It’s tough to be bullish on any stock right now. The market simply hasn’t followed through on any bullish efforts of late — possibly because it’s well overvalued and earnings growth is anemic — and it’s not clear how either presidential candidate will impact the economy.
But if the market does its usual fourth-quarter thing, the coming three months should be good ones for stocks. The average fourth-quarter performance for the S&P 500 Index? A solid 3.7%. That makes it the best three-month stretch all year long.
Still, as is always the case, some stocks are going to perform better than others.
Here’s a closer look at the top ten best stocks to buy to finish 2016 strong.
Best Stocks to Buy for 2016: Weyerhaeuser (WY)
It’s not very often a paper/timber real estate investment trust shows up on a list of the best stocks to buy, but Weyerhaeuser Co (NYSE:WY) has earned the accolade. Goldman Sachs agrees.
Weyerhaeuser is a REIT, meaning it’s built from the ground up to pay dividends from its paper and timber businesses. It’s done so reliably too, and currently yields a healthy 3.8%. While the wood business can ebb and flow, prices are relatively firm now, but not dangerously overextended and ripe for a pullback.
That’s part of the reason Goldman added WY stock to its conviction buy list last week, in anticipation of continued growth in timber prices.
Best Stocks to Buy for 2016: Amazon.com, Inc. (AMZN)
Given the company’s sheer star-power, there’s never necessarily a bad time to buy Amazon.com, Inc. (NASDAQ:AMZN).
But at year-end — with the holiday season driving frenzied spending and online spending now exceeding brick-and-mortar shopping during this busy time of year — AMZN stock is another one of the best stocks to buy for a shot at finishing 2016 on a bullish foot.
But the trailing price-earnings ratio of 200 is simply too rich, exacerbated by the recent tear into record-high territory? Maybe, although an excessive valuation has rarely held Amazon shares back in the past.
Indeed, Mizuho recently upped its price target on AMZN from $855 to $950, 18% higher than the stock’s recent price.
Best Stocks to Buy for 2016: Textron (TXT)
Textron Inc. (NYSE:TXT) isn’t exactly a household name, but that doesn’t mean it wouldn’t be a solid play for the last quarter of the year.
Textron is a defense contractor. It doesn’t make anything that’s overly high-profile like the F-35 fighter jet from Lockheed Martin Corporation (NYSE:LMT), though it’s the parent company of familiar-name Bell Aircraft, and it makes a few types of armored vehicles.
Those who know the Textron story well will know TXT stock hasn’t been a great performer of late. Even with the 28% rally since February’s low, the stock is still 15% below its mid-2015 peak.
In that both Presidential candidates have vowed to keep spending on defense if elected, however, investors may find Textron finds a tailwind few were expecting it to see as the year comes to a close.
Best Stocks to Buy for 2016: Western Digital (WDC)
Last year was nothing less than miserable for Western Digital Corp (NASDAQ:WDC) shareholders, and the first part of 2016 wasn’t exactly stellar either. After peaking near $113 in January of 2015, WDC stock spent the next 17 months losing 69% of its value before reaching a low of $35 in May of this year.
Since then, though, the stock has rallied 60% off of that low, and is still going strong.
But is Western Digital worth the risk, with a trailing P/E of 57 and a technology outlook that’s loaded with uncertainty? There’s an element of risk to be sure, but now that the dust is settling after the merger with Sandisk, analysts see something compelling. Longbow Research recently added WDC to its list of best stocks to buy here, pointing to an unexpected uptick in demand and the benefit of its deal with Sandisk. Longbow thinks the stock’s worth $70 per share.
The company’s recently upped fiscal Q1 guidance underscores this idea.
Best Stocks to Buy for 2016: Bank of America Corp (BAC)
While none of the major banks have been stellar performers of late, Bank of America Corp (NYSE:BAC) has been particularly troubled since early 2014.
In early 2015, it was one of the few banks that failed the Fed’s so-called stress test, and though it passed the test in the most recent round of scrutiny, the stigma has somewhat stymied the stock.
BofA kept chugging along though, cutting expenses to the bone without crimping its capacity to do business.
