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3 Stocks for an End-of-Year Rally

These cheaply valued stocks would enjoy massive rebounds

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The market is off to the races this month. After testing the lows on the first trading day in October, stocks have been in bull mode. This week, though, the market has leveled off a bit — and investors should use this brief pause to establish positions for what could be a significant end-of-year rally.

JPMorgan analyst Tom Lee is of the opinion that the market could gain 20% between now and the end of the year. That could be good news for former high-flying stocks like Netflix (NASDAQ:NFLX) and Green Mountain Coffee Roasters (NASDAQ:GMCR), both of which have sold off heavily as of late.

Investors sure could sure use a rally to top off a long 2011. Owning stocks this year has brought little joy — sure, there’s no such thing as a free lunch, but there is something that’s occasionally supposed to come along with taking a little risk: higher returns.

While the market still is filled with fear, a path to higher stock prices could be paved by a solution (or positive signs of one) to the European debt crisis, as well as improved domestic economic data. Corporate earnings have been mixed but are mostly holding steady despite slower economic growth, so a boost in economic activity could make stocks jump, too.

No one can guarantee that stocks will find the elixir for our current malaise, but I’m an optimist. As such, I would suggest buying. Here are three stocks to consider in anticipation for an end-of-year rally:

Pantry Inc.

Pantry Inc. (NASDAQ:PTRY) operates convenience stores across the Southeast. The company has some 1,600 stores and fuel stations under various brands, including Kangaroo Express. PTRY shares have dropped precipitously since July, creating an excellent buying opportunity in advance of a year-end rally. The stock is down 30% since the first of July.

The selling is a bit counterintuitive. During the period of selling, gasoline prices have been falling. Lower gas prices typically result in higher margins for Pantry. Also, consumer budgets still are tight, and Pantry’s dual offering of gas and food can help shoppers eliminate an extra trip to the grocery store.

For the year ending Sept. 30, the average Wall Street estimate for PTRY profits is 97 cents per share. Next year, profits are expected to jump 57% to $1.53 per share. At current prices, Pantry Inc. trades for just 8.5 times forward earnings. The stock could jump to $20 per share with an end-of-year rally.

Article printed from InvestorPlace Media,

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