An important phenomenon around the holiday season is tax loss selling. Thus, when you’re looking for stocks to buy for a Santa rally, it makes sense to look at companies that had a rough year.
The reason for this is that people tend to dump their losers before a calendar year ends. In this way, they can lock in losses for a given year and use them to lower their overall tax bill by offsetting capital gains.
Oftentimes, these beaten-up stocks that get sold for taxes in one year become big winners the next year. The so-called January effect is in significant part due to these castoffs coming back to life once the artificial selling pressure lifts.
So, what are the most promising companies for this sort of bounce-back effect over the next few weeks? These seven stocks to buy could enjoy a serious Santa rally:
- StoneCo (NASDAQ:STNE)
- C3.ai (NYSE:AI)
- Miniso (NYSE:MNSO)
- Altice USA (NYSE:ATUS)
- Virgin Galactic (NYSE:SPCE)
- Global Payments (NYSE:GPN)
- UiPath (NYSE:PATH)
Stocks to Buy: StoneCo (STNE)
Brazilian payments firm StoneCo has been one of the year’s biggest losers. Indeed, STNE stock has plunged 80% over the past year.
The company’s problems are numerous. Brazil’s economy has sputtered this year amid a surge in inflation. Its political situation went from bad to worse ahead of next year’s presidential elections. StoneCo itself faced some issues around weakening credit performance and a potential hacking issue.
However, enough is enough. Prominent investors including Warren Buffett’s Berkshire Hathaway (NYSE:BRK.B) and Cathie Wood’s Ark Invest funds own significant stakes in StoneCo.
In addition, StoneCo’s core payments business continued to post massive growth in 2021, with the firm getting a huge number of new clients thanks to the aftereffects of the pandemic. It should just be a matter of time until overall revenues and earnings get back on track.
In addition to that, on Dec. 23, reports surfaced suggesting that StoneCo is pursuing strategic alternatives. This could involve things such as putting the company up for sale to deliver better shareholder value.
C3.ai is back on the winning path. I’ve covered AI stock several times this year. Until recently, my bullish outlook went unrewarded. C3.ai’s sales slowdown combined with an unrelenting sell-off for the sector led to AI stock being one of the year’s biggest dogs.
However, C3.ai has now turned the corner. Earlier in December, C3.ai announced a game-changing new contract. It secured a $500 million contract over five years with the Department of Defense.
C3.ai will provide services including AI-powered predictive maintenance, modeling and simulation, data fusion, and missile trajectory modeling among others. This array of services shows the broad capability of C3.ai’s software package.
More broadly, it totally resets the whole narrative around C3.ai. Over the past 12 months, C3.ai generated $212 million in revenues. This new contract — with just one client — is worth $100 million per year if the $500 million is equally split over each of the next five years. Thus, one contract alone will cause nearly 50% revenue growth off of C3.ai’s existing base.
Bears were criticizing C3.ai and saying the company could only achieve 20 or 25% revenue growth going forward. This Defense Department deal blows that narrative away.
Artificial intelligence will only become more important in the coming years, and C3.ai is set to capture a big chunk of the market. If you want to own this sector but don’t want to pay the steep premium for Palantir (NYSE:PLTR), AI stock is one of the great alternative AI stocks to buy.
Stocks to Buy: Miniso (MNSO)
Trendy Chinese home goods retailer Miniso fell out of favor in 2021. Miniso got caught up in the undertow of the general malaise in all things related to Chinese stocks.
However, the firm shouldn’t be written off so quickly. Miniso has rapidly grown to more than 4,000 stores around the world. Its fast retailing model with attractive low price points has been a massive winner in a variety of geographies.
Thanks to the slump in malls and retail centers during Covid-19, Miniso was able to scoop up tons of ideal locations at attractive rent rates.
Miniso’s growth continues at a rapid pace. Despite the sinking stock price, Miniso’s business model continues to impress. Perhaps strong holiday sales will be the catalyst to turn Miniso around in 2022. And, even if not, after seeing shares drop by nearly two-thirds in 2021, MNSO stock is more than ready for a big oversold rebound.
Altice USA (ATUS)
Cable company Altice had a terrible 2021. The firm’s revenues and profits moved into negative territory on the year, due to rising competition from Verizon’s (NYSE:VZ) Fios service among others.
