The 10 Best Stocks to Buy for a Santa Claus Rally

With markets once again entering turbulent waters, seek winter-friendly stocks to buy

Source: Matt Ryall via Flickr

Wall Street is a place of superstitions and anecdotes. Many investors are on a never-ending quest for recurring and more importantly actionable market patterns. A prime example is the so-called “Santa Claus rally.” The theory goes that the best stocks to buy right now are those which consistently rise in December.

The idea is an intriguing one. If indeed the markets experience stronger-than-normal sentiment in the final month of the year, you can easily advantage this knowledge. Simply pick out the best stocks that provide the most returns in December, and voila! You have free money in your portfolio.

Plus, the concept makes logical sense. Usually, people are more joyous during the holiday season. It’s really the one time of the year where the majority of Americans are thinking about others rather than themselves.

But is December really an ideal time to load up on the best stocks? Some market analysts are adamant that the Santa Claus rally is real, backing up their sentiment with hard data. Others have arguably even harder data indicating that anything related to Saint Nick is best left to the children.

Interestingly, the analyses on both sides of the argument utilize index data from the Dow Jones or the S&P 500. I’m not entirely sure if that’s the right way to go considering that we buy individual companies, not indices.

So is the Santa Claus rally a legitimate phenomenon? I’ll provide the data 10 of the best stocks to buy right now, and ultimately, you can be the judge!

Best Stocks to Buy for the Santa Claus Rally: Facebook (FB)

FB stock
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Despite my insistence that the social-media giant is on discount, Facebook (NASDAQ:FB) has admittedly suffered a terrible year in 2018. Since the January opener, FB stock is down nearly 19%. From its all-time closing high, shares have lost an alarming 34%.

But will jolly Saint Nick provide relief to this embattled name? Historical indicators suggest that December is the perfect month to jump on FB stock. That’s because on average, shares gain 9% in the following month of January. The average for all 12 months of the year currently stands at a comparatively paltry 2.5%.

True, FB stock technically does not classify as a Santa Claus investment. But statistically, it’s one of the best stocks to buy during the holidays because of how well it performs come the new year.

Home Depot (HD)

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Home Depot (NYSE:HD) has earned a reputation as one of the best stocks to buy for any season. The primary reason is the underlying company’s secular business. No matter what is going with the economy, essential repairs cannot be indefinitely ignored.

But upon closer investigation, I discovered that HD stock is a legitimate member of the Santa Claus rally club. On average, December returns are good for 5.7%. Average returns for all months of the year come out to 2.5%, so something is definitely going on in December.

Now to be fair, HD stock historically provides its best performance in the current month. November returns average just under 6%, which is a remarkable figure.

Perhaps people get their restoration on in the winter months. Whatever the reason, HD stock drives higher as the weather gets colder.

Walmart (WMT)

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Few companies are as renowned and offer such long-term stability as Walmart (NYSE:WMT). Like Home Depot, WMT stock is a secular investment. The ebb and flow of the markets can’t keep the big-box retailer down for long: eventually, people just have to shop.

Because Walmart is obviously levered towards the retail schedule, you’d expect WMT stock to do well in December. However, that’s not what reality reflects. In fact, December is the worst month to buy WMT shares. Moreover, Walmart’s sweet spot occurs in late spring to early summer.

So why am I pegging the retailing giant as one of the best stocks for the Santa Claus rally? Because the sentiment lift from December to January is typically massive. For instance, in January of this year, WMT stock gained 8.5%.

While it’s no guarantee that history will repeat itself, make sure to keep Walmart on your watch list.

Disney (DIS)

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It’s difficult to know without any deep-seated research which companies do well during the Santa Claus rally. That said, I figured that Disney (NYSE:DIS) shares would receive a winter-based seasonality boost. Along with its theme parks and resorts, top-shelf Disney movies typically come out during winter, theoretically boosting DIS stock.

My instincts matched the statistical reality. In December, DIS stock usually enjoys an above-average performance, returning 2.6%. In comparison, the overall average for the months of the year is 1.6%.

While Disney benefits from the Santa Claus rally, I like DIS stock because of its January effect. The first month of the year has the best average performance at 5.5%. If you’re a numbers investor, you should buy now. Later, sell in May and go away: Disney shares average a loss of 1% between June through September!

Best Buy (BBY)

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As a formerly-embattled company that has become one of the top names in the markets, Best Buy (NYSE:BBY) belongs on a list of best stocks for a variety of reasons. But one of the main reasons you’ll want to plan on diving into BBY stock soon is its seasonality trends.

