September Rally? 3 Stocks to Buy Before Liftoff


  • The S&P 500 typically has its worst performance in September, but stocks end up going on a four-month rally afterwards.
  • AT&T (T): The telecom giant is being given bargain basement valuations by the market.
  • Vertex Pharmaceuticals (VRTX): The biotech giant is treating cystic fibrosis and has patents extending out into the 2030’s.
  • U.S. Bancorp (USB): The regional banking powerhouse unnecessarily suffered due to the financial crisis earlier this year.
stocks to buy - September Rally? 3 Stocks to Buy Before Liftoff

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September is not known as a good month to buy stocks. In fact, historically it’s the worst month. They even have a name for it: the “September effect.”

Going all the way back to 1928, the S&P 500 lost on average 1.1% in September. It’s a broad-based malaise that strikes the market this month. Dow Jones Market Data says the benchmark index has risen less than 45% over the near-100-year period. That makes it the worst month by that count as well.

So, maybe you shouldn’t expect a rally over the next few weeks. But you should prepare for the liftoff that follows.

Although next month isn’t especially bullish itself, the data shows the period between October and January is the longest stretch of time when stocks run high. It looks like September gives you the chance to pick up stocks cheap in anticipation for the rally that comes after.

Here are three stocks to buy now to watch them rise in the months ahead.

AT&T (T)

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The market is hanging up on telecom giant AT&T (NYSE:T). The stock is down 22% over the first seven months of the year and trades at some of its lowest valuations ever. It is going for less than six times next year’s earnings estimates and the free cash flow it produces. It also goes for a fraction of its sales and is about equal to its book value.

Part of the debasement of the stock is new legal worries. A July Wall Street Journal story about old, buried lead-lined cables caused the stock to tumble, though it has since regained that lost ground.

It’s also a fairly boring stock. Ma Bell was an original widows-and-orphans stock. Investors bought it because of the reliable nature of its income and its steady operational performance. To many, AT&T remains that sort of investment today.

Certainly its dividend remains a valuable consideration. Even though it was halved when it spun off its Warner Media entertainment division, the payout still yields a hefty 7.6%. Operations are also an opportunity.

The ongoing national rollout of 5G networks is of particular importance. Increased download speeds will help AT&T further mine profits as it generates some of its highest margins from data usage. The telecom also added 1.2 million net broadband customers last year, making it five years in a row AT&T added at least 1 million customers.

Vertex Pharmaceuticals (VRTX)

Vertex Pharmaceuticals (VRTX) logo visible on display screen
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Biotech outfit Vertex Pharmaceuticals (NASDAQ:VRTX) isn’t the bargain bin stock AT&T is, but it is still one of the top pharmaceutical stocks to buy. 

Right now Vertex is something of a one-trick pony, focusing all of its efforts on treating cystic fibrosis (CF). But it’s a giant in the field, treating over two-thirds of the 88,000 CF patients in North America, Europe and Australia.

Vertex has four approved CF therapies that are forecast to generate between $9.7 billion to $9.8 billion in sales this year. The treatments were all granted orphan drug status by the Food & Drug Administration. “Orphan drugs” treat illnesses that fewer than 200,000 people are afflicted with. The status grants Vertex exclusivity on treatment for seven years.  

Its biggest therapy is Trifakta/Kaftrio, which accounted for 86% of total revenue in 2022, or $7.6 billion. Its other therapies saw big drops in sales, but only because patients were switched to Trifakta. The basic patent expiration for the drug isn’t until 2037.

Such concentration can be a risk if and when patents expire. Vertex, though, has a robust pipeline of drugs under study for other illnesses. It is in clinical stage trials for among other things, sickle cell disease, beta thalassemia, acute and neuropathic pain, APOL1-mediated kidney disease, type 1 diabetes and muscular dystrophies.

The biotech’s stock is up 20% in 2023, but there’s no reason it shouldn’t continue rising for many years to come.

U.S. Bancorp (USB)

usbank (USB) logo on a bank during nighttime
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Regional bank U.S. Bancorp (NYSE:USB) is the third of the stocks to buy this month. Like many financial institutions, it was caught up in this year’s turbulence after Silicon Valley Bank, Signature Bank (OTCMKTS:SBNY)
and First Republic Bank (OTCMKTS:FRCB) were seized. 

Although their seizure by regulators shook consumer faith in the banking system (again), it was relatively short-lived. U.S. Bancorp had a momentary flight of customer deposits that have since bounced back.

The regional bank also highlights that its CET1 capital ratio is markedly improving since its acquisition of Mitsubishi UFJ Financial Group‘s (NYSE:MUFG) Union Bank in December. 

The common equity Tier 1 ratio, or CET1, measures a bank’s capital to its assets. Higher is better. U.S. Bancorp’s CET1 ratio dropped from 9.7% before the acquisition to 8.4% afterwards. It was poor timing considering the bank failures that followed. At the end of the most recent quarter, however, the CET1 capital ratio was back to 9.1%. 

But U.S. Bancorp gained 1.2 million new customers from the acquisition. It also got 190,000 small business customers, $58 billion in loans and $90 billion in deposits.

Net interest income rise 29% as well. It wasn’t just the addition of Union Bank, but also rising interest rates that caused it to jump. A higher rate environment tends to bulk up a bank’s financials. The Federal Reserve may pause rate hikes for the time being, but we’re going to be in an elevated rate environment for some time to come. That should benefit U.S. Bancorp, even if it somewhat impoverishes consumers.

On the date of publication, Rich Duprey held a LONG position in T stock. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

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