Best Santa Claus Rally Stock To Buy: Every year in the build up to the holidays you’ll hear the CNBCs and Bloombergs of the world talk about the Santa Claus rally – a phenomenon where stocks rally during the final weeks of December and into the New Year. But which ones deserve your attention?
We examined 7 stocks that historically have demonstrated a seasonal tendency to rise during this period – of course there are not guarantees they will continue to do so but past data suggests an underlying catalyst tends to nudge these stocks higher during the holiday season.
Broadcom [4.3% Rise with 70% Probability]
Broadcom Inc. [NASDAQ: AVGO] is a prominent designer, developer, manufacturer and supplier of a broad range of semiconductor and infrastructure software solutions.
The San Jose, California-based company boasts of numerous product segments catering to networking, software, broadband, smartphones, telecom equipment, wireless, and storage and industrial markets the world over. Its wireless business supplies chips for smartphone giants such as Apple and Samsung.
The 52-week high and low for the semiconductor manufacturer has been found in the range of $217.61 to $325.67. Its present market capitalization stands at $126.6 billion.
Seasonally, the stock has a remarkable tendency to gravitate higher during December. In fact, data shows that Broadcom has a history of rising 4.3% higher at a historical rate of 70%, meaning on average 7 of every 10 years it has marched higher during the December period.
But that’s not the only reason to consider Broadcom.
Expansion into High-margin Businesses makes Broadcom Attractive
Broadcom Inc [NASDAQ: AVGO] released its third quarterly earnings for the fiscal year 2019 in September.
Net revenue was $5.515B, pretty much in line with $5.517B it generated in the previous quarter and 8.9 percent higher than $5.063B in the same quarter last year.
The technology company reported $3.99 EPS, slightly missing the consensus estimate of $4.10 by $0.11. Broadcom reported $4.98 earnings per share in the same period the previous year.
Broadcom is rapidly spreading its wings in other high-margin businesses. The semiconductor heavyweight recently has been on an acquisition spree, having completed more than 7 acquisitions in the past six years.
It acquired CA Technologies last year for $18.9 billion, and acquired Symantec’s Enterprise Security business for $10.7 billion in 2019. The acquisitions should help the semiconductor manufacturer benefit from cost synergies, recurring revenue and the ability to cross-sell several solutions.
All the acquisitions have compelled the company to take on $17.6 billion in debt. However, a cash balance of $5.5 billion, operating cash flow of close to $10 billion, and a net margin of 13.44% suggest that the company is comfortably placed to deal with its debts.
The company repurchased and eliminated 3.5 million shares for $977 million. Shares buyback plans are indicative of the fact that the management believe its shares are undervalued. The company also paid a quarterly dividend of $2.65 per share or an annualized dividend of $10.60 per share, and an attractive dividend yield of 3.7%.
Diversified revenue base, expanding product portfolio, positive growth metrics, aggressive acquisitions, and strong cash flow make Broadcom well-positioned to make its presence felt in rapidly emerging technologies like IoT and 5G. All in all, Broadcom offers excellent investment opportunities for 2020 as well as beyond.
Chipotle [2.1% Rise with 63% Probability]
Chipotle Mexican Grill, Inc [NYSE: CMG], more commonly known as Chipotle, is an American restaurant chain of Mexican-inspired food.
Founded in Denver, Colorado, in 1993 by Steve Ells, a classically trained chef, Chipotle serves a menu of burritos, tacos, burrito bowls and salads.
The restaurant chain went public in 2006 and today has grown to more than 2,000 store locations across the United States Canada, the United Kingdom, France and Germany.
Over the month of December, Chipotle stock has historically risen by 2.1% in 63% of the years its operated as a public company. That’s nothing to sneeze at. If it could repeat that performance every month of the year, it would translate to an annualized return of around 25%!
And there are other compelling reasons to consider buying Chipotle stock.
Digital Sales Growth To Cause Chipotle Stock to Rally?
Chipotle Mexican Grill, Inc [NYSE: CMG] announced its quarterly earnings data on October 22. The restaurant chain reported $3.82 EPS for the quarter, while it had $2.16 earnings per share for the same period last year.
Analysts’ consensus estimate was $3.13. Chipotle Mexican Grill reported a revenue of $1.40 billion for the quarter, a healthy rise of 14.6% in comparison to the same period last year. Analysts were expecting $1.38 billion. The company, with a market cap north of $22 billion, has a net margin of 5.77%.
Chipotle Mexican Grill has been on a tear recently. The stock gained altitude after investment bank Cowen gave it a big ‘thumbs-up’ claiming the burrito chain was one of its “best ideas” for investing in 2020.
Riding on rapidly growing online sales, pickup and third-party delivery of food ordered online, lower food costs and strong earnings have led to the restaurant operator’s share rise by more than 80% in the current year.
