September often carries a reputation for market volatility and potential downturns, usually called the “September Effect.” This perception is rooted in historical observations, but savvy investors should avoid letting perceived trends dictate their investment decisions. Focusing on solid fundamentals and identifying companies with robust growth prospects can yield positive returns regardless of the month. 

Unraveling the Mystery of the "September Effect"

The "September Effect" refers to the historical trend of the stock market experiencing weaker performance, or even negative returns, during September. While the exact cause is debated, several theories and potential contributing factors have been proposed:

• Seasonal Investor Behavior: Some believe investors returning from summer vacations may rebalance their portfolios in September, selling stocks to lock in gains or harvest tax losses before the year's end. Additionally, covering back-to-school expenses might prompt some individuals to sell stocks.
• Market Psychology and Self-Fulfilling Prophecy: If investors anticipate the September Effect, their negative sentiment could create a self-fulfilling prophecy, driving stock prices down.
• Bond Market Activity: September often sees a surge in new bond issuances, drawing capital away from the stock market. Rising interest rates can also make bonds more attractive than stocks, further contributing to the shift.
• Historical Quirk: Some experts dismiss the September Effect as a mere statistical anomaly without any underlying causal relationship.

While historical data supports the existence of the September Effect, it's important to remember that past performance does not indicate future results. Numerous factors influence the market, and this September may defy the historical trend. A more balanced approach is to consider fundamental analysis, focusing on the underlying performance of companies and the overall economic climate. You should adopt a long-term perspective, investing based on long-term goals, focusing on companies with consistent earnings growth or a history of dividend increases, and avoiding short-term speculation driven by seasonal "effects." Diversification, spreading investments across different asset classes, can mitigate risk and smooth out potential volatility.

Seeking Value in a Volatile Market

Instead of focusing on seasonal trends, investors should seek companies with solid fundamentals, growth prospects, and business models. These attributes can help companies weather market fluctuations and generate long-term value. 

Devon Energy: A High-Flying Energy Giant

Devon Energy (NYSE: DVN) is a leading U.S.-based oil and natural gas producer that continues to demonstrate its commitment to growth and shareholder value. Despite the stock's slight year-to-date decline, Devon's focus on its core Delaware Basin assets has significantly improved productivity. The company has already upgraded its production volume estimates twice this year, implying a 5% increase over its original guidance.

Devon is getting in on the energy sector's acquisition frenzy by announcing a $5 billion acquisition of Grayson Mill's Williston Basin assets. This acquisition will add substantial high-margin production to Devon's portfolio, expanding its oil equivalent production by 15% and its free cash flow by a similar amount. The deal will also add 307,000 net acres and approximately 100,000 barrels of oil equivalent production per day to Devon's Williston Basin operations.

The market's initial reaction to the Grayson Mill acquisition was muted, possibly due to its relatively conservative nature, as Devon is paying for producing assets rather than reserves. This strategy could backfire if the price of oil slumps over the medium term. However, investors and Devon's management are unlikely to invest in the sector if they are worried about a significant oil price decline, highlighting their confidence in the long-term outlook for oil and gas.

Devon's commitment to shareholder returns is evident in its dividend and share repurchase program. The company recently declared a fixed-plus-variable quarterly dividend of $0.44 per share, which yields 4.5%, topping the sector average of 3.75%. This generous dividend payout, coupled with Devon's ongoing share repurchase program, demonstrates the company's confidence in its ability to generate significant cash flow, reduce debt, and deliver strong returns to investors in the coming years. Devon's recent acquisition of Grayson Mill and its continued focus on operational efficiency in its core assets suggest that this strategy is poised to continue delivering value for investors well into the future.

Emerson Electric: A Value Stock Ready for Growth

Emerson Electric (NYSE: EMR) is making strides in its strategic shift toward automation and adjacent markets like industrial software and test and measurement, setting the company up for long-term growth. 

Emerson’s sale of its remaining 40% interest in Copeland, a heating, ventilation, air-conditioning, and refrigeration (HVACR) joint venture, clears the path for Emerson to accelerate its growth in its targeted end markets. While the core business of automation has been mixed in 2024, with process automation (oil and gas, mining, chemicals, etc.) and hybrid (food, life sciences, etc.) showing mid-single-digit order growth in Emerson’s earnings report for the recent third quarter, the company is experiencing a low-single-digit decline in orders in discrete (factory automation) due to inventory correction within the industry. Emerson's automation performance is expected to improve as inventory levels normalize and interest rates decrease.

Emerson's 55% ownership of industrial software company Aspen Technology positions it to benefit from positive spending trends in energy, utilities, and smart grid solutions. The acquisition of test and measurement company NI last year also looks well-timed. Emerson and its test and measurement peer Keysight Technologies (NYSE: KEYS) expect a growth recovery in 2025.

Emerson's automation solutions are critical to keeping its customers' operations cost-effective, a crucial concern for plants operated outside low labor-cost countries. The company's focus on automation is helping its customers optimize their processes, improve efficiency, and reduce costs.

Emerson is strategically positioned to capitalize on these trends and deliver strong returns to investors. Emerson Electric stock is a good fit for investors seeking a value stock with exposure to automation and growth opportunities.

3M: A Restructuring for Revival

3M (NYSE: MMM) is undergoing a strategic restructuring to address years of lackluster sales growth and margin performance. The spinoff of its healthcare business, Solventum (NYSE: SOLV), has freed up capital to support legal settlements.

New CEO William Brown is focused on improving the company's research and development capability to develop new products that command market share and pricing power. While these efforts will take time to show results, Brown is simultaneously working on a fundamental restructuring to enhance the company's supply chain, leverage its buying power in sourcing, and optimize its factory and distribution footprint.

As part of these plans, Brown aims to reduce the time 3M holds inventory for sale, potentially boosting free cash flow by $1 billion. This strategic shift toward operational efficiency could translate to a potential 28% increase in 3M’s stock price, showcasing 3M's commitment to unlocking shareholder value.

3M's end markets, including semiconductors, automotive, consumer electronics, and construction materials, show signs of cyclical improvement.

For investors looking for exposure to companies engaged in strategic restructuring and benefiting from cyclical improvements in their target markets, 3M presents a potential investment opportunity worthy of consideration.

September's Volatility: Seize the Opportunity

While September may have a reputation for market fluctuations, investors focusing on companies with solid fundamentals, growth potential, and business models can still find attractive investment opportunities. Devon Energy, Emerson Electric, and 3M offer distinct growth and value-creation avenues. By carefully considering their individual strengths, market positions, and strategic directions, investors can confidently navigate potential market turbulence and position themselves for a “September to Remember.”