The Motley Fool

Top shares for October

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

Kevin Godbold: Smith & Nephew

The FTSE 100’s Smith & Nephew (LSE: SN) makes joint replacements for knees, hips and shoulders, tools for minimally invasive surgery, and other medical bits and pieces. It’s a ‘defensive’ business characterised by steady demand, and that shows in the firm’s record of well-balanced growth in revenue, cash flow and earnings.

Cash flow supports profits well, and City analysts expect high single-digit advances in earnings going forward. You are unlikely to pick up shares in a firm with such attraction at bargain-basement levels, but ongoing operational progress looks set to drive the shares higher, perhaps as early as during October.

Kevin Godbold does not own shares in Smith & Nephew.

Rupert Hargreaves: Galliford Try

In the first half of 2018, the market fell out of love with homebuilder Galliford Try (LSE: GFRD). However, it now looks as if confidence is returning, with the stock up just under 20% over the past six months excluding dividends, compared to the FTSE 100’s gain of 4% over the same period. 

And I reckon this positive trend is going to continue throughout the rest of the year. Even though shares in Galliford have rallied, it still looks cheap to me. Galliford currently trades at a forward P/E of 7.6 and yields 6.7%. As investors continue to return, I think the stock will trade back up to its five-year average P/E of 10 – a potential upside of more than 25%!

Rupert Hargreaves does not own shares in Galliford Try.

Edward Sheldon: DS Smith

My top stock for October is packaging specialist DS Smith (LSE: SMDS). It currently trades on a forward P/E ratio of 12.8 and offers a prospective dividend yield of 3.4%.

Packaging is certainly not the most exciting investment theme yet, with the global boom in e-commerce, packaging companies look well placed to generate robust returns in the coming years, in my view. And FTSE 100 firm DS Smith – which counts Amazon (UK) as a key customer – appears to be performing well at present, with CEO Miles Roberts recently stating that the corrugated packaging industry continues to demonstrate “excellent growth prospects” as a result of changing shopping habits and e-commerce and that DS Smith is in a “strong position” to capitalise on these opportunities.

I see considerable value here at the current share price.

Edward Sheldon owns shares in DS Smith.

G A Chester: Hochschild Mining

Weak gold and silver prices this year have hurt sentiment towards precious metals miners like FTSE 250 firm Hochschild (LSE: HOC). This is a well-managed business with a strong balance sheet and, despite continuing good operational performance, its shares have felt the chill wind of a disinterested market.

I rate the stock a buy today on the basis that gold and silver prices won’t be depressed forever and that, even as things stand, with 75% earnings growth forecast for 2019 on the back of continuing increased production, Hochschild isn’t a company that will remain unloved for long, in my opinion.

G A Chester has no position in Hochschild.

Paul Summers: Central Asia Metals

My top pick is small-cap copper play Central Asia Metals (LSE: CAML). Thanks to the US/China trade shenanigans, many commodities – and the share prices of those producing them – have fallen heavily in price over recent months. Central Asia Metals is no exception.

Towards the end of last month, however, sentiment appeared to be changing, spurred on by repeated warnings about a forthcoming supply deficit of the red metal. There’s no way of telling whether this rally will last but, on 7 times earnings, the stock already seems cheap.

It’s also a cracking dividend payer, with this year’s expected 20 US cents per share return equating to a yield of well in excess of 6%.

Paul Summers has no position in Central Asia Metals

Peter Stephens: Imperial Brands 

The growth potential of next-generation products could catalyse the Imperial Brands (LSE: IMB) share price over the long run. The company is investing heavily in the segment, with its blu e-cigarette being a dominant brand. It expects sales and margins to improve over the next few years, while pricing power in its tobacco segment remains high.

Alongside this, Imperial Brands offers a wide margin of safety. Its shares have a P/E ratio of around 11, as well as a dividend yield of 7%. They ought to also offer defensive characteristics should the current bull market come to an end in the near term.

Peter Stephens owns shares in Imperial Brands.

Royston Wild: PageGroup 

The likelihood of another impressive trading update from PageGroup (LSE: PAGE) convinces me that now could be a great time to buy into the stock. Third-quarter financials are scheduled for October 8.

In its last update in August, the FTSE 250 recruiter advised that profits continued to rise by double-digit percentages in the first half of the fiscal year, driven by further impressive performance across its international businesses. Reports of additional progress since then could prompt a flurry of fresh buying activity from market makers following recent weakness.

A forward PEG reading of 1.1, created by City predictions of a 17% earnings jump in 2018, certainly leaves plenty of scope for new gains.

Royston Wild does not own shares in PageGroup.

Roland Head: BHP Billiton

My top buy in the commodity sector at the moment is Anglo-Australian group BHP Billiton (LSE: BLT).

Unlike its FTSE 100 rivals, BHP provides exposure to oil and gas as well as to key mining commodities such as copper and iron ore. Returns are high – this business generated a return on capital employed of 16% and an operating margin of 36% during the 12 months to 30 June.

Free cash flow clocked in at £9.6bn during the year, supporting a generous dividend. The shares now trade on 12 times forecast earnings with a prospective yield of 5.7%. I believe further gains are likely as the mining sector returns to growth.

Roland Head does not own shares of BHP Billiton.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool owns shares of and has recommended Amazon. The Motley Fool UK has recommended DS Smith and Imperial Brands. 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.