Historically, September has been the worst month for the stock market. For unknown reasons that you can speculate about, on average, September is when stocks post their worst monthly performance.
October tends to be better, but not this year. After sliding 5% in September, the S&P 500 dropped another 6% in October. Many investors will recognize October as the month when the Great Depression began after the market crashed in 1929, as well as the month of Black Monday in 1987.
But now we're in November and hoping for better. Many companies have been reporting strong earnings over the past two weeks, the Federal Reserve didn't raise interest rates last week, and the American consumer looks to be more resilient than thought. Maybe November will shape up to be the turnaround investors have been waiting for.
You can prepare by buying great Warren Buffett stocks that could jump in November and gain over time, regardless of what happens this month. Visa (V -0.05%), Nu Holdings (NU -0.91%), and Ally Financial (ALLY -0.23%) are three great choices.
1. Visa: A top-value stock
As spending remains steady despite inflation and the chance of a recession seems less likely, Visa has been reporting top-notch results. In the 2023 fiscal fourth quarter (ended Sept. 30), revenue increased 11% over last year, and earnings per share (EPS) increased 18%.
Visa is an incredible business for several reasons. It's the largest credit card network in the world, with $14.5 trillion in processing volume over the trailing 12 months. It continues to deepen its partnerships with the banks and financial institutions, padding its moat and creating a cycle where it reinforces its own dominance.
It's a profit-making machine, with a low-cost model naturally given to profits, but it also has the widest profit margins in its industry. That came in at 54% in the fourth quarter, which means it's turning more than half of its revenue into profits.
It's like an endless growth model. As long as Visa sticks to its proven formula, it naturally generates higher revenue and income under almost any kind of circumstances except for the most challenging economic conditions.
Visa stock is trading at close to its lowest valuation over the past three years, with a price-to-earnings ratio of 29. It's a great time to buy shares in a forever stock.
2. Nu Holdings: A top growth stock
Nu has been posting exceptional growth since going public, and it's also been net profitable for four consecutive quarters.
It operates a digital bank headquartered in Brazil, and it is adding tons of new members throughout its markets of Brazil, Mexico, and Colombia. Accounts increased by 28% over last year in the 2023 third quarter, or by 18.4 million, to 83.7 million. The growth is stronger in Mexico and Colombia, where it still has a smaller presence and which represent its highest growth opportunities right now. Nu has already captured a significant portion of Brazil's adult population -- 49%, although it's still adding members there, too.
In the long term, it has incredible growth potential as satisfied customers increase their engagement with Nu and add products and services. Average revenue per user (ARPAC) increased from $7.80 last year to $9.30 this year in the third quarter, and that's likely to keep moving up. Nu has expanded way beyond bank accounts and has a strong lending segment, as well as credit cards, investment products, and more.
Nu's profitability is impressive, too. Since it's all digital, it doesn't have to invest in costly real estate, and since a big part of its growth strategy is upselling and cross-selling, its customer acquisition costs go a long way.
At the current price, Nu stock trades at the absolute bargain valuation of 23 times forward one-year earnings. It releases third-quarter earnings this week, and if it's more of the same, expect the stock to jump.
3. Ally: A top dividend stock
Ally is a relatively recent Buffett stock, but it checks all of Buffett's usual boxes: It's a bank flush with cash, it's established and stable, and it pays a reliable, high-yielding dividend. It's a little bit different than Buffett's typical bank stock because it's all digital and medium-sized. It's also trading at a dirt-cheap valuation, and there's reason to suspect it's undervalued.
Ally was originally the financial arm of General Motors, and it still has a robust auto-lending segment since it was spun off into its own company. Not only did that remain vibrant in the 2023 third quarter despite high interest rates, but it has a record 3.7 million auto loan applications with $10.6 billion in originating volume.
There were other positive highlights as well. Retail deposit customers increased by 307,000 over last year to 3 million, which was record growth. 72% are millennial age or younger, a group attracted to digital services, and Ally will benefit from this cohort as it ages with it. Ally also has an industry-leading 96% customer retention rate.
Although Ally is dealing with higher charge-off rates and defaults, it's managing through the increased interest-rate environment with increased customer engagement and cost-cutting. It's well-positioned to bounce back to a better place than it started.
In the meantime, Ally stock trades at only 0.7 times book value, an incredibly cheap valuation, and its dividend yields 4.6% at the current price, making it a great investment right now.