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After a Drab Q3, Q4 Looks Stellar: 5 Top Picks

Tirthankar Chakraborty

The third quarter, which has been fraught with challenges, will officially wrap up today. Sluggishness in global economic growth and impeachment inquiry into President Trump have induced mayhem in the markets. Most importantly, trade issues with China hit investors’ sentiment.

The White House’s plan to stop Chinese companies from listing on U.S. stock exchanges aggravated the trade war. By the way, the Trump administration had considered limiting U.S. portfolio investments into China. Even though the discussions are at an early stage, such an action could certainly impact the financial markets in a negative way and affect billions of dollars of investments.

On a year-to-date basis, the S&P 500 may be up around 18%, but due the aforesaid developments, the broader index, has added a meager 0.7% so far in the third quarter. The S&P 500 had begun the quarter at 2,752, went as high as 3,028, before retreating. Now, the S&P 500 is near the 2,860 mark and is struggling to scale back up.

What’s in the Offing for Q4?

But, there is some heartening news which can help stocks climb in the near term. The US Treasury Department recently confirmed that it is not considering the delisting of Chinese companies, at least for the time being. Such a confirmation is encouraging as otherwise the consequences for the stock market would have been far-reaching given that Chinese stocks are currently worth more than $1 trillion.

Meanwhile, astute investors pay special attention to the ‘October Effect’. The theory states that stocks mainly decline in October. After all, some of the worst market crashes happened in the month.

According to the Stock Trader’s Almanac, there were mega “crashes in 1929 and 1987.” In fact, the great crash that occurred on Oct 19, 1987, saw the Dow plunge 22.6% in a single day, which is arguably the worst one-day decline ever. The other black days, of course, were “the 554-point drop on October 27, 1997, back-to-back massacres in 1978 and 1979, Friday the 13th in 1989, and the meltdown in 2008,” per the Almanac.

However, the October Effect phenomenon does seem overrated. September has seen more declines than October. And from a historical perspective, October has seen the end of more bear markets than any other month. Thus, October is a month suitable for contrarian buying. At the same time, October has been relatively stronger during midterm election years, with 2018 being one such year.

According to Almanac, the broader S&P 500 usually climbs 3.3% in midterm Octobers, way more than its typical rise of 0.9% over the month.

Here’re the 5 Best Stocks for Q4

With the fourth quarter set to dispel the glum of the third quarter, investing in fundamentally sound stocks that are poised to gain in the near term seems judicious. We have selected five such stocks that flaunt a Zacks Rank #1 (Strong Buy). Such stocks also boast of a VGM Score of A or B. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.

Crocs, Inc. CROX designs, develops, manufactures, markets, and distributes casual lifestyle footwear and accessories for men, women, and children. The company has a Zacks Rank #1 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has moved up 9.2% over the past 60 days. The company’s expected earnings growth rate for the current year is 65.1% compared with the Textile - Apparel industry’s projected rally of 9.7%.

Fossil Group, Inc. FOSL designs, develops, markets, and distributes consumer fashion accessories. The company has a Zacks Rank #1 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has risen 71.3% over the past 60 days. The company’s expected earnings growth rate for the current year is 91% compared with the Retail - Apparel and Shoes industry’s estimated rise of 2.7%.

Great Lakes Dredge & Dock Corporation GLDD provides dredging services in the United States and internationally. The company has a Zacks Rank #1 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has moved 2.8% north over the past 60 days. The company’s expected earnings growth rate for the current year is more than 100% compared with the Building Products - Heavy Construction industry’s expected rally of 9.1%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lithia Motors, Inc. LAD operates as an automotive retailer in the United States. The company has a Zacks Rank #1 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings has climbed 0.8% over the past 60 days. The company’s expected earnings growth rate for the current year is 12.8% compared with the Automotive - Retail and Whole Sales industry’s projected rally of 11.7%.

AngloGold Ashanti Limited AU operates as a gold mining company. The company has a Zacks Rank #1 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings has increased 20.5% over the past 60 days. The company’s expected earnings growth rate for the current year is 154.7% compared with the Mining - Gold industry’s expected rise of 19.6%.

In fact, shares of Crocs, Fossil Group, Great Lakes Dredge & Dock, Lithia Motors and AngloGold Ashanti have gained 183.5%, 30.1%, 107.1%, 7% and 104.8%, respectively, over the past two-year period. Take a look —

 

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Lithia Motors, Inc. (LAD) : Free Stock Analysis Report
 
Great Lakes Dredge & Dock Corporation (GLDD) : Free Stock Analysis Report
 
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Crocs, Inc. (CROX) : Free Stock Analysis Report
 
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