6 Stocks to Buy in September

It's been a crazy few weeks in the stock market. Many nerves have been frazzled.

On the plus side, volatile markets are exactly where we can find deals. For this edition of my monthly picks, I'm going to highlight six stocks that I believe are now buys.

Let's start off with the two some may call boring. I call them the safest bets of the bunch.

2 blue chips on sale

Company

Dividend Yield

YTD Price Change

Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) None (9%)
Disney (NYSE: DIS  ) 1.2% (9%)

Sources: Yahoo! Finance and Google Finance.

Critics say we can't get the sweetheart deals Warren Buffett can. We saw that with Goldman Sachs and General Electric during the heat of 2008's meltdown and recently with Bank of America. In each case, Buffett's holding company Berkshire Hathaway got the security of a regular dividend payment via preferred shares (ranging from 6%-10% per year) plus equity upside through warrants.

My thought: Why not participate in these deals by buying shares of Berkshire and having the world's greatest investor work for you? Trading just north of book value, the "Buffett premium" on the price of shares seems more myth than reality.

As for Disney, I enjoy owning its suite of offerings, from ABC to Walt Disney World to Pixar and Marvel. But what has me really excited is its cable sports powerhouse ESPN. Believe it or not, for the first nine months of its fiscal year, Disney's cable networks (of which ESPN is the major player) have contributed 59% of Disney's operating income. And it's grown that operating income by 17% over last year. So yeah, buying in at a below-market 11.7 times forward earnings seems like a reasonable move to me.   

2 beaten-down steel plays

Company

Dividend Yield

YTD Price Change

ArcelorMittal (NYSE: MT  ) 3% (42%)
Nucor (NYSE: NUE  ) 4.1% (18%)

Sources: Yahoo! Finance and Google Finance.

Let me start by saying I'm by no means an expert on the steel industry. However, the numbers here are quite impressive.

As a literal raw material in world growth, the steel industry is quite tied to the prospects of the economy. Wild swings are common. My interest gets piqued on the downswings.

My fellow Fool Matt Koppenheffer is also no steel expert, but he makes the case for ArcelorMittal beautifully. For a cyclical company, we need to look at longer periods of time to get a better picture of the ups and downs. So while ArcelorMittal's 5.7 forward P/E ratio is sexy, it's this line from Matt that's more important: "With a price-to-average 10-year earnings of just 7.3, the stock looks almost undeniably cheap to me."

Meanwhile, the Motley Fool Stock Advisor selection Nucor had been sitting patiently on my watchlist until earlier this month, when I bought in. With about a fifth of ArcelorMittal's sales, it doesn't have all the scale advantages of the world's biggest steel producer. Of course, size may be overrated for the innovator of the minimill. And with $18 billion in sales, the U.S.-based Nucor is no pipsqueak.

Even though it isn't quite as cheap as ArcelorMittal, Nucor also fares well with a 10-year look. Add that to its well-respected management and tasty 4.1% dividend yield and I think you've got a market-beater from here.

2 disaster plays

Company

Dividend Yield

YTD Price Change

BP (NYSE: BP  ) 4.3% (11%)
Transocean (NYSE: RIG  ) 5.7% (19%)

Sources: Yahoo! Finance and Google Finance.

Remember the BP Gulf oil spill back on April 20, 2010? I think it's time for investors to revisit it. I can make my case simply.

Since the day before the spill, both BP and Transocean (the oil rig owner) have lost a third of their values. For BP, that means a more than $60 billion loss of market capitalization!

For a Big Oil comparison during that time period, ExxonMobil's market cap has increased $40 billion, or 12.5%, and Chevron's has gone up by $36 billion, or 22%.

There's still a lot of finger-pointing among the players in the Gulf oil spill and the sorting out process will continue on for years. But here's what we do know: If you believe BP's liability in the spill will ultimately end up closer to its $20 billion victim compensation fund than its $60 billion market cap loss, and if you believe Transocean has been largely unfairly dinged versus its eventual liability, there's opportunity here. Getting paid substantial dividends of 4.3% and 5.7% while we wait for the market to agree seems like a good deal to me.     

The bottom line
I think each of these six stocks -- Berkshire Hathaway, Disney, ArcelorMittal, Nucor, BP, and Transocean -- offer good risk/reward characteristics depending on the type of investment you're looking for. I personally own five of the six (I bought Nucor and BP within the last month) and I am seriously looking at the sixth (ArcelorMittal).

Five of the six pay meaningful dividends, one of my favorite things as an investor. For more dividend ideas, check out our most popular free report. It details the buy case for a number of long-term-focused dividend plays. Just click here to read it now. It's free!

Anand Chokkavelu owns shares of Berkshire Hathaway, Disney, Nucor, BP, Transocean, Bank of America, and ExxonMobil. That's seven stocks, if you're counting ... that has to at least be close to a personal record. The Motley Fool owns shares of Transocean, Nucor, Berkshire Hathaway, and Bank of America. Motley Fool newsletter services have recommended buying shares of Berkshire Hathaway, Walt Disney, Chevron, and Nucor. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (14) | Recommend This Article (76)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 01, 2011, at 5:37 PM, kickbishopbrenna wrote:

    Why BP over say, XOM or even CHK? Surely the Russian deal will impact pretty negatively on BP if it blows up once again, as it appears to be doing at present..?

