After slipping in August and September, stocks tend to move higher in October. These four stocks held by billionaire investors look ripe for a rebound.
By John Dobosz, Forbes Staff
The month of October has a well-earned reputation as a spooky stretch of time for stock market investors because of frightful wipeouts in 1929, 1987 and 2008. A broader look at historical returns, however, shows that October is also a month for producing fourth-quarter market rebounds.
“The S&P 500 gained an average 5.0% during the fourth quarter of all years since 1990, rising in price 82% of the time, and all sizes, styles, and sectors posted average advances of 2.1% or better, led by the Nasdaq Composite, mid- and small caps, along with the technology, industrials, and materials sectors,” says Chief Investment Strategist Sam Stovall of CFRA Research. “In the fourth quarter of pre-election years, results were even more impressive, with the S&P 500 gaining an average of 7.7% and rising in price 88% of the time–100% of the time on a total-return basis for first-term presidents since World War II.”
Stock market weakness in the two months preceding October stacks the deck even more in favor of the bulls.
“Since 1950 there have been 17 years prior to 2023 when the S&P 500 has been down in both August and September,” writes Jeffrey Hirsch, editor of the Stock Trader’s Almanac and the Almanac Investor newsletter. “In 15 of these 17 years, there were fourth-quarter rallies with a healthy average gain of 6.58%.”
Hirsch also points out that the market has rallied in the fourth quarter of every year when year-to-date stock returns were positive but negative in August and September, as is the case in 2023. “This further supports our analysis that the current malaise promises to be short-lived and followed by a typically strong fourth-quarter pre-election year rally.”
Additional historical perspective lends further credence that stocks could be propelled higher through the end of the year.
“During the 14 cases since 1926 when the S&P 500 was up at least 10% through July and fell in August, the last four months of the year, the index rose every time by an average of 9.9%,” says Ed Clissold, Chief U.S. Strategist at Ned Davis Research. “The average gain of all September-December periods is 1.9%.”
Greed Takes Backseat To Fear
Investor sentiment provides another indicator that a stock market rebound may be close at hand. Whenever bullish or bearish market views become too popular, they generally prove to be wrong. Warren Buffett famously noted that it’s a good idea “to be fearful when others are greedy, and to be greedy only when others are fearful.” Right now, greed is in retreat and fear is rising as angst mounts over the future course of interest rates and inflation, as well as the impact of an autoworkers’ strike and a government shutdown on the economy.
Since 1987, the American Association of Individual Investors has surveyed its mom-and-pop membership on whether they expect the stock market to move higher, lower, or sideways over the coming six months. For the week ended September 27, 40.9% of AAII members expressed a bearish six-month view, the highest percentage since a 41.2% bearish reading on May 10. Just 27.8% of members currently hold bullish views, down sharply from 51.4% on July 19 and the lowest reading since 27.4% on May 24. From mid-May through the end of July this year, the S&P 500 gained 12% and the Nasdaq 100 was up 17.4%.
Buying Into Billionaire Stocks
You may have heard the old maxim, “Bull markets love to climb a wall of worry.” There is certainly no shortage of factors to make you fearful of the current market, but when pessimism becomes pervasive, it’s usually a reliable clue that higher stock prices are ahead.
Regardless of the market environment, there are always attractive opportunities to buy into solid businesses with a demonstrated track record of managing successfully through multiple economic and market cycles. Those which feature keen buying interest from billionaire money managers, like the four below, are among the current stock recommendations in the Forbes Billionaire Investor newsletter.
Oneok (OKE)
Dividend Yield: 5.9%
Market Cap: $28.5 billion
Billionaire Holders: Israel Englander, Jim Simons, Ken Fisher, Ken Griffin, Ray Dalio, Bruce Flatt, Mario Gabelli, Clifford Asness
Tulsa, Okla.-based Oneok (OKE) is a dominant player in domestic natural gas transportation via its network of pipelines crisscrossing the central and western regions of the United States. Founded in 1906 and a publicly traded company since June 1972, Oneok connects gas producers in North Dakota, Montana, Wyoming, New Mexico, Kansas, and Oklahoma with a national network of pipelines that delivers natural gas to electric power plants and retail gas distributors. With its recently closed $18.7 billion deal to purchase Magellan Midstream Partners, Oneok is branching out into pipelines that carry crude oil and refined products.
Since 1989, Oneok has increased its quarterly dividend without suspensions or cuts at a 10% annual rate. Over the past 12 months, free cash flow of $5.37 per share provided comfortable coverage for $3.82 per share in annual dividends and gives the company financial flexibility to make the Magellan acquisition. Earnings this year are expected to grow 49% to $5.73 per share. At 11.4 times earnings, ONEOK trades 23% below its five-year average forward P/E of 14.8.
CEO Pierce Norton in June scooped up nearly $2 million worth of OKE at an average price near $57.50 per share, joined by a director who scored $292,000 of OKE at $59.59 per share. Billionaire investors have been equally acquisitive. Israel Englander’s Millennium Management in the second quarter purchased 618,000 shares, bringing his firm’s total stake to 1.93 million shares. Jim Simon’s Renaissance Technologies holds more than 1.3 million shares and bought 875,000 shares in the March-June period.
