Traditionally, stocks have performed exceedingly well in the last five trading sessions of a year followed by the first two sessions of the New Year. This particular stock market trend is popularly known as the Santa Claus rally.
As said by chief market strategist for LPL Financial, Ryan Detrick, quoted in a MarketWatch article, the seven-day trading stretch for stocks has registered an average gain of 1.3%, the second-best seven-day trading period in a year. However, it is not known clearly why this December stretch is so good for stocks.
Some speculate that consumer spending picks up due to the holiday season, boosting corporate revenues. It may also be owing to renewed optimism of a better year around the corner that helps investors to stay bullish.
Nonetheless, per the MarketWatch article, Detrick did confirm that since mid-1990s “there has been six times Santa failed to show in December”, and in such a scenario the stock market mostly failed to impress in January and the full year as well. And this time around, Santa may well not come to town, thanks to the relentless rise in coronavirus cases across the globe, let alone the United States. Needless to say, the coronavirus outbreak has ravaged economic growth worldwide.
In fact, a recent strain of coronavirus especially in the U.K. and some parts of the world raised concerns among investors about its impact on the U.S. economy vis-à-vis the stock market, easily overshadowing recent positive developments including COVID-19 vaccine rollout and relief package passed by the Congress to buoy consumers as well as businesses in the United States.
Quite alarmingly hospitalizations in the United States have shot up to new highs, with states imposing stricter restrictions since spring. Such COVID-19 related curbs certainly don’t bode well for corporates and is no doubt weighing on economic recovery. After all, consumer spending dropped last month, and layoffs continue to remain elevated amid surge in new cases. Households reduced outlays on big ticket items and trimmed spending on services including restaurant meals. Notably, household incomes also took a beating as the positive effects of the federal relief programs implemented earlier this year faded.
On the contrary, the bullish argument is that the incoming administration in liaison with the Federal Reserve will pass additional stimulus measures to pep up the economy. Distribution of the coronavirus vaccine candidate in every nook and corner of the country will in some way help in revival to some kind of normal. What’s more, market pundits do expect corporate profits to bounce back in 2021 after it received a drubbing this year.
However, despite these encouraging projections, it’s difficult to predict the extent of positive impact on the stock market. This is because all these projections are already priced in, making it difficult for stocks to keep on climbing higher.
But investors shouldn’t feel discouraged. Even though the Santa Claus rally remains elusive this year, it isn’t for the following three stocks, which makes them compelling buys. Here’s why –
First on the list is Tesla, Inc. TSLA. Tesla’s shares have surged 672% so far this year, outpacing the Zacks Automotive – Domestic industry’s gain of 237%. Still, the company’s expected earnings growth rate for the current quarter and next year is projected to come in at 86% and 58.9%, respectively. Moreover, the Zacks Consensus Estimate for the company’s next year earnings increased 2% over the past 60 days.
And why not? Its high range vehicle and cutting-edge technology is giving it an edge over its competitors. Most importantly, its sheer dominance in the electric vehicle segment (EV) will surely help the stock jump higher.
Tesla is, in fact, well-poised to capitalize on the projected growth in EV sales in 2021 and beyond. It’s worth pointing out that EVs are currently in demand as there is pressure on auto makers to curb CO2 emission (read more: 3 Electric Vehicle Stocks That Could Keep Gaining Into 2021).
Tesla, currently, has a Zacks Rank #1 (Strong Buy) and a Growth Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
The second stock to consider is NVIDIA Corporation NVDA. The company, in fact, benefited from the coronavirus pandemic-led work and learn-from-home trend. Since the increase in coronavirus cases has shown no signs of stopping, NVIDIA is further poised to gain in the New Year. Additionally, potential growth opportunities in the gaming market, artificial intelligence (AI) and self-driving cars also bode well for this American multinational technology company.
NVIDIA’s shares have outperformed the Zacks Semiconductor - General industry year to date (+121.2% vs +32.5%). What’s more, its expected earnings growth rate for the current quarter and next year is 48.2% and 18.7%, respectively. Additionally, the company’s next year earnings estimates increased 4.5% over the past 60 days. Presently, NVIDIA has a Zacks Rank #2 (Buy) and a Growth Score of B.
Last on the list, Deere & Company DE isn’t much bothered about broader market trends. The company, in itself, is expected to do well in the New Year, thanks to improving prospects in the U.S. agricultural, forest and construction industries, particularly in 2021.
Shares of Deere have jumped 54.6% so far this year, slightly more the Zacks Manufacturing - Farm Equipment industry’s rise of 51.4%. To top it, the company’s expected earnings growth rate for the current quarter and next year is 32.5% and nearly 21%, respectively. The Zacks Consensus Estimate for its next year earnings increased 25.8% over the past 60 days. Deere, currently, sports a Zacks Rank #1 and has a Growth Score of B.
Zacks Top 10 Stocks for 2021
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