Traditionally, September has been the worst month of the year for the market, but instead of suffering through a decline, we have seen the stock market rise. This success came despite a rate hike and a continuing trade war with China and, to a lesser extent, Canada. September’s performance bodes well for up-and-coming stocks as we head into the fourth quarter of the year.
As we approach the final months of 2018, we face the coming winter months, which will bring the challenges that come with colder weather, and, in the retailing world, the approach of the Christmas season. With these changes, investors should find new stocks to invest in and encounter new hot stocks that will hopefully bring huge profits. This provides the chance for up-and-coming stocks to finally shine.
These seven stocks to buy should profit investors as they prepare for this time of year:
Aphria (APHQF)
With marijuana legalization in Canada becoming official on Oct. 17, Aphria (OTCMKTS:APHQF) will likely become one of the up-and-coming stocks to buy.
The increased acceptance of pot reaches beyond Canada. Europe seems increasingly open to legalized weed. Even in more conservative parts of the U.S., the prevailing political winds appear to favor legalizing cannabis for medical use.
Because Canada is leading the way in this industry, its cannabis companies have led the way on stock growth. However, of their largest marijuana firms, I think Aphria offers a better value proposition. For one, it stands out by beating larger peers in terms of profitability.
Aphria has not seen the sky-high run-ups that Tilray (NASDAQ:TLRY), Canopy Growth (NYSE:CGC) and others have seen. Analysts predict 55 Canadian cents (42 cents) per share in earnings for next year. This would bring the 2019 forward price-to-earnings (P/E) ratio to 32.3.
Investors should also not worry about the stock trading on the OTC markets. Canopy began as an OTC stock. Aurora Cannabis (OTCMKTS:ACBFF) plans to move to the NYSE or Nasdaq in October. Given the success of peers who made this transition, I imagine Aphria will soon follow. Like these other companies, they too should see more buyers come in once it trades on a major American exchange.
With a relatively low P/E and its presence in an industry continually seeing new markets open, Aphria stock should become one of the larger beneficiaries.
AT&T (T)
AT&T (NYSE:T) has faced arduous challenges over the last few years. Cord cutting of both landlines and pay-TV services weighed on the stock. The company also faced issues in its wireless business. Intense competition minimized profits. At the same time, AT&T and its peers had to each spend tens of billions of dollars on a 5G network to remain relevant players in that business.
Fortunately for AT&T, a reversal of fortune places it among the list of up-and-coming stocks to buy. The 5G network can finally become a source of revenue as these systems start to come online at the beginning of the fourth quarter. Moreover, now that the merger with Time Warner is complete, it can recover some of the lost TV-related revenue with its DirecTV bundles.
Moreover, the challenges of the past have created a buyer’s market in T stock.
The equity now trades at a forward P/E ratio of 9.5. This remains cheap in a stock that analysts forecast will see 14.8% growth this year.
Furthermore, AT&T holds dividend aristocrat status due to its 34-year streak of dividend increases. With its low stock price, its yield has risen to almost 6%. Also, because losing the dividend aristocrat status would further hurt the stock, the company will more than likely increase the dividend again in December. For those wanting a low-cost stock with a high dividend and future growth, they should benefit in the fourth quarter from T stock.
Fifth Third Bancorp (FITB)
With the recent increase in interest rates, banking stocks like Fifth Third (NASDAQ:FITB) also make the list of up-and-coming stocks. Fifth Third has enjoyed a path to recovery since facing a near wipe out in 2009. It still has not achieved the size of the four largest banks. However, it has grown to become the 13th largest bank in the country. It maintains operations in both the Midwest and the Southeast. Hence, it operates as more than a regional but less than a national bank. It also remains on the cutting edge in the implementation of financial technology.
FITB has struggled this year amid a temporary decline in revenue. Costs related to its upcoming merger with Chicago-based MB Financial (NASDAQ:MBFI) hit the stock beginning in May. As a result, it trades at a discount of just under 20% from its 52-week highs. However, higher interest rates should bolster growth. Analysts predict 8.4% growth this year and average growth of 6% per year, over the next five years. The stock trades at a forward P/E of about 11.2.
The dividend also gives investors a reason to consider FITB stock. It has risen every year since 2011. Now paying 72 cents per share, it yields just under 2.6%. With a growing dividend, a low P/E and a focus on expansion in the Midwest and beyond, FITB continues to bolster its status among up-and-coming stocks.
JD.com (JD)
Among up-and-coming stocks, JD.com (NASDAQ:JD) continues to find itself overshadowed by larger Chinese retailers such as Alibaba (NYSE:BABA). Moreover, all Chinese stocks have suffered amid an ongoing trade war with the U.S. JD has lost almost half of its value since January and currently trades near 52-week lows.
