Traditionally, stocks have performed extremely well in the last five one-year trading sessions, followed by the first two New Year sessions. This specific stock market trend is popularly known as Santa’s rise.
As LPL Financial’s chief market strategist, Ryan Detrick, quoted in a MarketWatch article, said the seven-day stretch for stocks recorded an average gain of 1.3%, the second best seven-day period in a year . However, it is not clear why this December stretch is so good for inventories.
Some speculate that consumer spending increases due to the holiday season, increasing corporate revenues. It may also be due to the renewed optimism of a better next year, which helps investors to remain optimistic.
However, according to the MarketWatch article, Detrick confirmed that since the mid-1990s “there have been six times that Santa Claus has not appeared in December” and, in such a scenario, the stock market failed to impress in January and also in the whole year. And this time, Santa Claus may not come to town, thanks to the relentless increase in coronavirus cases worldwide, much less in the United States. Needless to say, the coronavirus outbreak devastated economic growth worldwide.
In fact, a recent strain of coronavirus, especially in the UK and some parts of the world, has raised concerns among investors about its impact on the US economy vis-à-vis the stock market, easily overshadowing recent positive developments, including the launch of the COVID-19 vaccine and Congressionally approved relief package to stimulate consumers and businesses alike in the United States.
Very alarmingly, hospitalizations in the United States have reached new levels, with states imposing stricter restrictions since spring. These restrictions related to COVID-19 certainly do not bode well for companies and are undoubtedly weighing on the economic recovery. After all, consumer spending fell last month and layoffs remain high amid an increase in new cases. Families reduced spending on expensive items and cut spending on services, including meals in restaurants. Notably, family income has also been beaten as the positive effects of federal aid programs implemented earlier this year have diminished.
On the contrary, the optimistic argument is that the next government, together with the Federal Reserve, will approve additional stimulus measures to stimulate the economy. The distribution of the candidate vaccine against coronavirus in all corners of the country will help in some way in the revival of normal. Furthermore, market analysts expect corporate profits to recover in 2021, after having suffered a defeat this year.
However, despite these encouraging projections, it is difficult to predict the extent of the positive impact on the stock market. This is because all of these projections are already priced, making it difficult for stocks to continue to rise.
But investors should not be discouraged. Even though Santa’s rise remains indescribable this year, it’s not because of the following three actions, which makes them attractive purchases. Here’s why –
The first on the list is Tesla, Inc. TSLA. Tesla’s shares have soared 672% so far this year, overtaking Zacks Automotive – a domestic industry gain of 237%. Still, the company’s expected profit growth rate for the current quarter and next year is projected to reach 86% and 58.9%, respectively. In addition, Zacks’ consensus estimate for the company’s earnings next year has increased by 2% in the past 60 days.
And why not? His high-range vehicle and the latest technology are giving him an edge over his competitors. Most importantly, its absolute dominance in the electric vehicle (EV) segment will certainly help inventory to jump higher.
Tesla is, in fact, well positioned to capitalize on the projected growth in EV sales in 2021 and beyond. It is worth mentioning that EVs are currently in demand, as there is pressure on car manufacturers to reduce CO2 emissions (read more: 3 Stock of electric vehicles that can continue to gain until 2021).
Tesla currently has a Zacks Rank # 1 (Strong Buy) and a Growth Score of A. You can see the full list of today’s Zacks # 1 Rank stocks here.
The second stock to consider is NVIDIA Corporation NVDA. The company, in fact, has benefited from work led by the coronavirus pandemic and the tendency to learn at home. Since the increase in coronavirus cases has shown no signs of stopping, NVIDIA is more positioned to win in the new year. In addition, the potential growth opportunities in the gaming, artificial intelligence (AI) and self-driving cars market also bode well for this American multinational technology company.
NVIDIA’s shares outperformed Zacks Semiconductor – general industry in the year (+ 121.2% vs + 32.5%). Furthermore, its expected earnings growth rate for the current quarter and next year is 48.2% and 18.7%, respectively. In addition, the company’s profit estimates for next year have increased by 4.5% in the last 60 days. Currently, NVIDIA has a Zacks Rank # 2 (Buy) and a Growth Score of B.
Last on the list, Deere & Company DE is not concerned with the broader market trends. The company, alone, is expected to perform well in the new year, thanks to improved prospects in the agricultural, forestry and construction sectors in the United States, especially in 2021.
Deere shares have jumped 54.6% so far this year, slightly more than the 51.4% increase in the Zacks Manufacturing – Agricultural Equipment sector. In addition, the company’s expected profit growth rate for the current quarter and next year is 32.5% and almost 21%, respectively. Zacks’ consensus estimate for next year’s earnings has increased by 25.8% in the last 60 days. Deere currently sports a Zacks Rank # 1 and has a growth score of B.
Zacks Top 10 Stocks for 2021
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