The Santa Claus rally is something you hear a lot about this time of year — and for good reason. It describes a historically bullish time for stocks that includes the last week of December and the first two trading days of January.
But it’s not just the very end of the year that’s typically good to investors. November through January is the best three-month period of the year for stocks. And within that span of time, December stands out as the belle of the ball. Since 1950, the S&P 500 has traded higher in the month 49 times, while it has only been down 17. The average gain during that period is 1.6%.
That trends looks like it is going to continue in 2018, with the S&P 500 already up 0.62%. It’s also trading at new all-time highs.
So as we approach this year’s Santa Claus rally, it’s important that we position ourselves in stocks that will benefit from the broad boost. Here are three stocks set to ride Santa’s sleigh to big profits heading into 2018.
Stocks to Buy for a Santa Claus Rally: Dana (DAN)
Dana Inc (NYSE:DAN) is an auto parts manufacturer that focuses on drivelines and power technologies. Now, I know this area of the market may not be what you consider NexGen, but the future of vehicles is about to change dramatically. Those that manufacture the parts to power electric, hybrid and autonomous vehicles — like DAN — will be the big winners.
The stock trades with a forward price-to-earnings ratio of 11.6, a PEG ratio of 0.96 and price-to-sales of 0.69. All three valuation metrics are well below those of the market, the industry and nearly every other stock around. Typically this would suggest a really ugly chart, but that’s not the case with DAN. The shares are up 70% this year and trading near all-time highs.
It’s also worth noting that value stocks tend to outperform growth names in December. With the company poised to profit from more demand for its products in the coming months and even years, DAN makes for a great stocking stuffer for 2018.
Stocks to Buy for a Santa Claus Rally: Summit Materials (SUM)
Summit Materials Inc (NYSE:SUM) produces and sells construction materials that include cement, concrete, aggregates and other paving supplies — all of which are necessary building components. Remember, the housing market is only expected to keep growing as millennials move out of their parents’ basements and into their first homes. The infrastructure bill, which President Donald Trump is expected to introduce before the State of the Union in January, will also benefit the company.
This mid-cap stock is both a value and growth play. Earnings are expected to increase from 92 cents a share in 2017 to $1.46 a share next year, and then climb again to $1.94 a share in 2019. The bottom line is growing at a solid pace, and as a result SUM’s valuation metrics are also favorable. The stock trades at a forward P/E of 20.8, which is above the market multiple. And when earnings growth is taken into consideration for the PEG ratio, you get an even better gauge of value at 1.14.
Technically, the stock is pulling back from an all-time high and has a lot of support at the $30 area. A bounce that leads to a new highs heading into the infrastructure announcement is extremely likely.
Stocks to Buy for a Santa Claus Rally: Stifel Financial (SF)
Stifel Financial Corp (NYSE:SF) is both a financial services firm and a bank holding company that provides wealth management and other institutional banking services to individuals and institutions. This stock isn’t a pure value play, but its valuation metrics are attractive. Its PEG ratio is 1.39, its forward P/E is 15.4 and its price-to-sales ratio is 1.49.
The financial group has performed well recently as interest rates have been moving higher, and I suspect this is a trend that will continue well into 2018.
SF had a rocky start to the year, but since putting in a bottom on May 31, the stock is up more than 40%. It’s a mid-cap name that flies under the radar of most individual investors even as it trades at all-time highs, and it is well positioned to benefit from the year-end strength.
Matthew McCall is the founder and president of Penn Financial Group, an investment advisory firm, as well as the editor of FUTR Stocks and the ETF Bulletin. Matt just launched two new investment advisories focused around the “next” generation investing theme. His trademark three-prong investing approach targets the mega-trends old Wall Street is missing out on. Click here for more information on the “NexGen” Experience.