Acuity Brands (AYI)
Dividend Yield: 0.31%
Market Cap: $5.4 billion
Billionaire Holders: Israel Englander, Clifford Asness, Ken Fisher, Jim Simons, Ken Griffin, Ray Dalio, Bruce Flatt, Mario Gabelli
Atlanta, Ga.-based Acuity Brands (AYI) has been a serial acquirer of companies to give it entrée into new niches for lighting, and more recently into overall building management solutions that optimize power consumption and collect data on carbon emissions for property owners. The strategy has borne fruit. Since becoming a public company in 2001, Acuity has grown earnings per share by a 7% compound annual rate. Revenue in 2022 was $4 billion, and management forecasts between $3.9 billion and $4 billion for 2023. Because of streamlined inventory management and reduction in working capital, analysts expect earnings to grow 7.6% to $13.81 per share, and free cash flow to jump 42% year-over-year.
Acuity has returned copious capital to shareholders through stock buybacks which have reduced shares outstanding by 29% over the past six years. In addition, the stock appears to be undervalued by 15% to 20%, based on five-year average multiples of price to sales and earnings.
Among billionaires, Clifford Asness’ AQR Capital holds 478,000 shares for a 1.5% ownership in the company, adding 132,000 shares in the second quarter. Millennium Management, headed by Israel Englander, bought 381,000 shares in the April-June period and now holds 222,000 shares of Acuity. Ken Fisher’s Fisher Asset Management bought 68,000 shares during the same period for a total position of 158,000 shares.
Atlas Energy Solutions (AESI)
Dividend Yield: 3.5%
Market Cap: $2.3 billion
Billionaire Holders: Ken Griffin, Israel Englander, Steven Cohen, Bruce Flatt
In the business of hydraulic fracturing, drillers shoot a solution of water and specialized “proppant” sand into wellheads to bust apart underground fissures in the earth and tap into crude oil and natural gas. Austin, Tex.-based Atlas Energy Solutions (AESI) is the major supplier of fracking sand to oil and gas companies with drilling activities in the Permian Basin of West Texas and eastern New Mexico. Atlas is in the process of investing to boost output an estimated 50% next year and literally streamlining business operations with a 42-mile electric conveyor system which will expedite the delivery process by sending sand directly to drilling customers and cutting out millions of miles per year driven by trucks. [For more on Atlas and its founder and CEO Bud Brigham, click here]
Revenue this year is expected to gush 30% higher to $625.7 million, as earnings rise 11% to $2.60 per share, giving Atlas a forward price-earnings ratio of 7.8. It has also been extremely efficient with capital, boasting a 77% return on equity and 24% return on assets. Despite capital expenditures for new projects, Atlas generated $1.23 per share in free cash flow over the past 12 months, enabling the company to fatten up its current $0.20 per share quarterly dividend.
CEO Ben “Bud” Brigham bought $5.3 million of company stock over the past five months. Ken Griffin’s Citadel purchased 537,000 shares at the IPO in March. Israel Englander‘s Millennium Management bought 381,000 shares, and Steven Cohen‘s Point72 purchased a stake of 315,000 shares. Bruce Flatt’s Brookfield holds 175,000 shares.
RB Global (RBA)
Dividend Yield: 1.7%
Market Cap: $11.5 billion
Billionaire Holders: Ken Griffin, Mario Gabelli, Israel Englander, Clifford Asness, Bruce Flatt, Jim Simons
Westchester, Illinois-based RB Global (RBA), formerly Ritchie Brothers Auctioneers, is the largest live auction operator of heavy equipment used in construction, farming, transportation, and oil production. In March of this year, Ritchie Bros. renamed itself RB Global after completing an $8.1 billion acquisition of damaged and repairable auto auctioneer IAA, an acquisition that’s already adding to the top and bottom lines.
During the second quarter, revenue increased 128% year-over-year to $1.1 billion, and $560.4 million came from the integration of IAA. Service revenue increased 181% year-over-year to $806.1 million, with $476.6 million from IAA. Revenue for the full year is expected to jump 106% to $3.57 billion, with earnings up 2.5% to $4.27 per share.
Bullishness is abundant in the boardroom at RB Global, with four company directors recently buying stock. Several billionaires are also loading up on the stock. Ken Griffin’s Citadel Advisors in the first quarter of 2023 added 1 million shares to its holdings of RBA, which now account for 0.82% of the outstanding shares. During the same period, Izzy Englander’s Millennium took down 908,000 shares for a total stake of 942,000 shares, or 0.52% of the float. Mario Gabelli has also been a buyer, along with Bruce Flatt’s Brookfield Public Securities, which established a position of 28,000 shares earlier this year.
John Dobosz is editor of Forbes Billionaire Investor newsletter. Click here to access all currently recommended billionaire stocks.
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