The major indexes have pulled back recently after a strong first half. Despite the market's positive returns year to date, there are some industry-leading companies that are trading well off their previous highs.
Buying strong companies when they are on sale is a recipe for successful investing. Here are two of the best growth stocks to buy in October.
NYSE: BABA
Key Data Points
1. Alibaba
Alibaba (BABA 0.73%) leads China's $2.7 trillion e-commerce market with its popular Tmall and Taobao marketplaces, and it also has its tentacles in many other growth markets, such as fintech and cloud services. Over the last 10 years, Alibaba grew revenue 36% per year, but a volatile economy in China over the past few years has sent its stock tumbling to new lows.
Alibaba's revenue slowed to an increase of just 2% year over year, coming in at $126 billion. The good news is that a recovery in consumer spending serves as a catalyst to send the stock back up. The shares trade at an unbelievably cheap valuation of less than 10 times this year's consensus earnings estimate.
The stars are aligning for a potential rebound in the share price in 2024. Alibaba is seeing gains across its business segments. Total revenue accelerated to a growth rate of 14% year over year in the most recent quarter.
Moreover, Alibaba is moving forward with plans to spin-off some of its business units that could boost shareholder returns. It just announced a planned initial public offering (IPO) of its Cianiao logistics business, which grew revenue 34% year over year last quarter. Another possible spin-off opportunity is Alibaba's Cloud Intelligence Group, which is seeing strong demand for artificial intelligence (AI) services.
Ahead of these catalysts, Alibaba is one of the best growth stocks to consider buying in October. Investors are getting a business that is dominant in retail, online payments, and cloud services at a bargain price.
NYSE: NKE
Key Data Points
2. Nike
Nike (NKE 0.66%) is a monster in the global athletic wear market -- one of the more resilient segments of the apparel industry. Statista estimates the global sports apparel market will grow from $213 billion in 2023 to $293 billion by 2030, which is a huge opportunity for the leading footwear brand.
Nike's ability to market its brand and reach new customers is evident in its growing $51 billion of annual revenue. The company was converting its top-line growth into even stronger earnings growth before the pandemic, and it can return to that level of performance again.
Nike is in a better position for long-term growth than its stock performance would indicate. This is most notable in Nike's store traffic, which increased by 12% year over year last quarter. Revenue has been weak in North America due to discounting to move merchandise, but China's recovery led to a strong 12% year-over-year increase in revenue excluding currency changes.
Nike should begin reporting better growth on its home turf. With too many shoes sitting on store shelves, discounting has hurt margins and profitability, but Nike's inventory declined 10% year over year last quarter. A better balance of supply and demand should lead to higher full-price sales, healthier margins, and better earnings growth entering calendar 2024.
Looking at the big picture, Nike has an enviable connection with customers that spans physical stores and mobile apps. Its popularity with teens illustrates a brand that knows how to innovate and adapt to the latest trends to connect with a new generation of shoppers.
With the stock trading at its lowest forward price-to-earnings (P/E) ratio since before the pandemic, this is a great time to consider adding shares to your portfolio.
