Volatile markets are prime for stock pickers. And if history is any judge, a period of maximum fear frequently creates a buying opportunity for long-term investors. But right now, that still means being selective.
Top stock picks are looking to be money-makers. First, the consumer staples sector is one place to look for winners, recently posting a slight gain. Known for having products always in demand, the pricing power maintains margins.
Another sector to consider is energy. The sector is up 14% in the last six months, with more growth ahead.
Also, investors shouldn’t ignore geopolitical events. That means that defense stocks make sense for investors looking to stay engaged in stocks in the fourth quarter. Let’s examine three stock picks for the final quarter from each of the sectors listed above.
Hershey (NYSE:HSY) has been battered since reaching an all-time high in May, with some price action due to profit taking. Also, a concern is companies like Hershey’s being adversely affected by the popularity of weight loss drugs. Only time will tell.
Next, let’s focus on earnings. On October 26, 2023, Hershey posted a double beat on earnings and both numbers were higher year-over-year (YOY). The company is benefiting from pricing power even in the face of rising cocoa prices.
However, the company is showing strength from its diversification into salty snacks. In its most recent quarter, that unit accounted for $345.3 million in sales, up 25% YOY.
That doesn’t mean inflation won’t be a headwind. On the company’s earnings call, management acknowledged that early Halloween sales were not where the company expected. However, it was forecasting a strong last-minute push. And beyond Halloween, the company is likely to post strong sales through the upcoming holiday season.
Still, HSY stock is down over 20% in 2023 and looks oversold at 19x forward earnings. Analysts give the stock an average price target of $221 which is 20% higher than its closing price on October 27, 2023. And, Hershey’s reaffirmed its $1.19 per share dividend.
Diamondback Energy (FANG)
While higher oil prices have been a rising tide for the entire sector, FANG has been performing well this year. It’s been up 17% year to date (YTD) and up 12% in the last six months.
For the future, analysts project another 17% upside for Diamondback’s earnings. That could lead to an additional 14% increase in the FANG stock price. Plus, with a flurry of takeover activity in the energy sector, Diamondback Energy looks like a potential takeover target. The company is reducing its debt and has just $6.7 billion in net debt and strong free cash flow which totaled $547 million in the second quarter.
Northrop Grumman (NOC)
In the currently fragile geopolitical climate, defense stocks are rising. And although Northrop Grumman (NYSE:NOC) was down about 1% for the week, it bounced about 1% higher from around noon Friday into the close.
Further, catalysts for the defense sector are in place whether the U.S. commits troops or not. Companies like Northrop will be among those supplying the critical weapons and equipment that will be needed, regardless.
With NOC down 13% this year, some of the concerns involve weaker year over year (YOY) earnings in the last two quarters. However, that trend reversed in the company’s most recent earnings report.
And it may be just beginning. The election of a Speaker in the U.S. House of Representatives provides a greater chance for a continuing resolution to our national budget issues. Thus, clarity about the defense budget would be a welcome sign for investors in defense stocks.
On the date of publication, Chris Markoch 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.