September is the worst month of the year for stocks, but the real scary month this year could be October, and not just because of the potential for a spooky Halloween. With third-quarter earnings on deck, typical seasonal worries and what most likely will be another 75-basis-point increase in the federal funds rate, the analysts at Goldman Sachs are urging investors to avoid investing in the indexes and focus on single stocks for alpha generation.
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In a new research report targeted toward options trading going forward this fall, Goldman Sachs stresses that volatility could jump sharply in October. The analysts had this to say when discussing why:

We expect volatility to increase over the next month, driven by a seasonal pickup in investor uncertainty, significant monetary policy catalysts, including monthly inflation metrics and upcoming single stock catalysts, including analyst days. On average, over the past 94 years, S&P 500 volatility has increased 29% from August to October. While some consider it a coincidence that major market corrections have occurred in October, we believe performance pressures for company managements (to meet full year expectations) and investors (final earnings catalysts for their performance year) exacerbate shifts in investor sentiment at this time of year.

Given those concerns, we screened the firm’s Conviction List of top stock picks for good ideas for what could be a very dangerous stretch to what already has been a lousy year for investors. This week’s consumer price index numbers all but confirmed that we are in for the aforementioned 75-basis-point increase in the federal funds rate next week, so safe dividend-paying picks are the way to go for now. We found seven from the Goldman Sachs Conviction List that make sense now.

It is important to remember that no single analyst report should be used as the sole basis for any buying or selling decision.

Constellation Brands

If any company has products that stay in style, it is this one, and it has only 7% foreign sales. Constellation Brands Inc. (NYSE: STZ) is a leading global producer and marketer of beverage alcohol. Its wide-ranging portfolio spans wine, spirits and imported beer.

The company is one the world’s largest wine companies overall and is the largest global premium wine company. Key brands include Robert Mondavi, Clos du Bois, Blackstone, Arbor Mist, Black Velvet and SVEDKA vodka. It also owns 100% of the rights to brew, market and sell Modelo’s Mexican beers in the United States.

Constellation Brands made a gigantic $3.8 billion investment in cannabis company Canopy Growth in 2018 to increase its holdings in the company. The record investment reflects a world in which marijuana has become ubiquitous as its counterculture stigma fades and more states legalize use.

Constellation Brands stock investors receive a 1.30% dividend. Goldman Sachs has a price target of $273, and the consensus target is $275.40. The stock closed on Tuesday at $240.11.

With the potential for extremely cold winter weather, this company may look to extend gains in the final quarter of 2022 and next year. DTE Energy Co. (NYSE: DTE) is the largest utility in Michigan. Its largest operating units are DTE Electric, an electric utility serving 2.2 million customers in southeastern Michigan, and DTE Gas, a natural gas utility serving 1.3 million customers in the state. DTE Energy also has non-utility energy businesses that focus on power and industrial projects, natural gas midstream and energy trading.
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The company’s Gas segment purchases, stores, transports, distributes and sells natural gas to residential, commercial and industrial customers throughout Michigan, and it sells storage and transportation capacity. This segment has approximately 19,800 miles of distribution mains, 1,305,000 service pipelines and 1,273,000 active meters, as well as approximately 2,000 miles of transmission pipelines.

Its Gas Storage and Pipelines segment owns natural gas storage fields, lateral and gathering pipeline systems and compression and surface facilities. It also has ownership interests in interstate pipelines serving the Midwest, Ontario and northeast markets.

The Power and Industrial Projects segment offers metallurgical coke; pulverized coal and petroleum coke to the steel, pulp and paper, and other industries; and power, steam and chilled water production, and wastewater treatment services, as well as supplies compressed air to industrial customers.

Shareholders receive a 2.70% dividend. The Goldman Sachs price objective on DTE Energy stock is $143. That compares with a lower $140.25 consensus and Thursday’s close at $132.92.

Merck

This remains a leading health care stock for conservative investors. Merck & Co. Inc. (NYSE: MRK) operates as a health care company worldwide. It operates through the following two segments.

The Pharmaceutical segment offers human health pharmaceutical products in the areas of oncology, hospital acute care, immunology, neuroscience, virology, cardiovascular and diabetes, as well as vaccine products, such as preventive pediatric, adolescent and adult vaccines.

The Animal Health segment discovers, develops, manufactures and markets veterinary pharmaceuticals, vaccines and health management solutions and services, as well as digitally connected identification, traceability and monitoring products.

Merck serves drug wholesalers and retailers, hospitals and government agencies; managed health care providers, such as health maintenance organizations, pharmacy benefit managers and other institutions; and physicians and physician distributors, veterinarians and animal producers. The company has collaborations with AstraZeneca, Bayer, Eisai, Ridgeback Biotherapeutics and Gilead Sciences.

