The top three stocks on the S&P 500 in October

Key points

• The S&P 500 was down slightly in October.

• Two of the top three stocks in October were travel stocks.

• Which of the three is the best buy?

Some travel stocks rose to the top in October.

The S&P 500 saw its five-month winning streak snapped in October, as the large-cap benchmark fell about 1% for the month.

The index fell into negative territory for the month after a huge Halloween selloff, spurred by disappointing earnings from tech giants Meta Platforms (NASDAQ: META) and Microsoft (NASDAQ: MSFT) that saw the S&P 500 drop 108 points.

It is the first losing month for the S&P 500 since April, but the index remains up 19.7% year-to-date.

All of the other major indexes were down in October too, as the Nasdaq dropped 0.5%, the Dow Jones Industrial Average fell 1.3%, and the Russell 2000 declined 1.5%.

This was not a typical month for the S&P 500, so the top performers were not the typical names as some value stocks rose to the top. Here are the top three stocks on the S&P 500 in October.

United Airlines  

United Airlines (NYSE: UAL) was the top performer on the S&P 500 in October, rising 37.2% to $78.26 per share at month’s end. The stock has returned a whopping 90.3% year-to-date and is one of the top performers on the index this year.

United soared after it released third quarter earnings on October 15 that topped revenue and earnings estimates. The company saw revenue increase 2.5% in the summer quarter, as the number of passengers rose 2.7% year-over-year and capacity increased 4.1%.

Adjusted net income was $1.1 billion, or $3.33 per share, which was better than analysts estimates and its own prior forecast.

Also, the company expects adjusted earnings of $2.50 to $3.00 per share in Q4, which is up from $2.00 per share a year ago and higher at the midpoint than estimates. United also announced a $1.5 billion share buyback program, its first since before COVID.

United stock is cheap with a forward P/E of 6.7 and analysts see 14% upside with an $89.50 median price target.

Norwegian Cruise Lines

Norwegian Cruise Line (NYSE: NCLH) was another travel stock and value name that rose to the top in October. Norwegian posted a return of 25.5% in October, and it is now up about 26% year-to-date.

Norwegian stock surged late in the month when the cruise line reported robust third quarter earnings on October 30.

Norwegian saw revenue climb 11% year over year to a record $2.8 billion, as capacity increased 4%. Also, it posted a 37% increase in net income to $475 million, or 95 cents per share. Performance was driven by not only strong revenue growth but also lower expenses from cost reductions and efficiencies. Both revenue and earnings topped Wall Street estimates.

In addition, Norwegian raised its adjusted net income guidance for fiscal 2024 from $790 million to $855 million and boosted its adjusted EPS guidance to $1.65 from $1.53 per share.

Norwegian remains a decent value trading at 13 times forward earnings and a median price target of $27 per share, which would be about a 7% increase.

Paycom Software

The third best performer in October was Paycom Software (NYSE: PAYC), which rose 23.5% in the month. The performance lifted Paycom’s year-to-date return to 2.6%, trading at $211 per share.

Almost all of Paycom’s gains came on October 30 as the stock price skyrocketed after the online payroll provider reported third quarter earnings. Paycom saw revenue increase 11% in the quarter to $452 million, while earnings per share jumped to $1.31 per share, up from $1.30 per share in the same quarter a year ago. Both topped analysts’ estimates.

Also, cash and cash equivalents rose 11% to $326 million while the company maintained $0 debt.

For the fourth quarter, Paycom targeted $477 million to $484 million in revenue, up from $452 million in Q3, and adjusted EBITDA of $184.5 million to $191.5 million, up from $171.3 million in Q3. For the full fiscal year, Paycom calls for revenue of $1.866 billion to $1.873 billion and adjusted EBITDA of between $745 million and $752 million.

Paycom stock is the most expensive of the three, with a P/E ratio of 25. Its consensus outlook is worse than the others with a median price target of $191 per share, which would be down about 10% from the current price.

Of the three, United Airlines stock looks like the best option right now.