The end of the year is a busy one for money managers, but it’s also one of my favorite times. Amid all of the busyness, it’s great to be able to spend time with family and friends. I’m normally pretty focused on what I eat and staying in good shape, but I admit that my diet gets a little less healthy as I indulge in holiday treats. But I do try to enjoy myself, and I really hope you do, too.
The end of the year is also a great time to be an investor, and I’m a big believer that you can find quality investments by paying attention to what’s going on around you. There’s definitely a lot happening right now, and we can get a sense for some of the opportunities by looking at the answers to three holiday questions.
Will Santa Visit Wall Street?
We have less than a week until Santa Claus comes barreling down the chimney, and everyone wants to know what he is bringing Wall Street this year – another rally to top off a great 2017 or perhaps some selling as investors bank profits before the calendar turns?
I do think Santa has Wall Street plugged into his GPS. You may have heard of the Santa Claus rally. The term originally described the few trading days between Christmas and the end the year, but its definition has actually evolved through the years and most people now consider it to be the last five trading days of the concluding year and the first two of the next year.
The market is pretty reliably higher in this period, with the S&P up 76% of the time since 1969 with an average cumulative return of 1.4%. The numbers get even better the further back you go, with the Dow up 77% of the time with an average return of 1.7%.
Breaking it down even further, small caps historically outperform their larger counterparts for the entire month of December. Since 1976, the Russell 2000 index of small-cap stocks has gained an average 2.6% while the S&P has actually lost an average of 1.5%. The reverse has happened so far this year, which means there’s a good chance for a rally in small caps. They are also setting up for a strong 2018, as lower taxes, less regulation and the potential for infrastructure spending all mean good things for smaller U.S. companies.
Yes, believe it or not, we have to thank Congress for its role in a year-end rally. The new bill just passed today slashes the corporate tax rate from 35% to 21%, immediately boosting profits for a swath of U.S.-based companies and adding another 10% to S&P 500 earnings projections for 2018. And since stock prices are ultimately driven by earnings, it also means a 10% boost to next year’s overall outlook.
That’s good news for right now and for 2018, and our NexGen system will lead us to more high-probability, high-profit investments in companies at the forefront of the mega-trends taking us into the future.
Will You Enjoy a Holiday Party or Two?
Indulgence – and in some cases overindulgence – is synonymous with the holidays. We all love the treats, made all the merrier by an alcoholic beverage to help wash them all down. You might be able to pay for those drinks by owning stock in Constellation Brands (STZ).
One of the largest alcoholic beverage companies in the country, Constellation offers something for everyone with well-known brands that include Corona and Modelo beer, Mark West and Robert Mondavi wines and Svedka vodka. Okay, so that’s not exactly a new trend, but I just happen to have one of those for you as well. STZ also made a headline-grabbing move recently when it bought 10% of the largest cannabis (marijuana) company in Canada, Canopy Growth (TWMJF). This could be a sign of things to come for the vice sector as the beverage company increases its reach.
STZ passes my technical and fundamental criteria, and this addition of another NexGen theme has it firmly on my radar as a potential recommendation. I will be letting my subscribers know if we get the right buying opportunity.
Are You Traveling for the Holidays?
We can’t talk about the holidays without mentioning travel. Millions of people hit the road from Thanksgiving through New Year’s to visit family and friends, vacation or both. I’ll be doing some of each.
The old school strategy here would be to look at airline stocks. They have traded better recently, but that’s not where the real money is. Our NexGen approach goes beyond the obvious, so I’m going to throw a name out that will probably have you shaking your head: Norwegian Cruise Lines (NCLH).
I know, I know, investors have avoided cruise lines like the plague for a while now, but if you do the research, you’ll find that the numbers tell a pretty interesting story. Believe it or not, more people are cruising during the holidays, and they’re spending more to do it. NCLH has gained 30% this year, which is double the market. It has a PEG (price-earnings-to-growth) ratio below 1, which indicates a potential bargain in this company that is clearly being overlooked and even outright ignored by Wall Street. As we know, that’s often when big NexGen profits can be made.
There are other NexGen mega-trends in travel, from autonomous vehicles to online travel companies to a mission to Mars! I have no doubt there will be plenty of opportunities to play these trends over the coming months and years.
In the meantime, I wish you safe travels and good times over the holidays, and we all look forward to a happy, healthy and very profitable 2018!