The last week of October is upon us. This is the homestretch, folks.
When it comes to finding the top stocks to buy, now is the time to hunt. Historically speaking, October is one of the most volatile months of the year … but it sets the stage for a strong rally into year’s end.
This year, the election, constant talk about interest rates and a semi-positive earnings season (so far) have allowed investors to seemingly emerge from the month with fewer scratches than normal. From our perspective, this is more likely to set the stage for a stronger rally in November and December as investors are starting to feel like they may miss out on the market’s last push for 2016.
With that as the backdrop, here are seven of the top stocks to buy that should outperform the rest of the market over the final two exciting months of the year:
7 Top Stocks to Buy for Red-Hot Returns: Netflix (NFLX)
But that shouldn’t be all that we see from Netflix stock for the rest of the year.
Content and delivery are king, which is why we’re seeing so much M&A activity in the media sector of the market. Netflix is one of the originals in this area and has made it clear that it will invest big in this growing business. NFLX’s second investment, into global expansion, is showing signs of growth, and no other company has the groundwork laid out like Netflix.
NFLX’s surge moves it from a perfect test of its 20-month moving average to almost hitting new all-time highs. The test of the long-term support will get the technicians back on board after Netflix spent much of 2016 worrying investors.
As much as it seems wrong, sentiment is still pessimistic toward Netflix. Put simply, much of Wall Street has been on the wrong side of this stock, and now they’re in for a long, painful game of catch-up. As of today, 51% of the analysts covering the stock have it ranked a buy — that’s lower than the S&P 500 average!
Expect analysts to upgrade NFLX over the next few weeks when we see any dips in price.
7 Top Stocks to Buy for Red-Hot Returns: Lockheed Martin (LMT)
The market is “buying the news” after Lockheed Martin Corporation (NYSE:LMT) announced better-than-expected earnings results. From a fundamental perspective, this is one one of the strongest earnings reports in Lockheed Martin’s last five years, fueling a significant move.
The rally comes after LMT spent the past two weeks trading just below the key 200-day moving average. It was relatively clear that the market was “selling the rumor” ahead of the report (erroneously!), creating a post-earnings trading opportunity.
Today’s response to the positive report has resulted in a move back above the 200-day moving average and has brought the stock out of a technically oversold status, helping shares rally.
More significant is the recent pullback to the 50-week moving average, the first since February of this year. This has been staunch support for the shares since the long-term bullish rally was put in place in 2013.
The positive earnings report along with the positive fundamental story of either presidential candidate being bullish for defense stocks makes Lockheed Martin a clear bull play. Our year-end target for LMT is well above $260.
7 Top Stocks to Buy for Red-Hot Returns: First Financial Bancorp (FFBC)
Regional banks have been leading the market higher as the reality of higher interest rates is being factored into valuations. Per regional banks specifically, higher rates mean better balance sheet activity and stronger valuations because they get their operating revenue from traditional banking business.
First Financial Bancorp (NASDAQ:FFBC) is a smaller regional in the southwest Ohio area. The bank has been making moves to expand and brand over the last two years, and that move has yielded results. The most recent quarter’s earnings marked a second consecutive besting of analyst expectations after a year of disappointing or in-line results.
Technically speaking, FFBC is a leader in its sector and against the market, returning 23% year-to-date and maintaining strong technical trends. Sentiment toward this market leader is negative, indicating that the “wall of worry” is in place for shares to climb higher.
Of the nine analysts tracking the stock, zero have it ranked a buy. In other words, we are likely to see upgraders as the fundamental story gets even better.
Look for First Financial Bancorp to continue climbing the wall toward a price target of $24.
7 Top Stocks to Buy for Red-Hot Returns: Cisco Systems (CSCO)
The “old school” technology stocks continue to lead things higher as companies like Cisco Systems, Inc. (NASDAQ:CSCO), Microsoft Corporation (NASDAQ:MSFT) and Intel Corporation (NASDAQ:INTC) are setting the pace for the new round of technology infrastructure. Networking giant Cisco has shed some of the fat from years ago and is emerging as a major contributor to the “internet of things.”
