastest-growing civil contractors in a booming region of the country.

ROAD topped our Q3 FY23 estimates and raised its guidance to help it land a Zacks Rank #2 (Buy) at the moment. Construction Partners is projected to post 20% sales growth this year and 8% higher next year to help boost its adjusted earnings by 105% and 39%, respectively—which comes up against an impressive stretch. And the U.S. is finally focused on infrastructure spending after decades of neglect.

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Image Source: Zacks Investment Research

ROAD shares have climbed around 200% since the company’s 2018 IPO vs. the S&P 500’s 60% and its industry’s 53%. The stock is up 34% YTD and it is trading above its 50-day and 200-day moving averages. Construction Partners also trades roughly in line with its own five-year median of 31.5X forward earnings and at a 53% discount to its highs.

(Disclosure: Ben Rains owns NXPI in Zacks Alternative Energy Innovators service). 

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