After a scary selloff between August and October, stocks have charged back to the long trading range near Dow 18,000. Investors, as they have for the past year, continue to act apprehensive as the first interest rate hike from the Federal Reserve since 2006 approaches.
But with evidence the global economy has turned a corner — thanks mainly to efforts by the People’s Bank of China — the prospects of a powerful end-of-year Santa Claus rally is growing. Especially with the interest we’ve seen in forlorn sectors of the market such as energy and industrials.
Investors looking for the best stocks to buy now should keep their eyes on the growing number of companies participating to the upside, creating new long-side opportunities.
A 2015 Santa Claus rally — that would push the major stock indices to new record highs — looks increasingly likely. Especially if the Fed decides to wait on rate liftoff until March 2016.
If Santa Claus is indeed on his way, here are 10 of the best stocks to watch:
Best Stocks to Buy for a Santa Claus Rally: Netflix, Inc. (NFLX)
Shares of Netflix (NFLX) have recovered and closed the gap from their Oct. 14 earnings reaction — a move that was helped by an Oct. 19 tweet from widely followed independent analyst house Citron Research that they had covered their short in the stock.
The reason? “Asked my kids NFLX or HBO? …response…what’s HBO?”
As a reminder, Netflix blamed weaker subscriber additions on credit card churn related to the transition to chip-based security. Shares look ready to break up and out of a trading range going back to July to challenge its summertime highs.
Best Stocks to Buy for a Santa Claus Rally: Zynga Inc (ZNGA)
Game apps maker Zynga (ZNGA) is breaking up and out of a seven-month downtrend pattern after reporting better-than-expected quarterly earnings on a 10% increase in revenues. While the company faces long-term struggles, including a 21% year-over-year drop in average daily active users, a lot of bad news has already been priced into the stock.
A return to the May high near $3.10 would be worth a 22% gain from current levels.
Best Stocks to Buy for a Santa Claus Rally: HP Inc (HPQ)
HP Inc (HPQ) shares have been surging after the split from HP Enterprises (HPE) — focused on commercial products and services — was completed. The stock is consolidating slightly after punching above its 200-day moving average on Tuesday for the first time since February.
Shares were upgraded to equal weight by Barclays Capital and initiated at neutral by UBS on Wednesday. Barclays believes HPQ is the better of the two HP companies due to better cash flow and yield prospects. UBS is optimistic on long-term efforts such as 3D printing.
Best Stocks to Buy for a Santa Claus Rally: ConocoPhillips (COP)
Energy stocks including ConocoPhillips (COP) have been perking up this week as energy shares in general — which have lagged the rally out of the October lows — attract investor interest. While crude oil continues to trade between $48 and $46 a barrel, not-as-bad-as-feared earnings from the sector revealed companies are responding to the low price environment by controlling costs and cutting capital expenditure budgets.
COP is now challenging its 200-day moving average for the first time since October 2014 as value hunters descend and many start wondering: If the global economy is re-accelerating, demand for energy will as well.
The Nov $55 COP calls recommended to Edge Pro subscribers are up some 60% since recommended earlier this week.
Best Stocks to Buy for a Santa Claus Rally: Broadcom Corporation (BRCM)
Semiconductor maker Broadcom (BRCM) is rounding higher through a seven-month cup-and-handle continuation pattern. The company enjoyed some positive press in Barron’s over the weekend, as part of a piece focusing on a number of players in the space including Ambarella (AMBA) and Nvidia (NVDA).
BRCM announced better-than-expected quarterly earnings of 77 cents per share, 4 cents ahead of expectations. Revenues fell 3.2% over last year to $2.19 billion.
Best Stocks to Buy for a Santa Claus Rally: Morgan Stanley (MS)
Morgan Stanley (MS) is moving higher out of a four-month consolidating pattern as its 20-day moving average gets set to move over its 50-day MA for the first time since April. Shares have brushed off what was a disappointing Q3 earnings result as many realize it was polluted with one-time items, according to UBS analysts.
Expectations were high after other bulge bracket Wall Street firms reported good trading revenue. With market volatility diminishing and long-term interest rates set to rise, revenues should get a lift going forward.
Best Stocks to Buy for a Santa Claus Rally: Weatherford International Plc (WFT)
Oil and gas services provider Weatherford (WFT) has punched into a new uptrend for the first time since April as it makes a run at its 200-day moving average — a level not exceeded since late 2014. The company reported a smaller-than-expected 5 cents per share, 6 cents better than forecast, on a 42% drop in revenues over last year.
In a recent note to clients, Deutsche Bank analysts considered whether the third quarter would be a turning point for the energy sector on a stabilization of oil prices — if so, highly leveraged names like WFT will lead the charge.
Best Stocks to Buy for a Santa Claus Rally: Advanced Micro Devices, Inc. (AMD)
Advanced Micro Devices (AMD) is on the verge of breaking out of a long downtrend pattern going back to the summer of 2014 as the PC industry finally has something exciting to talk about: Re-interest in laptops and PCs as tablet demand cools and Windows 10 offers something new to consumers. AMD shares are already up 15% for Edge subscribers since recommended on Oct. 16.
But with shares challenging their 200-day moving average for the first time in more than a year, there is plenty of upside potential left. The stock shrugged off a mid-October slump associated with weaker-than-expected quarterly results as analysts look ahead to a medium-term return to profitability.
Best Stocks to Buy for a Santa Claus Rally: Goldman Sachs Group Inc (GS)
Like MS, shares of Goldman Sachs (GS) are looking attractive here as market volatility wanes and the threat of higher interest rates looks set to push up net interest margins. Shares are right at their 200-day moving average, a level crossed below back in August.
On Oct. 26, the company enjoyed an upgrade from analysts at Morgan Stanley citing strong expectations for first-quarter growth.
Best Stocks to Buy for a Santa Claus Rally: Caterpillar Inc. (CAT)
As the poster child for the consequences of the global economic slowdown and commodity sector hit of the past year, Caterpillar (CAT) is on the road to rehabilitation as shares break up and out of a seven-month downtrend and enjoy an upward cross of its 20-day moving average above its 50-day moving average for the first time since April.
Shares got a lift despite reporting weak quarterly results in October as investors realize a lot of bad news has already been priced in. Shares are up more than 4% for Edge subscribers since recommended on Oct. 9.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
