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November Investment Picks: Tech Giants and Beverage Leaders Shine
2024 has been another excellent year for major indexes like the S&P 500 (SNPINDEX: ^GSPC) — which is up 20% year to date. Some investors may want to ride the rally higher by targeting today’s leading names, whereas others may be looking for better bargains or passive income opportunities.
Microsoft (NASDAQ: MSFT), Coca-Cola (NYSE: KO), and Roku (NASDAQ: ROKU) just sold off following their earnings reports. Meanwhile, Vertex Pharmaceuticals (NASDAQ: VRTX) is showing strong performance, and Chinese electric vehicle (EV) maker BYD (OTC: BYDDY) has emerged as a top performer among automakers.
Here’s a closer look at why five Fool.com contributors selected these companies as top investment picks for November.
Image source: Getty Images.
Microsoft: An Opportunity Not to Miss
Daniel Foelber (Microsoft): The $3 trillion tech giant isn’t cheap by standard valuation metrics, but considering its strong earnings and shareholder rewards, it appears to be undervalued.
Following a record fiscal 2024, Microsoft had pressure to deliver impressive first-quarter fiscal 2025 results, and it surpassed Wall Street’s expectations. Despite this, the stock fell by 6.1% on October 31 due to concerns over slowing growth in its Intelligent Cloud and Azure segments.
Intelligent Cloud largely drives Microsoft’s margin improvements and top-line growth. The fear of decelerating growth, combined with increased spending on long-term artificial intelligence projects, caused some investors to sell.
Nonetheless, Microsoft is still achieving revenue and earnings growth in the double digits. The company has returned a record amount of capital to shareholders via dividends and stock buybacks without incurring debt. Microsoft ended the quarter with $78.43 billion in cash and short-term investments compared to $42.87 billion in long-term debt.
With impressive results and the drop in stock price, Microsoft’s price-to-earnings ratio decreased to 33.9, around the median level for the past five years. This suggests that Microsoft is a higher-quality investment compared to prior years, making it a solid choice in November.
Coca-Cola: Steady Growth on the Horizon
Demitri Kalogeropoulos (Coca-Cola): With festive packaging appearing in stores, Coca-Cola remains a strong investment choice for 2024 and beyond. Recent earnings reports indicate that the beverage company is set for continued success.
In the third quarter that ended in September, Coca-Cola saw sales climb by 9%, benefiting from gains in both the U.S. and Latin America. Consumers have shown resilience to price hikes; the 9% sales increase stemmed from 11% higher prices, despite a slight decline in volume. This highlights Coca-Cola’s brand strength, especially as many consumers look for budget-friendly options.
CEO James Quincey noted that the business shows resilience amid changing market conditions, with Coca-Cola gaining market share even with lower sales volumes.
Financially, Coca-Cola achieved a 31% operating profit margin, an increase from 30% the previous year. Comparatively, rivals like PepsiCo are experiencing challenges with price-sensitive customers.
Why consider Coca-Cola stock now? Late October valuations put shares at 6 times sales, consistent with the average trading range seen in recent years. Though 2025 may bring slower growth as price increases stabilize, the risk is countered by Coca-Cola’s market share, profit margins, and a dividend yield of 3%. This positions Coca-Cola as an attractive investment for those seeking a mix of growth and income.
Roku: A Stock Worth Watching
Anders Bylund (Roku): Roku, a leader in media streaming, remains a popular topic among investors. The company has demonstrated consistent growth, yet bearish sentiments linger in the stock market.
Roku’s stock rose significantly from early August to late October. A strong second-quarter report spurred positive analyst reviews and investor confidence. Following a subsequent report that again beat estimates, the stock faced pressure as investors shifted focus to modest fourth-quarter projections and new operational metrics.
In its recent earnings report, Roku surpassed Wall Street’s expectations, inching closer to profitability after experiencing losses previously. Revenue exceeded forecasts, particularly within the platform segment, which encompasses software licensing, advertisement sales, and subscription fees for streaming services ordered via Roku.
Advertising sales have notably increased due to a recent partnership with The Trade Desk. The Roku Pay service has also contributed, boosting sales and aiding streaming services in increasing their subscriber bases. Despite these advancements, Roku’s stock fell the following day, influenced by the company’s cautious fourth-quarter guidance.
Analyzing the guidance requires context. Three months prior, Roku indicated that the platform division’s growth rate should accelerate in the fourth quarter, but the most recent report did not update this target, maintaining a growth rate of 14%, which mirrors the third quarter’s performance without projected improvements.