Now the bank has emerged from tough times fit and trim, and with interest rates poised to rise sooner than later, margins could widen faster than anyone anticipates. As Goldman Sachs analyst Richard Ramsden said it, “We believe that Bank of America is on the cusp of an inflection in operating leverage as revenue growth and cost reductions appear set to occur concurrently.”
Best Stocks to Buy for 2016: Alexion Pharmaceuticals (ALXN)
Most of the time the bullish case for a particular biotech stock focuses on one of its flagship drugs, and Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) certainly has some of those high-powered therapies on the market and in the works. But the reason ALXN has secured a spot on the list of best stocks to buy to finish the year on a high note is its existing growth trend.
The trailing P/E of 313 is misleading, as it factors in a one-time $183 million loss booked in the third quarter of last year. Other than that, the company is not only profitable, but growing well. Earnings are expected to grow 25% next year on an 18% improvement in revenue, and those paces are the norm.
Once the third quarter’s loss from last year is no longer sandbagging results and the P/E reverts to the forward-looking figure of 21.3, traders are apt to turn things around for this falling stock.
Best Stocks to Buy for 2016: Canadian Pacific (CP)
With just a quick, arm’s length assessment of railroad activity in North America, it’s easy to recognize that things are lethargic. Take a closer look at the details, though.
While Canada’s rail activity started 2016 out as feebly as the United States did, it’s caught up with and even surpassed 2015’s weekly levels.
That bodes well for Canadian Pacific Railway Limited (USA) (NYSE:CP), even if the company’s results don’t reflect it yet. They’ll start to show up in the company’s next quarterly report, and assuming the trend isn’t altered, the last quarter of the year should be particularly — and unexpectedly — strong.
Best Stocks to Buy for 2016: Whirlpool Corporation (WHR)
Analysts haven’t exactly been keen on Whirlpool Corporation (NYSE:WHR) of late. Raymond James downgraded it to “market perform” a couple of months ago, and earlier this month Gabelli & Co. downgraded WHR to a “hold.” Raymond James commented that there was just as much risk as there was reward, if not more, and costs were poised to rise as demand wanes.
WHR shares have paid the price for the doubt too, having fallen 17% from July’s highs.
The pullback and doubt may not have been entirely merited though. As of last month, the Conference Board reported that more than half of all Americans intend to purchase an appliance within the next six months … the highest reading since May.
Best Stocks to Buy for 2016: Capital One (COF)
Much like banks, credit middlemen tend to fare better when interest rates are higher. Even if rates don’t end up making prolonged upward progress, however, Capital One Financial Corp. (NYSE:COF) is in a strong position here.
First and foremost, COF shares are dirt cheap here, trading at a P/E of 10 and a forward-looking P/E of less than 9. Granted, Capital One Financial has been hit-and-miss when it comes to topping earnings estimates. They’re healthy all the same, though.
Even beyond the value, however, we’re headed into the heaviest spending time of year at the precipice of an economic resurgence. That sets up a great Q4 (and beyond) for Capital One.
Best Stocks to Buy for 2016: Disney (DIS)
Finally, although the past twelve months have been tough on Walt Disney Co (NYSE:DIS) shareholders, at least the next three could be bullish ones. Aside from the fact that DIS shares look like they’re making a triple-bottom around the $89 level, we’re at prime time of the year for the media and entertainment giant.
Yes, holiday shopping tends to favor Disney. Some of last year’s hottest toys on children’s’ wish lists came from the Star Wars and Frozen family, both of which are Disney properties, and the next installment in the Star Wars movies series is due out in mid-December. It should be another hit.
In the meantime, though it’s the potential buyer that’s least prepared to do something great with it, the possibility of a Disney acquisition of Twitter Inc (NYSE:TWTR) has been the most intriguing of all the rumored suitors. While Walt Disney has no experience in the social media or even in the internet market, it’s arguably the name that would benefit the most from a deal. Its ESPN property continues to flounder, and speaking more broadly, it needs some sort of internet presence as the cable-cutting movement and increasing fragmentation of the television market is only going to make things tougher on the company.
Even if it doesn’t purchase Twitter, however, this year’s wave of downgrades of DIS stock seems to have run its course. Now that pendulum is poised to swing in the other direction for a while.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.