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3 Top Hot Stocks to Watch In October

By Rick Munarriz – Oct 4, 2020 at 10:05AM

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Let's go over some of the big winners of 2020 that should keep the gains coming in the month ahead.

Some of the hottest stocks through the first three quarters of 2020 aren't going to phone it in now in the fourth quarter. Etsy (ETSY 4.85%) has nearly tripled year-to-date, and Chewy (CHWY 1.63%) has roughly doubled. Royal Caribbean (RCL -0.82%) is definitely not among this year's biggest gainers, but it has outperformed its two cruise line rivals by a fair amount in this challenging year.

Etsy and Chewy are winners. Royal Caribbean is a winner relative to its peers. Let's see why these are three top hot stocks to watch in October.  

A man wearing a vest and tie has his hands raised in victory.

Image source: Getty Images.

Etsy

A pretty special thing is happening at Etsy, and it shows what's possible when a community of like-minded artisans come together. Etsy has always been a trendy place for folks to pick up custom-made art, T-shirts, and other one-of-a-kind items, but things changed when there was a global shortage of face coverings at the onset of the COVID-19 crisis. 

Etsy merchants heeded the call, stitching together not only life-saving masks but doing so with fashionable flair. The results were off the charts. Revenue skyrocketed 137% in its latest quarter, fueled by a 146% pop in gross merchandise sales for the period.

Obviously this is not sustainable. This is more than double the growth that Etsy has ever posted in its more than five years as a public company. The demand for reusable customized face coverings is also going to diminish even if COVID-19 lingers for some time. The key is that Etsy as a platform has become more relevant in the process. It's gone from less than 43 million active buyers to more than 60 million over the past year. Forget masks. Gross merchandise sales excluding the face coverings still soared 93% in the second quarter. Etsy's success is going to have a long tail.

Chewy

Another company that has made the most of coping with the situation this year is Chewy. The online retailer of pet food and accessories has seen its business pick up during the pandemic. There are two tailwinds. Obviously consumers have embraced online retail over bricks-and-mortar shopping as a way to stay as safe as possible through the crisis. The other trend that Chewy is riding is that pet adoptions are spiking as folks spend more time at home to care for their pets. 

Net sales for Chewy's latest quarter that ended in early August soared 47% to $1.7 billion. Revenue was climbing at a mere 25% clip just two quarters earlier, and now Chewy is also checking in with its largest top-line growth as a public company. Some companies have to sacrifice margins in pursuing growth, but Chewy is expanding its gross and net margins. It's still not profitable, but all of its efforts are getting it closer to turning that corner.

Royal Caribbean 

It may seem odd to call Royal Caribbean hot. The stock has shed half of its value so far this year. However, its two publicly traded rivals are trading roughly 70% lower year-to-date. Life isn't easy when the government has shut down your industry since March in light of the pandemic. However, there are plenty of positive signs suggesting that the industry could begin the slow recovery process by starting to sail again as early as next month. 

Royal Caribbean has been the stock market leader during the downturn because it was the best player when the going was good. Royal Caribbean has historically commanded the highest margins in the industry, and that will help it become the first of the three players to return to profitability. The recovery here will take time, but if the process starts next month, you may as well get in while the upside is for the stock to double just to get back to where it was when the year began. 

Etsy, Chewy, and Royal Caribbean have the catalysts to keep moving higher this month. They are some of the top growth stocks you can buy in October. 

Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Etsy. The Motley Fool recommends Chewy, Inc. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Royal Caribbean Cruises Ltd. Stock Quote
Royal Caribbean Cruises Ltd.
RCL
$37.59 (-0.82%) $0.31
Etsy, Inc. Stock Quote
Etsy, Inc.
ETSY
$104.99 (4.85%) $4.86
Chewy, Inc. Stock Quote
Chewy, Inc.
CHWY
$31.22 (1.63%) $0.50

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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