Despite seemingly modest declines in Altice’s actual results, ATUS stock imploded; shares lost more than half their value on the year.
What caused the outsized reaction? For one thing, Altice has a ton of debt. This is common with cable and telecom companies, and Altice in particular has levered up. That leads to greater investment returns when things go well, but accelerates the downside during rough periods. Investors are also skeptical of Altice’s management team.
All that said, ATUS stock is trading for less than 8x forward earnings. Guidance shows revenues sliding merely a few percent next year. And management is working on operational improvements to stabilize the business by the second half of 2022.
With a free cash flow yield in the double digits, Altice is dirt cheap if it’s able to improve sentiment at all. Given such conditions, Altice looks like an ideal candidate for a potential tax loss selling candidate that could turn things around and be one of the best stocks to buy next year.
Stocks to Buy: Virgin Galactic (SPCE)
Virgin Galactic was a wild ride in 2021. Shares surged from $25 to $60 to start the year amid the general special purpose acquisition company (SPAC) boom. Then, the company was hit with delays to its space tourism program and the momentum faded. SPCE stock crash-landed, hitting $15 in May.
That wouldn’t be it for the company’s prospects in 2021, however. As Virgin Galactic launched a vessel successfully with people on board, the stock took flight once again, hitting $55 in July.
Since then, shares have lost altitude, plunging back to $15 today. For conservative investors, Virgin Galactic is one roller coaster that you would probably want to steer clear of.
For traders with a strong stomach, however, now looks like an opportune time to climb back on board. The company hopes to begin commercial operations in the fourth quarter of 2022, and has already taken in tens of millions of dollars of customer deposits.
To be clear, Virgin Galactic has run into some operational delays, that is true. However, the company’s basic safety and operational profile appear to be alright, and the company has funds to keep the business going.
This is the sort of narrative-driven stock that could soar on any positive news or improving sentiment. With holiday cheer in the air, a more speculative firm such as a space tourism play could come back into favor.
Global Payments (GPN)
Global Payments is a payment processing company. It facilitates transactions for all sorts of partners including credit card companies, e-commerce firms, FinTech partners and small businesses.
Global Payments, along with most other payments companies, had a difficult 2021. The sector slumped due to weak results out of the credit card companies. This came, in turn, due to weak international travel trends due to Covid-19 travel restrictions.
Payments firms generally earn much higher transaction fees on international card purchases than domestic swipes.
In addition to a lack of juicy cross-border deals, payments firms suffered from sentiment-based concerns. The rise of buy-now-pay-later “BNPL” made people wonder if new payments concepts would disrupt existing firms.
Additionally, earlier this year, cryptocurrency seemed like a rising threat to traditional credit and debit cards, though the high transaction fees in Ethereum (CCC:ETH-USD) and other cryptos helped alleviate that potential concern.
In any case, Global Payments keeps putting up strong results despite all the noise. Shares trade at just 14 times forward earnings, and analysts see double digits earnings growth going forward. If we get strong holiday sales numbers, that could quick off a Santa rally in GPN stock.
UiPath is a company focused on producing software and tools for automating programming. The quick way to think about it is creating solutions to automate robotic processes. This category is a newly-emerging field, and UiPath has jumped off to a leading position in this young industry.
Despite being a relatively new area, UiPath has already grown to be a considerable force. Analysts see the company scoring more than $850 million in revenues in FY ’22 and nearly $1.2 billion the year after that.
UiPath is already nearly a billion dollar business annually, and the company is still growing the top-line at more than 30% annually. Impressive stuff.
Unfortunately, the market was too enamored of shares at the company’s initial public offering (IPO) earlier this year. PATH stock opened trading around $70 per share, but has now slumped to around $45 each. That’s a considerable decline.
Shares fell due to the heavy selling in the software industry, along with traders dumping anything owned by Cathie Wood. Wood’s Ark Invest has a sizable position in PATH stock.
These short-term factors should lift as the calendar turns to 2022, however. This is one of the best tech firms in the 2021 class of IPOs, and once any interest in speculative software stocks returns, UiPath should be one of the winners.
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On the date of publication, Ian Bezek held a long position in AI, STNE, and GPN stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a sizable New York City-based hedge fund. You can reach him on Twitter at @irbezek.