In many ways, this is the best time of the year to search for stocks to buy. November represents the midpoint of the strongest three-month period for stocks, and a disappointing year for equities thus far is actually a bullish sign these days.
One reason the fourth quarter is traditionally good for stocks is because professional investors try to “window dress” performance by riding the momentum of any high-flying stocks they can find.
With the S&P 500 clinging onto a gain of less than 2% year-to-date, there should be a large pool of fund managers looking to play catch-up before they have to close the books on 2015.
It also helps that the final quarter of the year is a disproportionately popular time for companies to buy back their shares.
These are favorable circumstances for a tactical investor to exploit.
Against that broader backdrop, there are a number of stocks to buy based, in part, on their own track record of positive seasonality. Add in strong technicals like making a new high or carving out a golden cross, and you can finds stocks to buy across a wide range of sectors and market caps.
A screen of the U.S. market for stocks with a minimum market cap of $2 billion, strong seasonality and technical characteristics that suggest immediate upside produced a short list of names. Of those, these are the best stocks to buy for November.
Stocks to Buy: General Electric Company (GE)
General Electric (GE) looks good on a fundamental basis thanks to its dramatic transformation into a pure-play industrial company.
The restructuring is going faster than originally forecast, and that has the market applauding GE stock. And now, after going on an October run, GE is flashing the green light on a technical basis too.
Forget about making a new all-time high. GE stock has returned to levels not seen since the spring of 2008.
That’s what you call momentum.
Indeed, the stock recently made the buy signal of a golden cross.
Sure, its seasonality is hardly spectacular. Over the last 10 years, GE has gained an average of 1.4% in November, according to Thomson Reuters Stock Reports. But that should be an easy average to beat this year.
Besides, GE averages a gain of 4.9% in the final month of the year.
Stocks to Buy: Lear Corporation (LEA)
Robust U.S. demand for new vehicles is helping allied companies like auto-parts maker Lear (LEA). Earnings and revenue easily topped Wall Street expectations last quarter, and the VW scandal has been a non-event for the industry at large.
All the good news has Lear stock making new all-time highs. That, in turn, put the stock through a golden cross at the end of October.
Seasonality is very much on the side of LEA stock, too. Indeed, it’s entering what has traditionally been a hot streak at this time of year. Shares have gained an average of 1.1% in November, 3.6% in December and 1.7% in January over the past decade.
LEA stock is also a great candidate for window dressing. It’s up more than 26% for the year to date and nearly 9% over the last month alone.
Investors are likely to chase such performance.
Stocks to Buy: PepsiCo, Inc. (PEP)
It has been a weak year for equities, but not for PepsiCo (PEP). Like Lear, shares recently hit an all-time high. PEP has also generated a market-whipping price gain of more than 6% for the year-to-date.
Other plusses: In addition to approaching the buy signal of a golden cross recently, investors typically like this name during the Thanksgiving month. Over the last decade, PEP stock produced an average price gain of 1.4% in November. That easily beats the S&P 500’s average long-term gain of 0.7%.
Happily, PEP shrugged off currency headwinds to serve up a beat-and-raise quarter last month, thanks primarily to its snacks business.
However, on a fundamental basis, PEP stock looks pricey to be a long-term buy at current levels. Rather, the technicals and seasonality make it a suitable holding on more of a short-term basis.
Stocks to Buy: Six Flags Entertainment Corp (SIX)
Shares in Six Flags Entertainment Corp (SIX) typically go on a thrilling run around this time of year. Since emerging from bankruptcy a little more than five years ago, SIX has enjoyed average price gains of 4.1%, 2.7% and 2.7% in November, December and January, respectively.
With SIX stock up an enviable 20% for the year to date, that strong seasonality and YTD gains make SIX stock a good target for investors looking to spruce up portfolios before the end of the year.
Furthermore, upside price momentum abounds in this name. SIX recently carved out a golden cross on its way to all-time highs.
Some might remember that SIX filed for Chapter 11 back in 2009, but that’s now firmly in the past. The theme park operator posted record revenue in the most recent quarter thanks to ballooning attendance over the summer.
Stocks to Buy: Cedar Fair, L.P. (FUN)
Click to Enlarge Maybe it’s because they’re fresh off reporting all-important summer quarter results, but amusement park operators start the winter with strong seasonality. Cedar Fair, L.P. (FUN) loses an average of 1.5% in November, but soon looks more like rival Six Flags, with increases of 1.7% and 5.9% in December and January.
Recent price momentum makes it look like FUN will beat its long-term average performance this month. FUN stock is up 11% off a recent low and is on the cusp of describing a golden cross.
If FUN can make a successful test of its 50-day moving average, the technicals suggest it can return to making higher highs and higher lows.
Like SIX, FUN stock booked record revenue over the summer on higher attendance and spending per guest. With U.S. consumer spending trending in the right direction, theme park operators have a nice tailwind at their backs.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.