Top stocks for October

We asked our analysts to share their top stock picks for the month.

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We asked our writers to share their top stock picks for the month of October, and this is what they had to say:

Harvey Jones: Babcock International

The last year has been tough on engineering support services company Babcock International (LSE: BAB), its share price down more than 20% in that time. However, September’s trading update promises a brighter future.

Babcock provides outsourcing to private sector and government customers across the US, Europe and Africa, and continues to expand, with recent contract wins in Norway, France and South Korea. 

It is also busy in the domestic UK defence sector, where it has close links to the Royal Navy. The firm was recently appointed technical authority and support partner for the Royal Navy’s new aircraft carriers, HMS Queen Elizabeth and HMS Prince of Wales, as well as its Type 45 destroyers.

Future earnings visibility looks good. Babcock boasts a £19 billion order book with 89% of revenue in place for 2017/18 and 57% for 2018/19. Trading at just 10.61 times earnings and yielding 3.34%, today looks like a buying opportunity.

Harvey Jones has no position in Babcock International.

Edward Sheldon: Babcock International

Engineering services company Babcock International (LSE: BAB) released a trading update in September, advising that its order book and bid pipeline of opportunities had remained stable, and that 89% of revenue was now in place for 2017/18. The market was impressed with the news, with the shares rising over 5%. However, after falling from 1,300p to 840p over the last three years, Babcock shares remains well off their highs.

The company is forecast to generate 16% sales growth this year, and with a prospective dividend yield of 3.5% on offer, and a forward looking P/E ratio of just 10.1, this Neil Woodford-owned FTSE 100 stock looks good value to me.

Edward Sheldon has no position in Babcock International

G A Chester: Entertainment One
Media group Entertainment One (LSE: ETO) released an in-line trading update this week. It also reported a $0.2bn uplift in the value of its content library to $1.7bn (£1.3bn).
There’s a lot more to the group than its library, yet the enterprise value of the company at a share price of 255p is £1.4bn (£1.1bn market cap + £0.3bn net debt). It also trades at a discount to peers on earnings and the shares are only 8% above a 236p takeover approach from ITV last year, which the board said “fundamentally undervalues” the company. As such, the stock remains a ‘buy’ in my book.
G A Chester has no position in Entertainment One or ITV.

Rupert Hargreaves: Genel Energy

After languishing during the first half of the year, shares in Genel Energy (LSE: GENL) have woken up during the past few weeks and have now risen 90% year-to-date. I believe that there could be further gains on the cards.

Over the past two years, Genel has consolidated its position, cut costs and slashed capital spending to preserve its balance sheet. Now oil prices are rising again, profits are flowing. During the first half, the firm reported operating profit growth of 274% year-on-year. Cash generated from operations increased to $114m from $80m, and net debt fell 34%.

The average price received for the company’s oil during the first six months of the year was between $44 per barrel, and current oil prices indicate that the firm’s positive first-half performance has continued, which should support further share price gains.

Rupert does not own shares in Genel.

Royston Wild: Greggs

I reckon that Greggs’ (LSE: GRG) next trading update (scheduled for 3 October) should add extra fuel to the company’s impressive share price ascent — the baking behemoth has seen its market value swell by more than a quarter during the course of 2017.

The Newcastle-based company saw like-for-like revenues boom 3.4% in the six months to June, as demand for its coffee, breakfast items and ‘Balanced Choice’ calorie-conscious ranges continued to rise. And with Greggs’ store expansion scheme continuing, and the firm about to embark on home delivery and extend its recent move into drive-thrus, I expect sales to keep moving higher.

City analysts are expecting earnings at the firm to rise 1% and 7% in 2017 and 2018 respectively. I reckon a forward P/E ratio of 19.4 times is reasonable given Greggs’ impressive top-line momentum.

Royston Wild does not own shares in Greggs.

Roland Head: IG Group Holdings

Spread betting and CFD provider IG Group Holdings (LSE: IGG) was hit hard in December by news that the UK regulator plans to limit the amount of leverage available to retail investors.

But IG’s customer base includes a relatively high proportion of high-value expert investors, whose trading isn’t likely to be affected by the new rules. I expect the changes — when they happen — to have less impact on IG than most rivals.

