With only a month left before 2020 draws to a close, investors who fared well may relax. After the strong stock market performance, investors could reduce their equity exposure and raise cash.
But, that’s no fun.
Unless the investments are in a tax-sheltered account, the gains are subject to tax. Investors may look at a few short-term stocks to trade this month. If the bullish momentum continues through the next few months, then investors will have bigger capital gains in their portfolio. And that momentum reverses and loses some money, it creates capital losses that offset taxable gains in 2020.
Why not give yourself an early holiday present? Perhaps from our list of seven short-term stocks to consider. The names vary across many sectors. Depending on how they’ve fared so far, the strategy on the trade will differ, too. For example, the market is already assigning a premium on a stock at a 52-week high. If the stock falls, selling it will minimize losses. Conversely, a stock that is down recently may attract buyers. Traders may ride the bounce and then sell the stock when the uptrend ends.
There are seven short-term stocks to trade on our list:
- Dropbox (NASDAQ:DBX)
- Barrick Gold (NYSE:GOLD)
- AstraZeneca (NASDAQ:AZN)
- Zynga (NASDAQ:ZNGA)
- Transocean (NYSE:RIG)
- Square (NYSE:SQ)
- Hewlett Packard Enterprise (NYSE:HPE)
Short-term Stocks: Dropbox (DBX)
Among the recently listed software infrastructure stocks, Dropbox is the most disappointing. DBX stock peaked at over $23 in the summer. The stock has trended lower since August. Its earnings report posted on Nov. 5 led to a short-lived rally.
Dropbox is a good short-term gift for traders betting on negative sentiment to reverse. Markets treat the file-sharing service provider as lacking a moat. Yet HelloFax gives users unlimited document storage for a low monthly fee. HelloWorks gives small business team, workflow, and portal capabilities.
Hellosign is another inexpensive subscription plan, highlighted in last month’s investor presentation. Dropbox customers have many products to choose from that will support business needs.
The company forecasts gross margin rising to 78%-80% in the long-term, compared to 76% in 2019. R&D and its other costs as a percentage of revenue will fall. Having invested in its business, it will reap the rewards from here.
Barrick Gold (GOLD)
After failing to break out at above $30, Barrick Gold fell into a prolonged downtrend. The miner trades a favorable price-to-earnings in the teens. And while gold prices are unpredictable, the short-term trader will want gold exposure as a hedge to a market correction. A weak U.S. dollar would also send the GOLD stock price higher.
Barrick posted strong Q3 revenue growth of 32.1% year-on-year to $3.54 billion. Free cash flow topped $1.3 billion. It also raised its dividend by 12.5%, to 9 cents a share. The strong results are not as big of a catalyst as the potential for stronger gold prices. Inflation is unlikely but possible. Government instability, a lack of a economic stimulus in the U.S., and the need for the stock market to take a breather would lift GOLD stock.
The above chart shows that Wall Street analysts rate Barrick as a “buy.” Since it is out of favor, the stock is poised to rebound.
Stuck in a trading range in the $50-$55 range since May, AstraZeneca’s dividend yield of over 2.6% does not attract buyers. Its prospects in distributing an inexpensive Covid-19 vaccine should be a positive catalyst.
Only they aren’t.
AZN will sell the vaccine at cost. Its goodwill earned will not help its balance sheet. So, markets are unwilling to assign a premium to AZN stock. Despite the lack of major movement, this drug manufacturer is a good treat for short-term investors.
On Nov. 23, the company revealed that its novel coronavirus vaccine showed average effectiveness of 70%. This is an important milestone for the company. It suggests that its distribution should begin as soon as possible.
Biotechnology investors who missed out on buying Moderna (NASDAQ:MRNA) or Pfizer (NYSE:PFE) may hold AstraZeneca instead. The slightest good news of its vaccine in the near-term could send the stock to its 52-week high next.
As shown in the chart, AZN’s revenue from 2015-2019 rebounded. The vaccine work is a positive catalyst that will get investor attention.
When Zynga posted strong quarterly results, markets did not react positively at all. ZNGA stock fell below $9.00 instead. Investors may treat themselves by buying shares after it posted revenue growth of 45.7% YoY.
Zynga posted its best Q3 operating cash flow and the highest quarterly revenue and bookings in its history. Revenue topped $503 million, helped by record online game revenue rising 55% YoY to $436 million. Daily active users of 31 million are the highest in more than six years. Mobile monthly active users topped 83 million.
Forever Franchises, which includes CSR Racing and Empire & Puzzles, accounted for 71% of total revenue and 76% of total bookings. Chances are good that the stock is taking a breather. After its positive return in 2020, investors looked elsewhere for short-term trades.
Eight Wall Street analysts cover Zynga and have an $11.91 price target (per Tipranks).
At the height of the bearish phase in oil and gas drilling, Transocean fell to a 65-cent low in October. Since then, oil prices rallied to levels not seen in months. Though it is heavy in debt at a 0.74 times debt-to-equity ratio, RIG stock is worth a gamble.
The beat-up firm posted Q3 revenue rising 5.9% YoY to $830 million. It lost 11 cents a share on a non-GAAP basis. Its contract backlog was $8.2 billion. Transocean reported a $61 million loss on the disposal of assets and $5 million for restructuring costs. Assuming those items in Q3 do not repeat, the company may post a stronger result next quarter.
CEO Jeremy Thigpen said, “As we approach the end of the year, we are growing increasingly encouraged by the contracting activity that could unfold in the second half of 2021.”
This suggests that the bullish trade could last until the end of the year at the very least. Its high-specification fleet and reputation for safety will not go unnoticed. Customers will seek Transocean for ultra-deepwater and harsh environment drilling tasks.
The e-transactions market continues to benefit from the growth of online businesses. Bears have a short float of 6.9% on Square stock and will keep getting squeezed.
On Nov. 9, the company priced its $500 million aggregate notes due 2026. If it uses the cash to acquire firms like Credit Karma, it will expand its offering beyond transaction processing. More consumers and small businesses will use Square’s services instead of having a banking account. My InvestorPlace colleague Dana Blankenhorn noted this morning that the platform now includes Bitcoin in its offering.
In Q3, Square posted an impressive 138.6% YoY jump in revenue, to $3.03 billion. Gross payment volume topped $31.73 billion.
Stockrover set a fair value of $140 on SQ stock. Conversely, 18 Wall Street ranks the stock with a “buy.” The average price target is $191.80, according to Tipranks. So, this is a stock to hold so long as the uptrend does not fade.
Hewlett Packard Enterprise (HPE)
Hewlett Packard Enterprise broke out in the last month after spending much of the year at below $10.
At a virtual Analyst Day conference hosted on Oct. 15, the company forecast a rosy outlook. It expects full-year non-GAAP EPS of $1.56-$1.76. This is 10% higher at the midpoint. It also expects to post a profit of between 34 cents to 54 cents. In 2021, free cash flow will be as high as $1.1 billion.
As shown below, HPE stock might underperform this month. It tends to offer positive returns from January to March.
After spending 2020 returning almost nothing for long-time investors, HPE stock will continue its run higher, potentially in the teens. As a bonus, the stock pays a dividend in the 4% range.
Short-term traders will not invest to get income. Still, the commitment to the dividend sets this technology stock apart from other mature firms that do not distribute any income.
Disclosure: On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.