Investors looking for stocks to buy have had a clear message from the market recently. US voters head to the polls tomorrow (Tuesday 3 November), but the stock market has already cast its ballot.
In October, dividends won by a landslide over growth. The question is what smart investors should look to do now.
What’s been going on?
Since April, income stocks have comfortably outperformed their growth counterparts. And the gap is striking:
| ETF | 6-month return | Year to date |
|---|---|---|
| iShares S&P 500 Growth | -6.57% | +9.02% |
| iShares Select Dividend | +6.43% | +13.95% |
That’s before distributions, so the real gap is even wider. The main reason is the market getting wary about whether AI spending will pay off, and focusing on companies making real money right now.
How long will it last? Nobody knows. But I think there are opportunities on both sides for investors to consider.
Growth: consider Halma
Halma (LSE:HLMA) is a high-quality FTSE 100 growth business. Over the last decade, revenue has grown at 11.6% a year and earnings per share at 12.4%.
It has also increased its dividend by at least 5% for 47 consecutive years, which is a sign of a business with genuine underlying strength. Despite this, the stock is around 30% below its 2026 high.
What the market doesn’t like is its reliance on a single customer. Around 20% of Halma’s sales come from one company (thought to be Alphabet) has been buying photonics components for data centres.
That’s a fair point. One of the key attractions of a conglomerate is that it offers diversified exposure and that’s undermined when customer concentration reaches these kinds of levels.
But even if those sales didn’t just slow but went to zero, today’s share price implies a price-to-sales (P/S) multiple of 6.3. That’s a premium, but it’s only the multiple the stock was at back in April.
The dividend yield isn’t high, but I think this is a rare chance to look seriously at a quality compounder after a significant drop.
Value: Pfizer’s on the move
Pfizer (NYSE:PFE) has been in the stock market’s penalty box since Covid-19. Earnings fell as vaccine demand rolled off and debt rose after the $43bn Seagen acquisition, pushing the dividend yield up.
That’s an ongoing risk – pharma firms rely on acquisitions to offset patent expiries and Pfizer has more of those coming. The dividend, however, has kept going and there are positive signs:
- Seagen’s cancer treatments are replacing low-margin Covid revenues with higher-margin specialist oncology sales.
- Leverage is coming back towards Pfizer’s target range.
- CEO Albert Bourla bought 38,000 shares at $26.34 in August – a $1m vote of confidence. The stock’s up around 20% since.
Drug pipelines are notoriously tricky. But a forward P/E of 12.5 against a historical average of 18 is worth paying attention to – especially with third-quarter results due tomorrow (3 November).
Where next for the S&P 500?
The stock market has started edging back towards safety over the last few months, but we’re some way off a full reversal. And I think there are potential opportunities on both sides of the income aisle.
Growth-focused investors might want to look at Halma in a rare drawdown. Value-minded operators should check out a rallying Pfizer.
Neither stock is likely to be top-of-mind for investors right now. But looking beyond the headlines is the key to finding the best opportunities.
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Stephen Wright does not own shares in any of the companies mentioned.
This story originally appeared on Motley Fool
