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Stocks to Track in December as Markets Peak

Wall Street extended last month’s historic rally to start December fueled by vaccine optimism. The potential for a divided Congress with president-elect Biden and better-than-expected earnings has added to the strength.

Moreover, the latest China survey, which revealed that the factory sector accelerated at the fastest pace in a decade in November, suggests that the world’s second-largest economy has recovered to the pre-pandemic levels. Several other countries also reported sharp upticks in factory activity.

The bullish trend is likely to continue this month given the improving economic activity in the crucial holiday season. Further, December is likely to be filled with events or stock/sector specific news that could provide a boost to the stocks.

Let’s delve into some of these events and learn how to tap the opportune moments with stocks:

Vaccines

A slew of encouraging trial data from AstraZeneca AZN, Moderna MRNA and Pfizer PFE has raised the prospect of vaccinating people as early as this month, once the regulatory approvals are in place. Pfizer and Germany’s BioNTech SE sought emergency approval of their vaccine candidate from the European regulator while Moderna is seeking emergency use authorization with the FDA for its vaccine candidate and conditional approval from the European Medicines Agency.

A vaccine is being viewed as an end to the pandemic crisis that could lead to a swift recovery in the economy and a boost to the stocks. While the rally seems broad-based, the cyclical sectors are expected to benefit the most, as these are closely tied to economic activities and outperform when economic growth improves. Some of the top-ranked stocks from these spaces include ArcBest Corporation ARCB, Brighthouse Financial Inc. BHF and HighPoint Resources Corporation HPR. These stocks have a Zacks Rank #1 (Strong Buy) or 2 (Buy), suggesting their outperformance in the months ahead. Further, these stocks are expected to generate solid earnings growth this quarter (ARCB – 53.6%, BHF – 14.2%, and HPR – 208.8%). You can seethe complete list of today’s Zacks #1 Rank stocks here.

Value to Rule

Value stocks, which were struggling this year from sluggish growth and lower yields, dominate the last month’s rally and are expected to do so this month as well. This is because the arrival of a coronavirus vaccine will end the pandemic crisis and boost consumer spending, in turn lifting value stocks. Additionally, an improvement in corporate earnings growth, the expectation for quicker inflation and rising bond yields will also support value investing.

Entravision Communications Corporation EVC has surged 56.7% over the past month. This diversified media company utilizes a combination of television, radio, outdoor and publishing operations to reach Hispanic consumers in the United States. It has seen solid earnings estimate revision of 5 cents over the past three months for this year and has an expected growth rate of 90%. The stock has a Zacks Rank #2 and a Value Score of A.

Tesla to Join S&P 500

The S&P Dow Jones Indices announced that it would add Tesla TSLA to the index in a single tranche before market open on Dec 21. With market capitalization of more than $500 billion, Tesla will be the largest company ever to be added to the index. Tesla’s addition to the S&P 500 will be based on the closing price on Dec 18, coinciding with the expiration of stock options and stock futures, which should help facilitate the addition because of the high trading volume.

After inclusion in the index, Tesla would be the seventh-biggest company in the S&P 500 at its current market value, falling between Berkshire Hathaway Inc. BRK.B and Visa Inc. V. The Tesla stock has been on a solid run, jumping nearly 40% since Nov 16, when it was announced that it would join the S&P 500 in December.

The news has sparked heavy trade in the stock, as money managers will adjust their portfolios to make room for shares of the $538 billion company. Tesla has a Zacks Rank #3 (Hold) and a Growth Score of A. It has an estimated earnings growth rate of 86% for this quarter.

Holiday Season

The holiday season started with a big bang as a large number of Americans turned online for their shopping due to the pandemic. Per Adobe Analytics data, Thanksgiving online shopping jumped 21.5% year over year to a record $5.1 billion while Black Friday online sales surged 22% to a record $9 billion. Cyber Monday also brought in a record $10.8 billion in online spending.

The National Retail Federation forecast that holiday sales during November and December will increase 3.6-5.2% year over year to $755.3-$766.7 billion. While there are several options that are expected to benefit, Wayfair Inc. W seems to be an exciting choice. It is one of the world's leading online sellers of home goods products, consisting of furniture and home decor. The company is expected to see solid earnings growth of 129.6% for the ongoing quarter. The stock has a Zacks Rank #2 and a Growth Score of B.

Santa Rally

A Santa Claus rally refers to the increase in stock prices in the final week of the calendar year (i.e. between Christmas and New Year’s Day) that extends into the first two days of the New Year. The year-end seasonal factors such as holiday optimism, tax-related affairs, investment of Christmas bonuses, mutual fund manager window dressing, and the “January effect” should drive the stock upward and make December one of the best-performing months for the stocks.

As such, high-beta and high-momentum stocks like Party City Holdco Inc. PRTY could lead the market in the final weeks of December. This company is involved in designs, manufactures, contracts for manufacture and distributes party goods, including paper and plastic tableware, metallic and latex balloons, Halloween and other costumes, accessories, novelties, gifts and stationery. With beta of 4.18, it has a Zacks Rank #2 and Momentum Score of B.

These Stocks Are Poised to Soar Past the Pandemic

The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.

Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.

See the 5 high-tech stocks now>>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Berkshire Hathaway Inc. (BRK.B): Free Stock Analysis Report
 
AstraZeneca PLC (AZN): Free Stock Analysis Report
 
Pfizer Inc. (PFE): Free Stock Analysis Report
 
Moderna, Inc. (MRNA): Free Stock Analysis Report
 
Visa Inc. (V): Free Stock Analysis Report
 
Entravision Communications Corporation (EVC): Free Stock Analysis Report
 
Tesla, Inc. (TSLA): Free Stock Analysis Report
 
ArcBest Corporation (ARCB): Free Stock Analysis Report
 
Wayfair Inc. (W): Free Stock Analysis Report
 
Party City Holdco Inc. (PRTY): Free Stock Analysis Report
 
Brighthouse Financial, Inc. (BHF): Free Stock Analysis Report
 
HIGHPOINT RESOURCES CORP (HPR): Free Stock Analysis Report
 
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