But here’s the thing. JD operates only in China and Southeast Asia. Trade with the U.S. could go away tomorrow, and JD would see no direct effect.
Moreover, JD probably deserves the comparisons to Amazon (NASDAQ:AMZN) more than Alibaba. From the beginning, JD built out a warehouse and transportation infrastructure as it expanded across China. Alibaba served as more of a middleman, which did not own any of its products. It has only recently focused on infrastructure.
Profits should also resume massive increases soon. This year’s expected profit of 42 cents per share fell from last year’s 50 cents per share level. However, Wall Street expects to see 88 cents per share from the company this year. Moreover, the average price target for JD stock currently stands at $40.52. JD trades at around $26 per share now.
With JD’s lack of connection to the West, it will not see much of a benefit from the Christmas season. However, I think investors will soon notice the massive drop in a stock that will see high profit growth. Moreover, once they also notice the lack of direct U.S. exposure, they should start returning to JD stock soon.
Kinder Morgan (KMI)
Kinder Morgan (NYSE:KMI) operates as a midstream player in the energy industry. It transports raw crude oil from the extraction site to refining facilities. With increasing energy prices, this industry enjoys its best times since the last energy boom peaked in 2014. Again, the industry pays six-figure salaries to 20-year-old’s without a college degree. With that, the energy industry is back and Kinder Morgan can again claim its place among up-and-coming stocks.
Since peaking at $44.71 per share in 2015, the stock now trades at just under $18 per share. However, analysts expect profit growth to rebound. They predict 36.4% growth this year, and an average of 12% per year over the next five years. Assuming the company earns 90 cents per share this year as predicted, its forward P/E will come in at just under 20.
Investors also see a huge benefit with the dividend. Owners of KMI stock will earn 80 cents per share in dividends this year. That amounts to a yield of about 4.5% at current prices. Moreover, the company paid $1.93 per year in 2015 in dividends before the price slump forced a cutback.
I do not think this boom will last forever. However, I believe KMI stock could return to the $45 per share level and perhaps beyond over time. As long as oil prices stay at this level or move higher, I believe investors will see high returns from KMI stock.
Target (TGT)
As traditional retailers adapt to online competition, Target (NYSE:TGT) places itself on the list of up-and-coming stocks. Granted, Wall Street already predicts stronger sales for all retailers during Christmas. Still, brick-and-mortar retail suffered in recent years as investors feared Amazon and other e-commerce players would take over retail.
Older retailers responded, leveraging a combined brick-and-mortar and online strategy. Now analysts see Walmart (NYSE:WMT) as a company that will prosper in this retail environment.
However, Target responded in the same manner as Walmart. It also employs omnichannel retailing, and it has also begun to enter the delivery market, including delivery for groceries. This has bolstered its long-suffering in-store sales numbers. It has also led to double-digit growth in its online business.
Despite these improvements, the stock has responded slowly. At current prices, TGT stock trades at a forward P/E of about 16.3. This comes in much lower than WMT’s forward P/E of 19.5. Moreover, analysts predict 7.5% average annual growth for TGT over the next five years. Analysts predict only 5.6% for WMT over the same period.
Like AT&T, Target also holds dividend aristocrat status. Hence, the company’s $2.56 per share dividend will also continue to rise in all likelihood. Since Target provides stronger growth, a larger dividend and a cheaper valuation than WMT, TGT should become the retail stock of choice in the fourth quarter.
Teladoc Health (TDOC)
For those unfamiliar with Teladoc (NYSE:TDOC), it allows for doctor visits via one’s laptop or mobile device. Users can access this service 24 hours a day, seven days a week. Regular office visits cost as little as $40 — less than one-third of the average in-person office visit.
Many predict as soon as flu season hits, patients will turn to Teladoc for both the convenience and the cost savings. Experts estimate up to one-third of doctor visits can take place in such a manner. Currently, virtual visits account for fewer than 1% of all doctor visits. And best of all for holders of TDOC stock, Teladoc owns more than half of this market, even by the most conservative estimates.
One word of caution. Investors have caught on to the potential, and TDOC stock remains expensive. Profitability will likely not come before at least 2021. Also, the company holds a $5.9 billion market cap despite predicted revenues of $407.9 million this year.
Still, that represents 74.8% revenue growth for the year. Wall Street also predicts revenues will rise by 32.7% next year. As consumers look to reduce healthcare spending and embrace a new method by which they visit the doctor, it should make TDOC one of the better up-and-coming stocks to buy during the fourth quarter.
As of this writing, Will Healy is long APHQF and TDOC stock. You can follow Will on Twitter at @HealyWriting.
