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5 of the Best Stocks to Buy for December

John Divine

November was a good month for the stock market, with the three major indices all hitting record highs. Fears of a destructive, drawn-out trade war ebbed -- even though the interim U.S.-China trade deal that was promised never came.

After another year of record high after record high, the longest-ever bull market is now nearly 11 years old. Let's look at five of the best stocks to buy for December as 2019 comes to a close:

-- Microsoft Corp. (ticker: MSFT)

-- Ulta Beauty (ULTA)

-- United Rentals (URI)

-- Universal Insurance Holdings (UVE)

-- Medifast (MED)

Microsoft Corp. (MSFT)

The only major " Big Tech" name not under antitrust scrutiny by U.S. regulators, Microsoft shareholders have been amply rewarded in 2019. MSFT put up the kind of year you might have expected in the 1990s, with shares up 47% in the first 11 months.

One reason MSFT is one of the best stocks to buy for December and beyond is this remarkable ability to post above-market growth despite its enormous size. Now worth more than $1 trillion, Microsoft has grown revenue at a compound rate of 11% and earnings by a compound rate of 34% over the last three years.

CEO Satya Nadella is largely responsible for impressive execution in recent years, pivoting the company to a software-as-a-service model and doubling down on the high-margin cloud. The 2016 acquisition of LinkedIn also continues paying dividends, with those revenues up 25% last quarter.

Microsoft's cloud division, Azure, grew by 59% last quarter, and Azure landed the coveted $10 billion JEDI contract with the Pentagon this year as well. Nadella was recently named Fortune's Businessperson of the Year.

Ulta Beauty (ULTA)

The largest beauty retailer in the U.S., Ulta has been growing at a healthy clip for years, focusing on expanding its store base and building customer loyalty. Differentiating itself by combining its retail presence with in-store salons, it stocks both great brand names and private label products, and offers a loyalty program that's proven successful.

The company continues growing, increasing its total square footage by 8% year-over-year in the last quarter. It now has over 1,200 locations. Same-store sales grew by 6.2% last quarter, a very healthy pace for retail.

Shares took a major dive after Ulta's last earnings announcement, with shares losing over 20% in a single day; the company missed top- and bottom-line estimates, and revised full-year guidance downward as it lamented soft consumer trends in the beauty space.

But this sell-off is precisely what makes ULTA one of the best stocks to buy for December. Analysts still expect roughly 10% growth in sales and earnings going forward, yet shares trade for a below-market 19 times earnings.

In late September there was a spate of insider buying, a bullish indicator. Ulta is scheduled to report quarterly earnings after market close on Dec. 5, so we will likely see big moves in ULTA stock -- for better or worse.

United Rentals (URI)

Equipment rental giant United Rentals also makes the cut as one of the best stocks to buy for December, showing that attractive stocks can come in all shapes and sizes.

Unlike Ulta, which has no long-term debt, URI loaded its balance sheet up with leverage in recent years as it aggressively pursued acquisitions. Purchases of fluid solutions specialist BakerCorp and construction rental business BlueLine began paying off this year, as free cash flow grew 101% in the first nine months of 2019.

[READ 7 of the Best Stocks to Buy for the 5G Revolution]

As a result, URI shares are up about 50% year-to-date. And while the explosive growth in free cash flow isn't sustainable, shares still trade at extremely conservative multiples: 10.6 times trailing earnings and 7.7 times forward earnings.

That compares favorably to competitors Deere & Company ( DE), which has a trailing P/E of 17.4 and a forward P/E of 15.9; Stanley Black & Decker ( SWK), which as a trailing P/E of 28.6 and a forward P/E of 17.5; and U-Haul parent Amerco ( UHAL), which boasts a trailing P/E of 19.2 and a forward P/E of 16.6.

URI chose the right time to lever up, adding debt in an era of unusually low interest rates. That said, it plans on reducing its net leverage ratio by year-end to 2.6 compared to 3.1 as of year-end 2018.

Universal Insurance Holdings (UVE)

Property insurer Universal Insurance Holdings is arguably the least well-known company on this list, which, as longtime investors can attest, often means some of the most compelling risk-reward opportunities.

UVE stock, similar to Ulta, is a compelling buy largely because of a sell-off earlier this year that shares have yet to recover from.

While no obvious catalyst lies ahead in December, there has been a spate of recent insider buying, which again, has been shown to be a generally bullish indicator, all things considered. The $980 million company, which primarily sells homeowners insurance in Florida, recently authorized a $40 million stock buyback through the end of 2021, amounting to over 4% of the company's overall value.

If, hypothetically, UVE earns the $3.30 per share analysts expect it to next year, and the 11.1 P/E ratio remains constant, shares should be worth $36.63 by early 2021. That indicates roughly 25% upside in just over a year.

Small-cap stocks like UVE also sometimes enjoy benefits in December from investors front-running the "January effect," the tendency of small caps to outperform at the start of the New Year.

[READ 8 High-Yield Stocks With Growing Dividends]

Medifast (MED)

Last but not least is Medifast, a Baltimore, Maryland-based health and wellness company that's trading for multiples far lower than a company with its growth rate should be subjected to. This is emblematic of a stock that's oversold due to market fears; despite sales growth of 37% last quarter, MED trades for 14 times earnings.

MED shares have sold off in 2019 after a security breach on its website compromised some customer information. That issue has since been remedied, and while a growth deceleration is expected, if analyst expectations for earnings going forward are even in the neighborhood, then MED stock is a steal.

The company, which sells weight loss products and nutrition-rich bars, shakes, puddings and other products, is trading for a price-earnings growth ratio of just 0.7. Legendary fund manager Bill Miller recently bought into the stock, as well as activist investor Glen Welling, who now own 15% of the company through his fund, Engaged Capital.

Shares boast a 3.5% dividend yield.



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