Stocks to buy are easy enough to find in December given that it’s tied for the best month for market performance. Helped by end of the year window dressing and the holiday selling season, the S&P 500 has enjoyed an average monthly gain of 1.5% since 1929.
Of course for tactical investors, that only raises the bar in terms of beating the market for the month. And as the final month of the year rolls around, investors need to choose wisely if they hope to outperform the market in 2014 with their stocks to buy.
Outperformance like that is a tall order given that the S&P 500 is up a more-than-solid 12% for the year-to-date. After all, if you can’t beat the market, you may as well be in passive funds or ETFs.
Helpfully, a number of stocks to buy in the S&P 500 have seasonal track records that easily top the performance of the broader market this month. Even better, these stocks have the technical strength to make good on their historic seasonality.
True, many of these stocks benefit from the good tidings of the holiday selling season, but it’s not a prerequisite. Furthermore, in some cases the gains extend into the following month and even beyond.
Based on seasonality and technical strength, here are five S&P 500 stocks to buy for December.
Stocks to Buy — Applied Materials Inc. (AMAT)
Applied Materials Inc. (AMAT) isn’t a no-brainer for a holiday selling season stock. Indeed, as a supplier to the semiconductor industry, you’d almost expect it to trade along with that sector’s traditional year-end weakness.
However, that just isn’t the case. Helped by foundry demand driven by the move toward state-of-the-art, power efficient mobile devices, AMAT is having an excellent year with the technical strength to generate more outperformance ahead.
Over the last 10 years, AMAT has delivered a December gain of 3.9% and another 1.4% in January. Already up 35% for the year-to-date, AMAT has more upside in store based on its moving averages.
AMAT’s 200-day moving average is in a strong, long-term uptrend, a sure sign of a healthy stock. Moreover, AMAT blasted through resistance at the 50-day in late October and hasn’t looked back since.
Stocks to Buy — Darden Restaurants Inc. (DRI)
The market was down on Darden Restaurants Inc. (DRI) not too long ago as results at its most important banners — Red Lobster and Olive Garden — were delivering consistently disappointing results. The market is back on board now that DRI sold Red Lobster over the summer and new management instituted a cost-cutting program. Now this year-to-date market laggard looks like an outperformer for December.
Historically, DRI gains 4% in December before underperforming in January. However, the technicals are looking good enough to deliver typical December-like returns and a strong January as well.
DRI broke through resistance at its 50-day and 200-day moving average in late October at about the same time as the 50-day crossed the 200-day on the way up. Those breakthroughs and the but signal issued by the 50-day have DRI in rally mode ever since. With strong seasonality, DRI promises more gains before we ring in the new year.
Stocks to Buy — MasterCard Inc. (MA)
Payments processors like MasterCard Inc. (MA) are as busy as ever during the holiday selling season, and the market takes notice. Indeed, historically, MA gains 2.9% in December before underperforming in January amid the post-holiday hangover.
It has been a bumpy ride for MA this year, but now the technicals are in order and it’s set up for healthy gains ahead. After describing a death cross in late May, MA stock remained range-bound until October, hugging its moving averages the entire way. Happily, an October swoon sucked in the value buyers and MA has been charging higher ever since.
MA blasted through its 50-day and 200-day moving averages, allowing the 50-day to break through the 200-day about a month ago. That’s a buy signal that will remain in force at least until next month, when the holiday splurge finally abates.
Stocks to Buy — Ross Stores Inc. (ROST)
Most discount retailers and dollar stores are struggling all these years after the end of the recession, but not Ross Stores (ROST). Indeed, it’s up 20% so far this year and the technicals and seasonality are flashing more gains ahead.
A death cross back in March remained a solid sell indicator throughout spring and most of summer. But solid back-to-school shopping picked ROST out of its funk and it hasn’t looked back. Indeed, ROST crossed above its 50-day and 200-day moving averages in late September.
That buy signal remains in force. especially given what the market does with ROST even after the holidays are over. Over the last decade, ROST gained an average of 1.9% December. More remarkably, it returns 4% on a price basis in January. That’s a time when many retailers focus on clearing holiday inventory amid a hangover for the sector and their stocks naturally reflect the slowdown.
Stocks to Buy — Tiffany & Co. (TIF)
Tiffany & Co. (TIF) reliably delivers market-crushing performance in December. Just be forewarned that the market turns against the luxury jeweler once the holidays are over, pulling it down by nearly 4% in January, based on historical performance.
Happily, the technicals have finally lined up for TIF, which has had a tough go of it this year. True, TIF is up a market-beating 15% for the year-to-date, but it sure didn’t do that the easy way. Currently trading above $105, TIF fell below $90 as recently as early October. Heck, it nearly touched $80 early this year.
The technicals, however, are aligned for strong monthly returns. TIF broke below its 50-day moving average in October and that served to draw in the value buyers. Those opportunistic investors lifted TIF well above its moving averages to 2014 highs. That price momentum augurs more upside in the near term.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.