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Roku’s Future: Why Analysts Believe It’s a Great Buy Right Now
Despite some negative opinions on Roku’s latest financial report, there are compelling reasons to believe in its potential growth.
Roku’s Results and Changing Metrics
Critics argue that Roku’s sales growth between Q3 and Q4 may not be as significant as expected. However, it’s important to note that the company already achieved its projected growth three months ahead of schedule.
Roku accelerated its growth in its most profitable business segment, yet some investors interpreted this as a sign of weakness. I strongly disagree with this sentiment.
The company plans to modify its key financial metrics, which some believe will obscure its results. Starting in 2025, Roku will no longer report subscriber counts or average revenue per user (ARPU). Instead, it will focus on four key areas: streaming hours, platform revenue, adjusted EBITDA, and free cash flow.
This shift in reporting isn’t new; Netflix made a similar change in 2022 when it pivoted from primarily tracking subscriber growth to emphasizing revenue. Investors were initially critical of Netflix’s new approach, but the company’s performance improved significantly. If you invested in Netflix in mid-2022, your investment has more than tripled since then. Roku isn’t mimicking Netflix exactly, but it is following a comparable path.
Vertex Pharmaceuticals: A Biotech Stock Worth Watching
Keith Speights (Vertex Pharmaceuticals): With the stock market approaching all-time highs, many stocks seem overpriced. Moving forward, it’s wise for investors to focus on high-conviction stocks, and Vertex Pharmaceuticals is on my radar.
Vertex is the only company with approved therapies to treat the root causes of cystic fibrosis (CF), a rare genetic condition. This year, the company anticipates revenue of approximately $10.8 billion, and I foresee substantial growth throughout the decade.
Recently, Vertex has gained regulatory approval for a new treatment called Casgevy, designed for rare blood disorders like sickle cell disease and transfusion-dependent beta-thalassemia.
Approval decisions for two additional drugs are on the horizon. The FDA is set to decide on Vertex’s vanzacaftor, a combination treatment for CF, by January 2, 2025. A decision on suzetrigine, a non-opioid treatment for acute pain, is expected by January 30, 2025. Both have a chance to be major revenue-generating products.
Vertex’s pipeline contains two more late-stage candidates that could also succeed. One, inaxaplin, is in a phase 3 study targeting kidney disease with no current approved therapies. The other, povetacicept, targets IgA nephropathy, affecting about 130,000 patients in the U.S. alone, which exceeds the entire CF patient population.
At first glance, shares of Vertex, trading at 25.6 times forward earnings, might appear costly. Nonetheless, its promising growth potential points to a potential bargain.
BYD: An EV Manufacturer on the Rise
Neha Chamaria (BYD): Recent monthly sales figures for electric vehicles (EVs) reveal BYD is outperforming competitors, surpassing Tesla in revenue for the first time in history. This could mark the start of an upward trend for BYD.
Against a backdrop of a global slowdown in EV sales, BYD has celebrated five straight months of record deliveries, with over 500,000 new energy vehicles (NEVs) sold in October alone—up 66.5% year over year. NEVs include battery-electric vehicles, fuel-cell EVs, and plug-in hybrids, and BYD’s third-quarter revenue reached $28.2 billion, exceeding Tesla’s $25.2 billion.
BYD stands out as the largest NEV producer in China, with significant operations in North America and Europe, also ranking as the world’s second-largest manufacturer of EV batteries. Its in-house battery production has shielded it from cost pressures and supply issues, contributing to its impressive net income in Q3.
Alongside its range of passenger cars, BYD has expanded into commercial vehicles, including buses and pickups, and maintains global production facilities. With ongoing strong sales and an expanding international presence, BYD represents a compelling long-term investment opportunity in the EV space.
Considering an Investment in Microsoft?
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Anders Bylund holds positions in Netflix, Roku, and The Trade Desk. Daniel Foelber has no stock positions mentioned. Demitri Kalogeropoulos has positions in Netflix and Tesla. Keith Speights has positions in Microsoft, PepsiCo, The Trade Desk, and Vertex Pharmaceuticals. Neha Chamaria has no stock positions mentioned. The Motley Fool has positions in and endorses BYD Company, Microsoft, Netflix, Roku, Tesla, The Trade Desk, and Vertex Pharmaceuticals. The Motley Fool recommends specific options for Microsoft. The Motley Fool maintains a disclosure policy.
These views and opinions are those of the author and may not reflect the opinions of Nasdaq, Inc.
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