If you’re looking to strictly profit in December, Best Buy isn’t your friend. In fact, BBY stock is levered strongly towards the first half of the year, averaging 4.7%. In the second half, average returns slip to 1.2%. And December is the absolute worst year for the company, averaging a loss of 4.2%.

But if you buy during this dip, you’ll typically end up loving life. In January, BBY stock averages 7.1% returns. Considering that shares appear on the verge of a terrible December, contrarians will want Best Buy on their radar.

United Technologies (UTX)

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When I think about defense contractors, seasonality is not the first thing that comes to mind. After all, military conflicts can spark at any moment. But when I dove deeper into United Technologies (NYSE:UTX), I couldn’t help but notice that UTX stock is a true member of the Santa Claus rally.

In the last month of the year, United Technologies shares average 5.8%. That is by far the biggest outperformance. Second place — and a distant one at that – belongs to March, which averages 3.6% gains. The average tally for UTX stock in all the months is 1.9%.

Another factor to note is that December through April is United Technologies’ sweet spot, averaging 3.2% returns. Therefore, you have some time to initiate a position in UTX stock and potentially reap some nearer-term profitability.

Goldman Sachs (GS)

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If indeed the markets respond to the Santa Claus rally, it’s only logical that financial institutions do well in December. Since Goldman Sachs (NYSE:GS) is one of the world’s leading asset managers, GS stock should outperform during the holidays.

I’m glad to say that this is one of those cases where theory matches market reality. GS stock indeed has stellar performance in December, averaging 4.2% returns. However, the last month of the year isn’t the absolute best in terms of average performance. That honor belongs to October with a 4.8% return.

If you do roll the seasonal dice on GS stock, keep two things in mind. First, Goldman Sachs is a relatively young investment, so its long-term trends aren’t as established as some of the other stocks mentioned on this list. Second, if you buy in December, you’ll want to sell in January, which features ho-hum returns.

UnitedHealth Group (UNH)

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UnitedHealth Group (NYSE:UNH) is an interesting case study for the Santa Claus rally. You might not think about health insurers receiving a seasonality boost, but they do. UNH stock averages 3.9% returns in December, outpacing the yearly average of 2.5%.

So what gives? Hospitals experience a phenomenon known as the “July effect.” This is when first-year medical residents get their feet wet. Coincidentally (or not), July sees the most medication errors. And subsequently, UNH stock averages 0.5% returns from July through September.

Because the first-year residents are making rookie mistakes and either hurting or killing patients, insurance claims go through the roof. But in the other months, UNH stock drives significantly higher. Perhaps these soon-to-be doctors have learned their lesson, and fewer patients suffer as a result.

Bottom line: buy UNH stock in December, and avoid going to the hospital in July.

RCI Hospitality (RCI)

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The euphemistically titled RCI Hospitality (NASDAQ:RICK) is another interesting name. Throughout the year, RICK stock goes through extreme peaks and valleys. It’s quite difficult to predict, but I can say one thing with confidence: if you’re going to gamble on RCI, strategize your purchase over the next two weeks.

I say this because RICK stock tends to underperform badly in November. In the current month, shares average a loss of 3%. However, just wait till the next month when Santa drops you a 5% average return for your troubles. Keeping holding onto January and you’re looking at a whopping average profitability of 12.8%!

Why does RICK stock demonstrate such acute bullishness in the winter season? I believe this is a time when single gentlemen get lonely. Their buddies who have girlfriends and wives are busy with them during the holidays. With nothing to do, they nurse their solitude with drinks and “mature performances.”

At least that’s my theory. All I know for sure is that RCI Hospitality is one of the best stocks to buy for December.

General Electric (GE)

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Shareholders of deeply troubled General Electric (NYSE:GE) haven’t had much to smile about this year. Since the opening volley of 2018, GE stock has hemorrhaged over 51% in the markets. For many analysts, the writing is on the wall.

Nevertheless, those who want to speculate on this extremely risky play have statistics to back them up. Believe it or not, GE stock responds positively to the Santa Claus rally, delivering 2.5% average returns. That compares very favorably to the yearly average of 1.5% returns. Moreover, if you hold General Electric shares to January, you’re historically likely to enjoy significant gains.

That said, I caution folks that the GE stock of yesteryear isn’t the same one as today’s version. For instance, January returns in this decade have averaged a loss of 0.1%. But on the flipside, December returns in this decade average 3.8%. Go figure!

If you want to take a shot, do so carefully and quickly.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

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