Cisco shares are up more than 15% for the year, double that of their Nasdaq-100 brethren, putting them in the relative-strength position that most investors should be looking for. CSCO is trading above key technical and trendline support as they head into the end of the year, which will bolster their performance.
Seasonality is strong for the Nasdaq-100, as it outpaces the broader S&P 500 index through the months of November and December. Cisco only accounts for 3% of the weight of the index — Apple Inc. (NASDAQ:AAPL) is about 14% on its own — but remains in the top 10 components. Sentiment toward Cisco is more positive than many of the stocks on our bullish list, but not overdone to the point where the stock is considered “crowded.”
For now, the trends and positive seasonality should continue to move Cisco in the right direction toward our target of $34.
7 Top Stocks to Buy for Red-Hot Returns: Nordstrom (JWN)
‘Tis the season, right? Eh, more like “maybe.”
The holiday season this year is going to come down to execution, and Nordstrom, Inc. (NYSE:JWN) has been setting the stage for some success. The trends we’ve seen in the retail sector have displayed a splintering of the sector into “haves” and “have nots.”
Nordstrom is a “have.”
JWN has been a relative-strength leader in a turnaround move that started earlier in the year with management changes. Now, the stock is trying to break above March highs and regain the $55 level.
The last earnings report gave investors some hope, but there’s a considerable level of pessimism toward Nordstrom stock, so it’s easy for the retailer to impress, leading to higher stock prices. Short interest on JWN is a whopping 12 times the average daily volume, signaling the potential for a short covering squeeze to drive prices higher.
Similarly, the analyst recommendations on Nordstrom are low, with nine of 29 analysts covering the stock ranking it a buy.
Nordstrom stock typically has a seasonal tailwind, and this year looks no different as the higher-end retailers are likely to attract more buyers than the lower tier. Our models target a price for JWN above the $62 level before year-end.
7 Top Stocks to Buy for Red-Hot Returns: Nvidia (NVDA)
Every time we look, Nvidia Corporation (NASDAQ:NVDA) is hitting another short-term high and still remains on our model’s bull list. The semiconductor sector is booming, despite flat PC business, because we’re putting all of those chips in devices in our hands and cars, and TVs, and video games. This is the market that Nvidia serves, which is why it continues to push higher.
Earnings on the chip manufacturer are coming up on Nov. 10, but the last few days have looked like earnings bolstered the shares as Tesla Motors Inc (NASDAQ:TSLA) and Rambus Inc. (NASDAQ:RMBS) announced deals with the company. Shares continue to trade higher as we see the bearish investors that have been betting against the stock build the wall of worry.
Short sellers are against the stock by 6.6 times the average daily volume of Nvidia shares, and only 51% of the analyst community rates the stock a buy. Keep in mind that NVDA stock is trading higher by 115% year-to-date (that’s not a typo).
Look for earnings in early November to produce another short squeeze and upgrades that will push Nvidia Corporation toward a target of $78 or higher.
7 Top Stocks to Buy for Red-Hot Returns: Fifth Third Bancorp (FITB)
Finally, we look at another regional bank that appears ready to roll higher as the fundamental and technical picture improve.
Fifth Third Bancorp (NASDAQ:FITB), another southwest Ohio regional bank (though larger than First Financial), should also benefit from the interest-rate environment. FITB already has been operating with improving margins as it adopts newer technology. Now, the balance sheet effect of higher rates should improve the bank’s fundamental outlook.
Fifth Third shares are trading above their 50-day trendline, which is also trending higher. This bullish technical indicator provides a bullish forecast for the bank’s shares over the next three to six months. Like Nvidia, FITB shares have been ignored by the analyst community despite the positive operating environment of even a single rate hike. Currently, a mere eight of the 31 analysts covering the stock have it ranked a buy.
Fifth Third spent the past week rallying as its earnings report came out in line with analyst expectations. Those earnings garnered one price-target increase, but it’s still early in the season.
Shares recently bounced off of long-term support from their 20-month moving average, which is also the line of demarcation between a bull and bear market trend for a stock. Long-term trends and a positive fundamental environment has us targeting $24.50 on FITB shares.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.