In this article, we will take a look at the 8 best bargain stocks to buy in October.
The Aftermath of an Easing Cycle
September has historically been sluggish for stocks. However, with an easing cycle and an upcoming election in store, the results this year may be untypical. On September 26, Tom Lee, Fundstrat Global Advisors managing partner and head of research, appeared in an interview on CNBC to discuss the market outlook ahead of the easing cycle.
Lee suggests that an easing cycle indefinitely improves the performance of markets, especially from a historical standpoint, hinting that with 40 days to the election, the market may change its course of action accordingly. While stocks reposition themselves positively after an easing cycle, the markets may see delays, especially because investors are more likely to wait until after the results are out.
Lee added that rallies in November and December will be significantly high, especially when markets have been up more than 10% in the first half of the fiscal year 2024. While the economy is not officially in a recession, the number of investors and analysts who believe the economy is going down is immense. Therefore, to get investors on the move evidence has to be better than expected.
What do the Elections Mean for Markets?
The 50 basis point cut may have redeemed positive results for the market. On September 28, Matt Powers, Powers Advisory Group managing partner, appeared in an interview on Yahoo Finance to discuss the plausible sectors to target as elections approach.
Powers shared that inflation numbers validated the 50 basis point cut, showing positive economic signs. However, he does reiterate that there will be some short-term volatility, especially in October.
According to him, investors must focus more on stocks in the defensive sectors, including utilities, consumer staples, and financials. Powers advises investors to spare some short-term equity but focus on long-term and medium-term results. Overall, he believes that the market is more balanced and a reallocation to the dividend stocks and dividend ETFs is highly probable.
Now that we have studied the aftermath of the easing cycle and the market outlook before an impending election, let’s take a look at the 8 best bargain stocks to buy in October according to analysts.
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Our Methodology
To come up with the best bargain stocks in October, we used the Finviz screener to find stocks trading at a forward P/E of less than 20. We sorted our screen by market cap and went through the 30 biggest stocks. We then shortlisted the stocks that were the most popular among hedge funds, as of Q2 2024, and that analysts saw the most upside to. The stocks are ranked in ascending order of analysts’ upside potential.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
8 Best Bargain Stocks To Buy in October
8. PDD Holdings Inc. (NASDAQ:PDD)
Forward P/E as of September 28, 2024: 11.27
Analyst Upside Potential as of September 28, 2024: 18%
Number of Hedge Fund Holders: 86
PDD Holdings Inc. (NASDAQ:PDD) is one of the best bargain stocks to buy according to analysts. The company is a multinational e-commerce group that owns Temu and Pinduoduo, two online retail sites, and holds a 20% market share in China’s e-commerce industry.
Pinduoduo is one of the most prominent online agriculture retail platforms in China. Temu, on the other hand, is an e-commerce platform in the United States and Europe that sells clothing, home decor, beauty, and handmade items. Temu, known for its notoriously low-priced products and fast deliveries, has partnerships with major distributors such as UPS, FedEx, and USPS.
PDD Holdings’ (NASDAQ:PDD) presence in China warrants its position as one of the best e-commerce stocks to buy. With a 20% market share in the country and a growing platform in Europe and North America, PDD’s Temu is set to become one of the most used platforms in the world. Over the past year, PDD’s growth has been exemplary. In the second quarter of 2024, PDD Holding’s total revenue reached RMB 97 billion, an 86% increase year-over-year.
Overall, PDD Holdings (NASDAQ:PDD) is witnessing an upward trajectory in terms of users and cross-border growth. Its 10 billion yuan commitment to its agricultural initiative saw a 90% growth in participating merchants, as of June 18. Additionally, the company made significant investments in research and development to improve the merchant onboarding and product listing processes.
Overall, 86 investors were bullish on the stock at the end of Q2 2024, which explains PDD’s position. While macroeconomic conditions in China may be off-putting, the company’s cross-border growth may yield promising results.
7. NetEase, Inc. (NASDAQ:NTES)
Forward P/E as of September 28, 2024: 13.07
Analyst Upside Potential as of September 28, 2024: 21%
Number of Hedge Fund Holders: 35
NetEase, Inc. (NASDAQ:NTES) ranks seventh on our list of the best bargain stocks in October according to analysts. The company is an online gaming, music streaming, and content services provider based in China.
In the second quarter of 2024, the company reported revenue worth $3.5 billion, up 6.1% year-over-year. Its games and related value-added services segment logged $2.8 billion in revenue, making up for most of the company’s sales.
NetEase’s (NASDAQ:NTES) gaming segment, as evident from its financials, is its strongest suite. During the second quarter, the company not only launched new games but also garnered more popularity for its existing games with record-high daily average users in July and August.
While NetEase, Inc. (NASDAQ:NTES) is already dominant in the gaming industry, its intelligent technology company, Youdao, will benefit thoroughly from the AI and tech wave. The education technology company relies on AI to help learners from across the globe benefit from technology. Some of its prominent tools include Youdao Translation and the Youdao Dictionary Pen.
NetEase, Inc. (NASDAQ:NTES) is an investor favorite poised to leverage AI. Analysts are bullish on the stock and their price target points to an upside of 21%. 35 hedge funds held the stock at the end of Q2 2024.
Polen Capital’s Polen Emerging Markets Growth Strategy stated the following regarding NetEase, Inc. (NASDAQ:NTES) in its first quarter 2024 investor letter:
“NetEase, Inc. (NASDAQ:NTES) is one of the top players in China’s video game industry and saw decent revenue growth in 2023, particularly in its games division, with profit growth close to 20%. The stock also continues to recover after gaming restrictions announced last quarter in China were not nearly as bad as first feared.”
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