The shares have risen by 34% in 2017, but are still 20% below last year’s highs. Trading on 14 times forecast earnings and with a 5% yield, the stock looks worth buying to me.

Roland Head does not own shares of IG Group Holdings.

Bilaal Mohamed: JD Sports

My top stock for October is leading sportswear and fashion retailer, JD Sports (LSE: JD). The Lancashire-based group earlier this month reported another exceptional set of results for the half year, with pre-tax profits increasing by a further 33% to a new record of £102.7m.

The FTSE 250 group now boasts more than 1,200 stores worldwide and is continuing to make significant investments in logistics to support the ongoing substantial growth in stores and e-commerce across all its businesses. 

JD’s shares have recently pulled back from May’s all-time highs, and are now trading on a very reasonable price-to-earnings multiple of 17 for the current fiscal year to January. I reckon this could be a great time for new investors to jump in.

Bilaal has no position in JD Sport.

Paul Summers: Motif Bio

Risk-tolerant investors might want to look at £91m cap Motif Bio (LSE: MTFB) — a potentially great play on the need for new antibiotics to tackle so-called “super-bugs”.

Somewhat ironically for a stock not suited to widows and orphans, the company recently announced that its main product, Iclaprim, had been granted Orphan Drug Designation by the FDA for treating lung infections in patients with cystic fibrosis. This comes before hotly anticipated Q4 news on the outcome of the second of two Phase 3 trials (REVIVE-2). Given the huge success of the first trial, I think holders could be handsomely rewarded over time if/when the antibiotic is approved and commercialised, particularly as Motif’s established peers already attract significantly higher valuations.

Paul Summers owns shares in Motif Bio.

Jack Tang: Redrow

While Redrow (LSE: RDW) is often overlooked when investors think of housebuilders, the stock’s post-referendum share price performance should command investors’ attention.

Redrow shares are now worth 35% more than since the Brexit vote — a significantly bigger gain than those of its larger rivals. And that’s despite news that its chairman and founder Steve Morgan recently sold a 7% stake in the company, which sent shares down almost 10% since 11 September.

I reckon the recent sell-off may present a buying opportunity for long-term investors. Redrow still has a robust land bank and an improving pipeline of new developments. Moreover, the sector remains supported by the chronic undersupply of new housing, low borrowing costs and the government’s Help to Buy scheme.

Jack does not own shares in Redrow.

Peter Stephens: Royal Dutch Shell

The oil price recently hit a two-year high and this could be good news for the profitability of oil and gas stocks such as Shell (LSE: RDSB). The company’s acquisition of BG has provided it with a greater focus on LNG, while it is seeking to create a simpler business which is more focused on resilient positions within advantaged projects.

The resetting of cost and capital spending has strengthened the company’s financial prospects. Its 6.4% dividend yield is due to be covered by earnings next year, while a price-to-earnings growth (PEG) ratio of 1.3 suggests it trades at a discount to its intrinsic value.

Peter Stephens owns shares in Shell.

Ian Pierce: Safestyle

The stock I have my eye on this month is replacement window and door manufacturer Safestyle UK (LSE: SFE). The company has been knocked by two profit warnings in recent months due to an industry-wide slowdown in orders, but I believe over the long-term the company is still an attractive one.

The recent sector downturn presents an opportunity for the company to consolidate its highly fractured market due to above-average margins and a balance sheet with oodles of cash. With its shares now yielding 5.5% and trading at less than 13 times forward earnings, now could be a great time to consider Safestyle.   

Ian Pierce has no position in Safestyle UK.

Kevin Godbold: Wizz Air

FTSE 250 listed Wizz Air Holdings (LSE: WIZZ) is trading well. City analysts expect earnings to fly 24% higher for the year to March 2018 and 17% the year after that.

The firm is a low-cost airline active in Central and Eastern Europe and operates a fleet of 84 Airbus A320 and A321 aircraft. Along with earnings, the share price has been soaring, up around 117% since early 2015. But the valuation remains grounded with the forward price-to-earnings ratio cruising near 12.

Interim results are due on 9 November and I’m expecting more good news. October could see the stock climb in anticipation.

Kevin Godbold owns shares in Wizz Air Holdings.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

The Motley Fool UK has recommended ITV, Redrow, Royal Dutch Shell B, and Safestyle UK. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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