October isn't just a great time of year if you're into fall foliage and spooky spirits. It's also an excellent time to put some money in the market.
Historically, September has been the worst month for stocks in what is sometimes known as the September effect, and that was borne out again this year as the S&P 500 fell 4.9% last month.
Naturally, that makes October an excellent time to buy, and with earnings season about to ramp up, there will be no shortage of catalysts this month. If you're thinking about hitting the buy button, here are two companies I'm looking to buy.
Image source: Getty Images.
1. Disney
It might be surprising to find Disney (DIS -0.04%) stock in the bargain bin, but the timeless family entertainment company is actually trading near a nine-year low right now. The last year has been full of misfires for Disney.
Former CEO Bob Chapek was yanked last November, and longtime CEO Bob Iger returned to the helm. Iger issued layoffs and restructured the business again for the second time in three years. Subscription growth has slowed sharply at its streaming services, and profits continue to evaporate from the traditional TV business.
Disney also seemed to lose out in its recent standoff with Charter Communications, which ended with Disney agreeing to add its streaming services to Charter's cable packages.
However, beneath those headlines are signs of a turnaround, and investor sentiment on the stock has soured enough to make the price attractive.
Disney is rapidly narrowing its losses in the streaming segment, expecting it to turn profitable in fiscal 2024, which just began for the company. It's also raising prices across the board on its streaming services this month, which should help drive profitability and improve demand for the cheaper ad-support tiers.
Meanwhile, Disney's theme park business continues to be a cash cow, and the company just said it would step up investments in that business, spending nearly $60 billion over the next decade to expand parks with new rides and attractions and build new cruise ships.
Wall Street pooh-poohed the news, but it looks like a smart long-term decision. The Disney brand remains strong; the challenges it faces relate to the business model and transition to streaming, and growing a high-margin business like theme parks will pay off.
Due to the complexity of the business and the nature of its transition, it's difficult to value the stock based on traditional metrics, but Disney's market cap is now just $150 billion, less than Netflix's. That seems like a mistake given the potential of Disney's streaming business and the value of the parks segment.
2. Roku
Staying in the streaming arena, Roku (ROKU -10.29%) also looks like it's priced for irrelevancy, and that seems like a mistake.
Shares of the streaming distribution platform are down more than 85% in 2021. That's not a justification alone for buying the stock, but the conditions that led to that sell-off are mostly temporary.
Growth in the digital advertising market has stalled after a boom during the pandemic, and the company mis-timed a ramp-up in spending in 2022 just as headwinds in advertising were forming.
However, the ad market is starting to come back to life as it seems like there won't be a recession, or at least not a major one, and there is now a raft of new ad-supported streaming tiers, including from Netflix, Disney, and Amazon that open a vast market for Roku. The company typically takes 30% of ad inventory from streaming partners on its platform to sell itself.
The company is taking steps to control costs and return to profitability, at least on the basis of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).
Last month, Roku said it would lay off 10% of its workforce, or about 360 people, in its third round of layoffs this year, and it plans to remove original content, taking a one-time $65 million charge in the process. The entire streaming industry has overspent on content, so it's not surprising to see Roku making such a move. The company also expects to return to positive adjusted EBITDA for the full year 2024.
Despite the challenges in the business, usage on the platform continues to grow, a bullish signal for its long-term performance. Active accounts rose 16% over the last year to 73.5 million, and streaming hours were up 21% to 25.1 billion, showing that demand for Roku's services continues to increase even if ad growth has been sluggish.
At this point, the stock trades at a price-to-sales ratio of just 3, which looks like a great price to pay for a market leader in a growing industry, especially if advertising demand continues to recover.
