While we Fools don't make investment decisions based solely on momentum, we do recognize that it can be useful to keep tabs on which stocks have outperformed recently. After all, the markets tend to reward businesses that are doing something right, so looking at recent winners can be a great way to generate new investing ideas.
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With that in mind, I ran a screen to identify the best-performing stocks from the S&P 500 in October. The top three performers during the month were Gap (GPS 5.59%), Netflix (NFLX -0.63%), and Akamai Technologies (AKAM -0.11%). Let's take a closer look at each to see if they have what it takes to keep the momentum going.
Gap -- up 25%
Shares of the beaten-down apparel retailer jumped after management released its sales figures for September. While same-store sales dropped by 3%, investors were bracing themselves for a steeper decline. In addition, management said the fall was caused by a fire at one of its New York distribution centers. If you remove that temporary disruption, then overall comps would have been flat. Better yet, management stated that Old Navy posted positive comps of 4% during the period and that margins outperformed its expectations, which more than made up for the lost sales and increased logistics costs.
While the company's other brands continue to struggle, traders clearly looked upon this report favorably. That's probably because the company's falling share price had pushed its P/E ratio to below 13 and raised its dividend yield to over 4%, which is quite cheap given that the company is expected to grow its bottom line by north of 5% annually over the next five years.
Netflix -- up 26%
Shares of the video streaming provider rocketed higher in October, thanks to a blowout third-quarter earnings report. While management exceeded expectations on nearly every metric, the big number that captured the market's attention was the 3.6 million new customers it signed up. That was far ahead of the 2.3 million subscribers management had projected.
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Management credited its rapid growth to the huge success of shows such as Stranger Things and Narcos. Add to that the millions of domestic subscribers who are now paying higher monthly fees as they're gradually "un-grandfathered," and total revenue surged by 37%.
Netflix expects to add another 5.2 million subs to its growing customer base in the upcoming quarter, which suggests that its torrid growth rate is likely to continue. Given the huge beat and bullish outlook, it's easy to see why shareholders are feeling bullish.
Akamai Technologies -- up 31%
Investors in the content delivery network operator were treated to the biggest monthly gains in the S&P 500 thanks to a solid third-quarter earnings report. Revenue jumped by 6% and EPS rose by 10%, both of which handily beat expectations.
The top-line growth was mostly owed to the strong performance of its internet security products. Akamai's performance and security segment grew by 19%, while its cloud security division grew by an even faster 46%. Those figures easily offset the declines seen in its media delivery solutions business.
With cyber-security at the forefront of many tech professionals' minds. it's likely that demand for these services will only continue to grow with time. That positions the company nicely for growth in the years ahead.
Are any worth buying?
As a longtime shareholder and customer of Netflix, I can't help calling it my favorite investing idea of the three. Despite the stock's recent winning streak I continue to believe there are plenty of reasons to remain bullish. The company is investing heavily to build out its library of original content, which is a strategy that's clearly resonating with customers. Better still, it has plenty of room left for growth internationally, and that growth could even accelerate as it starts to localize its content for individual markets. That hints that more upbeat earnings reports could be on their way in the years ahead, so I, for one, plan on hanging on to my shares for the long haul.
