Top 6 Stocks to Buy for October

by Sam Collins | October 1, 2012 12:55 am

September, which historically is the worst performing month of the year, turned in an outstanding performance. Due to stimulation from the Fed, Europe, and China, the S&P 500 rose 2.4% with the energy, technology and telecommunications sectors leading the way — each up over 7%.

Following a major technical breakout, stocks usually experience a short (one-to-three-week) consolidation and then pick up the trend by shifting to sectors that lagged. For that reason, some of the stocks that I’ve chosen as good values in October lagged in September. But these are solid earners, showed buying in the last week of the month, and could make major moves higher in October.

But the overall market’s correction may not yet be over. The S&P 500 is off just over 2% from its high of 1,475, and could fall slightly under the breakout line at 1,418 for a total correction of almost 4%. Therefore, buyers should be patient. Decide what you want to buy and the price you are willing to pay and then wait. Let the market come to you.

Here are your top stocks to buy for October:

Top Stock to Buy #1 – Automatic Data Processing (ADP)

Automatic Data Processing (NASDAQ:ADP[1]) is one of the world’s largest independent computing services companies. It is the largest provider of payroll outsourcing services and offers tax filing and benefits administration.

Earnings increased to $2.82 in FY 2012 (ended in June) from $2.52 in FY 2011, and the company is expected to earn $2.89 in FY 2013.

In late June, the stock popped through a long-term resistance line with a breakaway gap — a very bullish event. It rallied to over $59 supported by three buy signals from our proprietary indicator, the Collins-Bollinger Reversal (CBR), and appears capable of breaking again to new highs.

Insiders have been buying ADP, and the company has a stock buyback program in force. The trading target is $65, but long-term buyers should hold this cornerstone tech stock.

10 12 buy adp 300x207 Top 6 Stocks to Buy for October
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See chart key[2]

Top Stock to Buy #2 – Bio-Reference Laboratories (BRLI)

Bio-Reference Laboratories (NASDAQ:BRLI[3]) is a health care facilities company that provides laboratory testing to customers in New York City and other urban areas. The company is expanding esoteric testing, an analysis of rare substances that isn’t performed by most clinical labs.

The stock has risen in one year from $12 to $30 as a result of an improvement in revenues and earnings. FY 2012 earnings (ended in October) are expected to be around $1.51, and FY 2013 estimates are for $1.77.

Technically the stock made an impressive break in June from a cup-and-handle formation and quickly ran from $23 to over $30. It is consolidating in what appears to be a developing bull channel with a target of $35.

10 12 buy brli 300x207 Top 6 Stocks to Buy for October
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See chart key[2]

Top Stock to Buy #3 – Cerner Corp. (CERN)

Cerner Corp. (NASDAQ:CERN[4]), a leading supplier of health care information technology, is in a powerful bull channel that began in November 2010. We recommended it on Oct. 21, 2011[5], at about $66 with a target of $75. It made it to over $78 in March, and then ran to a high of over $84 after crushing analysts’ Q1 estimates.

Then, on May 21[6], it was recommended to buy the stock on a pullback to $75 and it ran to over $88. And on July 9[7], I said, “CERN has turned from the top of its bull channel, so try to buy it on a pullback at around $80.”

The high volatility of this stock can be used to the advantage of traders and long-term buyers. CERN has retreated to the bottom of its bull channel and is below our buy point. Late in September, CERN jumped from the major support line (red dotted) and through the 50-day and 200-day moving averages — it is time to buy. Note the buy signal from its MACD. The target is $95.

10 12 buy cern 300x206 Top 6 Stocks to Buy for October
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See chart key[2]

Top Stock to Buy #4 – H. J. Heinz Company (HNZ)

H. J. Heinz Company (NYSE:HNZ[8]), a global producer of a wide variety of food products, has a new, more aggressive corporate strategy. Acquisitions in emerging markets began two years ago, and in 2011, that new direction accounted for 16% of total sales.

Earnings for FY 2012 (ended in April) were $2.85, and the consensus for FY 2013 is $3.50, with $3.75 expected in FY 2014.

A recent double buy signal from our Collins-Bollinger Reversal (CBR) indicator tells us to buy now for a break above the current bull channel and a run to $62. HNZ has a 3.7% dividend yield, and the company has a history of increasing dividends.

10 12 buy hnz 300x207 Top 6 Stocks to Buy for October
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See chart key[2]

Top Stock to Buy #5 – Lockheed Martin Corp. (LMT)

Lockheed Martin Corp. (NYSE:LMT[9]) was the largest beneficiary of U.S. defense department contracts in 2010, so when the government announced plans to cut military spending, analysts predicted a drop in LMT’s 2012 earnings. In April-May, this resulted in a fall from $92 to $80.

However, new contracts, especially in intelligence, surveillance and reconnaissance (ISR), unmanned systems, force protection, cyber security and missile defense flooded the company with new orders.

It recently raised its quarterly dividend by 15% to $1.15 a share for a 5% yield. This is its 10th consecutive annual double-digit dividend increase. In 2012, it is estimated to earn $8.10 per share, and $8.37 in 2013. It has surpassed earnings estimates in each of the past four quarters.

Technically LMT has formed a huge cup-and-handle with a breakout target of $102. Note the stochastic buy and increase in upside volume.

10 12 buy lmt 300x207 Top 6 Stocks to Buy for October
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See chart key[2]

Top Stock to Buy #6 – ONEOK Inc. (OKE)

ONEOK Inc. (NYSE:OKE[10]) is an Oklahoma-based integrated energy company that markets, transports, stores and trades natural gas liquids. Its distribution segment is the largest gas utility in Kansas and Oklahoma, and the third largest in Texas.

Fundamentals have been improving with earnings having increased in each of the past seven years. OKE was on our list of Top Stocks to Buy for July[11] at $42 with a target of $50. Earnings estimates have been increased since then, and are now at $2.17 in 2013, up from $1.79 in 2012. J.P. Morgan, Deutsche Bank and S&P have raised their price targets, which now average $54.

The stock broke upward from a double-top in October at $37 to almost $45. Since then, it has been consolidating in a bull channel with support at its 200-day moving average at just over $40. Its stochastic is close to issuing a buy signal and accumulation in June was high. Buy at the market for a target of $57. OKE has a dividend yield of 2.7%.

10 12 buy oke 300x209 Top 6 Stocks to Buy for October
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See chart key[2]

Endnotes:
  1. ADP: http://studio-5.financialcontent.com/investplace/quote?Symbol=ADP
  2. See chart key: http://cdn.investorplace.com/wp-content/uploads/2011/04/chart-key.gif
  3. BRLI: http://studio-5.financialcontent.com/investplace/quote?Symbol=BRLI
  4. CERN: http://studio-5.financialcontent.com/investplace/quote?Symbol=CERN
  5. Oct. 21, 2011: http://investorplace.com/2011/10/trade-of-the-day-cerner-corp-nasdaq-cern/
  6. May 21: http://investorplace.com/2012/05/trade-of-the-day-cerner/
  7. July 9: http://investorplace.com/2012/07/trade-of-the-day-cerner-nasdaq-cern-2/
  8. HNZ: http://studio-5.financialcontent.com/investplace/quote?Symbol=HNZ
  9. LMT: http://studio-5.financialcontent.com/investplace/quote?Symbol=LMT
  10. OKE: http://studio-5.financialcontent.com/investplace/quote?Symbol=OKE
  11. Top Stocks to Buy for July: http://investorplace.com/2012/07/top-stocks-to-buy-adp-cci-oke-ttc-unfi-vrtx/

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