Investors receive a 3.20% dividend. Goldman Sachs has set a $106 target price. The consensus target for Merck stock is $100.60, which is also well above Tuesday’s close at $86.28.

This utility is located in one of the fastest-growing states in the country and is a big ESG (environmental, social, governance) favorite. Next Era Energy Partners L.P. (NYSE: NEP) acquires, owns and manages contracted clean energy projects in the United States. Its portfolio of contracted renewable generation assets consists of wind and solar projects, as well as contracted natural gas pipeline assets.
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The company owns roughly 6.5 gigawatts of utility-scale wind capacity and 1.4 gigawatts of utility-scale and distributed generation solar capacity in North America as of mid-2021. NextEra also owns an interest in a network of natural gas pipelines in Texas. All of that company’s assets have long-term contracts with an average remaining contractual life of 14 years across the portfolio. NextEra Energy owns 57.2% of NextEra Energy Partners common units as of the end of 2020, with the remaining ownership interest publicly traded.

The dividend yield here is 3.60%. The $102 Goldman Sachs target price compares with an $86.38 consensus target. On Tuesday, NextEra Energy Partners stock closed at $84.08.

PepsiCo

This top consumer staples company will be supplying the goods for football tailgates and parties this fall. PepsiCo Inc. (NYSE: PEP) operates as a food and beverage company worldwide. Its Frito-Lay North America segment offers Lay’s and Ruffles potato chips; Doritos, Tostitos and Santitas tortilla chips; and Cheetos cheese-flavored snacks, branded dips and Fritos corn chips.

The Quaker Foods North America segment provides Quaker oatmeal, grits, rice cakes, natural granola and oat squares, as well as the recently name-changed Aunt Jemima mixes and syrups, and Quaker Chewy granola bars, Cap’n Crunch cereal, Life cereal and Rice-A-Roni side dishes.

Its North America Beverages segment offers beverage concentrates, fountain syrups and finished goods under the Pepsi, Gatorade, Mountain Dew, Diet Pepsi, Aquafina, Tropicana Pure Premium, Sierra Mist and Mug brands, as well as ready-to-drink tea and coffee, and juices.

PepsiCo stock comes with a 2.80% dividend. Goldman Sachs’s $185 price target posted is higher than the $181.69 consensus target and the most recent close at $167.45.

Raytheon Technologies

This top aerospace and defense idea has a diversified mix of businesses. Raytheon Technologies Corp. (NYSE: RTX) is an industry leader in defense, government electronics, space, information technology and technical services.

With a history of innovation spanning 97 years, Raytheon provides state-of-the-art electronics, mission systems integration, C5I products and services, sensing, effects and mission support for customers in more than 80 countries.
In 2020, United Technologies and Raytheon agreed to merge their businesses to create this new aerospace and defense powerhouse. The two-year-old merger, combined with the spin-off of the Carrier and Otis divisions in 2020, has top analysts across Wall Street expecting free cash flow to step up in a big way this year. Toss in the solid recovery in air travel and improving sentiment that could help drive the commercial aerospace business.

Shareholders receive a 2.70% dividend. Raytheon Technologies stock has a $108 price target at Goldman Sachs. The consensus is slightly higher at $109.78, but the stock closed on Tuesday at $82.68.
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Republic Services

Despite the economy’s ups and downs, somebody has to pick up the trash and recyclables each week, and this is a leader in the business. Republic Services Inc. (NYSE: RSG) offers environmental services in the United States, including collection and processing of recyclable materials; collection, transfer and disposal of non-hazardous solid waste; and other environmental solutions.

The company’s collection services include curbside collection of material for transport to transfer stations, landfills or recycling processing centers; supply of recycling and waste containers; and renting of compactors. In addition, the company engages in the processing and sale of old corrugated containers, old newsprint, aluminum, glass and other materials, and in provision of landfill and transfer services.

Republic Services also offers disposal of nonhazardous solid and liquid material and in-plant services, such as transportation and logistics. It serves small-container, large-container and residential customers. As of December 31, 2021, the company operated through 356 collection operations, 239 transfer stations, 198 active landfills, 71 recycling processing centers, six saltwater disposal wells and seven deep injection wells, as well as three treatment, recovery and disposal facilities in 41 states. It also operated 77 landfill gas-to-energy and renewable energy projects and had 124 closed landfills.

Investors receive a 1.40% dividend. The Goldman Sachs price target is $175, while the consensus target was last seen at $156.86. Republic Services stock ended Tuesday trading at $146.26.

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The market is fast running out of gas and will be heading into some strong headwinds, given the continued big-time inflation we saw in August. Toss in persistent high energy prices, especially when the weather soon starts to turn cold, and the aggressive interest rate hikes for the rest of the year. After the 75-basis-points rise next week, we could have an additional 100 basis points added before the year is out. So, we could be in for some strong turbulence going forward. All these stocks can weather those potential storms much better than most.

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