October is here, and markets are near all-time highs as we enter the fourth quarter of 2018. But, while that rally has made many stocks more expensive, it hasn't removed all of the attractive buys across several industries.
Below, Motley Fool contributors highlight a few of those tempting investments. Read on to find out why UnitedHealth Group (NYSE:UNH), Vail Resorts (NYSE:MTN), The Trade Desk (NASDAQ:TTD), Embraer (NYSE:ERJ), and Brookfield Renewable Partners (NYSE:BEP) look like good buys today.
Make your portfolio a bit healthier
Dan Caplinger (UnitedHealth Group): The health insurance industry has been a lucrative place for investors recently, and UnitedHealth Group has been among the smartest strategic players in figuring out how to position itself to provide the healthcare coverage millions of Americans want. Unlike many of its peers, UnitedHealth was somewhat slow to enter the health insurance exchange market under Obamacare, and that hesitation proved prescient when the company suffered losses that eventually led it to pull out of the Obamacare market in most areas.
That's been just one component of UnitedHealth's success. The health insurer has also done a good job of wooing customers to its Medicare Advantage insurance products, and UnitedHealth's Optum health services unit continues to produce impressive profits for the overall company. Even though the insurer could face pressure on its OptumRx pharmacy benefit management business if Washington clamps down on prescription drug prices, UnitedHealth is optimistic that it can continue to navigate the changing conditions in the healthcare sector broadly and the health insurance field more specifically.
UnitedHealth is set to report its latest earnings results in mid-October, and given its recent performance, the health insurer looks poised to outpace even the ambitious growth estimates of those following the stock. That makes now a good time to take a closer look at whether UnitedHealth deserves a spot in your portfolio.
A resort operator with a growing portfolio
Demitri Kalogeropoulos (Vail Resorts): We're still many weeks away from its seasonally strongest sales period, but investors already have good reasons to expect solid results from Vail Resorts over the coming quarters. After all, the ski vacation giant said in late September that season pass sales are trending higher across its geographic regions. Prices are climbing, too, thanks to positive trends including Vail's focus on high-end consumers, its success at marketing multiresort passes, and the millions of dollars it has directed toward upgrading the ski experience at newly acquired properties like Whistler Blackcomb.
Vail Resorts' business will always be sensitive to economic downturns, and despite recent attempts to bulk up its warm-weather offerings, winter periods account for the vast majority of its annual earnings. Yet management's acquisition strategy has greatly lessened the risk of poor weather ruining profit results in any given fiscal year. Some of its resorts started the latest ski season with historically weak snow levels, for example, and Vail Resorts still managed to boost overall ski visits up 3% to 12.3 million. A return to seasonably normal snow conditions in the coming season should help that figure climb further into record territory in 2019.
A digital David taking on two Goliaths
Danny Vena (The Trade Desk): With the decline of linear television, and the lock that Facebook and Alphabet's Google have had on digital advertising, it would be easy to believe that opportunities in the online ad space would be limited to the biggest players, but nothing could be further from the truth.
In the two years since it began trading publicly, The Trade Desk has more than quadrupled in value as the company has successfully carved out a small but quickly growing position for itself in the programmatic advertising space -- and that may be just the beginning.
While Google and Facebook have largely focused on their search and social media platforms, respectively, The Trade Desk has focused on multiple key channels like mobile, video, and connected TV while providing data-driven insight across channels -- offerings that are attractive to advertisers abandoning linear TV and making the move to digital.
The ability to place the ads where they are most likely to convert, like in apps and streaming channels, gives them a distinct edge over advertisers that are focused solely on one platform. This advantage has resulted in breakout growth for the company.
In its most recent quarter, The Trade Desk grew revenue by 54% year over year, while its operating income jumped 33%. These belie some of the company's most impressive results, though, with spending on connected TVs -- which surged more than 2,000% last quarter -- doubling from those levels in its most recent quarter. Customers are sticking around, too, as retention rates exceeded 95% for the 19th consecutive quarter.
As the migration to digital advertising continues, The Trade Desk has carved out a lucrative niche for itself -- and investors should as well.
Brazilian voters could pick Embraer to outperform
Rich Smith (Embraer): I've already mentioned a few times how I think Brazilian plane-maker Embraer should be a top stock in any investor's portfolio. Boeing's bid to pay $3.8 billion to acquire only 80% of Embraer's commercial airplanes division (which, at $2.6 billion in annual sales, accounts for less than half of the total revenue stream at Embraer) vastly undervalues the stock.
Assuming Boeing gets what it's trying to pay for, Embraer will come out of this deal with plenty of cash in its pocket with which to pay down debt, plus roughly $3 billion in annual revenue to its own credit -- revenue not being bought by Boeing. By my estimation, at a one-times sales valuation, this makes Embraer stock worth $3.8 billion plus $3 billion -- $6.8 billion -- not the mere $3.7 billion in market capitalization investors currently give it credit for.
What makes Embraer a top stock to buy in October in particular is the upcoming election. On Sunday, Brazilian voters go to the polls, probably to pick Social Liberal Party candidate Jair Bolsonaro and Workers' Party candidate Fernando Haddad to compete in a run-off election later this month. Currently, market favorite Bolsonaro has the momentum and is gaining in the polls. A win by Bolsonaro, who's expected to rein in government spending and foster business-friendly policies, should be good news for Embraer.
With the stock still trading for a discount, now's the time to buy in.
The quiet energy company
Travis Hoium (Brookfield Renewable Partners): There has been a lot of uncertainty facing the renewable energy industry over the past two years as tariffs hit some manufacturers and renewable incentives are reduced around the world. One thing that doesn't change is that existing renewable energy power plants continue to churn out electricity and generate cash flows for their owners. That's great news for a yieldco like Brookfield Renewable Partners, which is one of the biggest renewable energy asset managers in the world.
Brookfield Renewable Partners owns 17,400 megawatts (MW) of renewable energy assets, 76% of which is hydroelectric power generators. In recent years, the company has started buying more wind and solar assets because they're the most economical choice for new power plant construction. The great thing is they come with long-term contracts to sell electricity to utilities, ensuring cash flows over two decades or more.
Speaking of cash flows, it's the cash generated by renewable energy assets that drives Brookfield Renewable Partners' 6.3% dividend yield, and there's reason to believe that dividend will continue to grow. Management only pays out about 70% of the funds from operations in the form of a dividend, keeping 30% of funds to buy growth assets. That's how they expect to maintain 5% to 9% annual dividend increases based solely on organic growth.
There aren't a lot of energy companies that have visibility into their cash flows decades into the future, but Brookfield Renewable Partners isn't just any energy company. Given the company's conservative payout ratio and high dividend yield, I think this is a great stock to buy in a seemingly expensive stock market.