  • Report this Comment On September 01, 2011, at 5:49 PM, TMFBomb wrote:

    @kickbishopbrenna,

    I own Exxon as well and think it's a reasonable buy at today's prices.

    Agreeing that BP's current situation in Russia is a negative factor to consider. That said, I highlighted BP due to its upside potential (vs. Exxon, Chevron, etc.). For safer picks among my six, look to Berkshire and Disney.

    Fool on,

    Anand

  • Report this Comment On September 01, 2011, at 7:33 PM, financeguy85 wrote:

    Anand,

    Does RIG pay a regular cash dividend? I thought its hefty payout was just a one-time special dividend. Any input on this is much appreciated.

  • Report this Comment On September 01, 2011, at 7:44 PM, tommyretro wrote:

    Sorry, but this isn't the time to buy. Smart investors will wait for a confirmed uptrend in the market to purchase securities.

  • Report this Comment On September 01, 2011, at 9:10 PM, TruffelPig wrote:

    SDRL is much better than RIG. TOT has better PEG than BP and better dividend. Would wait with buying until this pull-back is over at S&P < 1200 (ideally 1150 or less).

    Who would buy steel when the economy is slowing down? They will get even cheaper, China is slowing. Buy non-cyclicals right now. With cyclicals I would wait until some economic uptrend is at least on the horizon.

  • Report this Comment On September 01, 2011, at 9:21 PM, dkhariwala wrote:

    hi Anand,

    i am still a stock novice, so may be you can explain better. MT's current stock price is about half of book value and NUE about 1.5 times book value. Isnt that a great plus point to add to thesis to buy MT? Will appreciate your answer. Thanks.

  • Report this Comment On September 01, 2011, at 10:20 PM, TMFBomb wrote:

    @financeguy85,

    In May, Transocean approved a billion dollars in dividends to be paid in installments. The second installment of four will be paid out in September (the ex-dividend date has already passed).

    http://phx.corporate-ir.net/phoenix.zhtml?c=113031&p=iro...

    @tommyretro,

    To be clear, this isn't a market timing article. Each month, I write this article to point out stocks that currently appear cheap. It's meant for those who choose to buy individual stocks.

    @dkhariwala,

    Yup, book value is certainly a valid stat to look at. If you're interested in each company and want to learn more, the best next step is to read their annual reports, which will give more insight into their businesses.

    Fool on,

    Anand

  • Report this Comment On September 02, 2011, at 1:45 AM, chaz572 wrote:

    Sorry, Anand. After the Transocean execs and compensation committee had the gall to pay out a massive bonus based on... wait for it... a perfect safety record in the last year, RIG is permanently off my watchlist. Yes, I know they eventually donated the bonus to the families that lost husband and fathers on Deepwater Horizon. But they had to be shamed into it. Just the fact that they initially declared the bonus at all tells me they're hopelessly out of touch with social acceptability, and the metrics by which they judge their own success (and, ahem, "safety") are a joke at best. I will not forget this grave misstep. I don't remember which analyst it was who commented regarding the bonus, "This stock is unbuyable now.", but I couldn't agree more. Now and forever.

  • Report this Comment On September 02, 2011, at 3:11 AM, kariku wrote:

    Also looking at DIS and MT, and ATW instead of BP and RIG.

    I agree with @tommyretro, too.

  • Report this Comment On September 02, 2011, at 4:45 AM, Stoneaa wrote:

    I would buy some high yield stocks with ex-dividend date within september 2011 in order to get more cash on hand. Here is a nice overview of the best yielding stocks:

    http://ex-dividend-dates.blogspot.com/2011/08/high-yield-sto...

    The average dividend yield amounts to 6.43 percent.

  • Report this Comment On September 02, 2011, at 8:21 PM, tommyretro wrote:

    Hi, Anand. I appreciate the work you do. I just have a firm belief that one must examine market conditions before buying stocks that "currently appear cheap." And market conditions are not favorable right now for longs.

  • Report this Comment On September 08, 2011, at 10:25 PM, thidmark wrote:

    ^^^

    Depends on if you are an investor or a trader

  • Report this Comment On September 11, 2011, at 4:11 AM, mikes333 wrote:

    how many days before the ex-date do you need to buy to vest for the dividend? 3?

  • Report this Comment On September 11, 2011, at 7:17 AM, dbtheonly wrote:

    mikes,

    You need to buy before the ex-div date to capture the dividend. Pick a few stocks, you'll see a rise in the price running up to the ex-div date & a sharp drop after. Only you can answer how far ahead of that curve you want to get.

    But playing "dividend capture" is not a no-brainer game. The stock easily can drop below the dividend level, leaving you sitting on a loss overall.

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