Analysts at Cowen raised their rating for Chipotle stock to Outperform from Market Perform, setting the price target for Chipotle shares to $970.
Elsewhere, analysts offering 12-month price forecasts for Chipotle Mexican Grill Inc. have forecasts ranging from a low of $ 6255.00 to a high of $1,000.00. The median target is $875, which represents a +7.25% increase from the last closing price.
Danaher Corporation [2.1% Rise with 57% Probability]
Danaher Corporation [NYSE: DHR], a Fortune 500 company, is a globally diversified science and technology company in the business of designing, manufacturing, and marketing a diverse range of professional, medical, industrial, and commercial products and services worldwide.
The Washington, D.C-based Company, which is the parent corporation of Beckman Coulter & over 20 global science & technology companies, operates in four segments:
- Professional Instrumentation
- Medical Technologies
- Industrial Technologies and
- Tools & Components
It’s also one of the top Santa Claus rally stocks to buy when factoring in its price history. More often than not, the stock has a history of rising over 2% during the month of December. That translates to annual return that would beat even Warren Buffett’s historical track record!
And still, there are other reasons why you might want to buy Danaher stock.
Assets Acquisition and Disinvestment to Help Danaher
Danaher Corporation [NYSE: DHR] announced its quarterly earnings data in October. The conglomerate reported $1.16 EPS for the quarter, edging past analysts’ consensus estimate of $1.15 by $0.01. It posted $1.10 EPS for the same period a year before.
Danaher earned $5.04 billion during the quarter, a rise of 3.8% in comparison to the same period last year.
Analysts’ expectations of the conglomerate was an amount of $5.02 billion. The company also updated its FY19 earnings guidance, estimating EPS to be in the range of $4.74-4.77 for the period, lower than the consensus EPS estimate of $4.79.
The company, with a market cap of over $104 billion, has been aggressively following its acquisitions and divestments agenda, having acquired Integrated DNA Technologies and Blue Software in 2018.
The conglomerate acquired Labcyte Corporation in 2019. It is also in the process of acquiring General Electric Company’s BioPharma business. Additionally, strong product portfolio and shareholder-friendly policies augur well for its stocks.
Analysts’ forecasts in the next twelve months for Danaher range from $136 .00 to $174.00. On an average, they expect Danaher’s share price to reach $152.00, an upside of 4%.
Booz Allen Hamilton [2.1% Rise with 66% Probability]
Booz Allen Hamilton Corporation [NYSE: BAH] is a management and information technology consulting firm, which provides consulting, engineering, analytics, cyber solutions, digital solutions, engineering, and technology consulting.
The Greater Washington, D.C.-based company offers its services to governments, corporations, and not-for-profit organizations in industries ranging from defense to health to energy to international development in the US and globally.
It’s also got a remarkable history of floating higher during the Santa Claus rally time frame. During the month of December, Booz Allen Hamilton has historically risen by 2.1% with a probability of 66%.
Is Booz Allen Hamilton Holding Co. is a good buy despite weak EPS guidance?
Booz Allen Hamilton Holding Co. [NYSE: BAH] announced its earnings results in the beginning of November. The business services provider EPS of $0.81 beat the consensus mark of $0.70 by $0.11. The company had posted $0.68 EPS in the same quarter a year ago.
Total revenues of $1.8 billion surpassed analysts’ expectations of $1.78 billion, and increased 12.7% year over year. The company, with a market capitalization of over $10 billion, had a net margin of 6.40%.
Booz raised its FY20 earnings guidance, providing (EPS) guidance of $3.00-$3.10, as compared to consensus earnings per share estimate of $3.09. The company raised its revenue growth projection to $7.3 – $7.4 billion (+9-11%), compared to the consensus revenue estimate of $7.29 billion.
Analysts’ one-year target prices for Booz Allen Hamilton’s stock range from $69.00 to $88.00, with a median target of 79.50, which represents a +8.28% increase from the last price of 73.42.
RingCentral [2.9% Rise in 3 of Last 6 Years]
RingCentral [NYSE: RNG] is a global provider of cloud-based communications and collaboration solutions. The public traded company provides software-as-a-service solutions, enabling the businesses to communicate, collaborate, and connect anywhere, anytime and on any device.
The company’s products include:
- RingCentral Office
- RingCentral Professional
- RingCentral Fax
- RingCentral Glip
The combination of Its offerings has historically led to good things for RingCentral stock during the Santa Claus rally period. During the month of December, RingCentral has rallied on average 2.9% in 3 of the last 6 years.
Although the odds of RingCentral stock rising are a flip of a coin, the annualized rate of return when it does is stellar! Other factors make it an interesting stock to buy too.
Rising Fund Ownership Bodes Well For Ring Central
RingCentral [NYSE: RNG] released its quarterly earnings results on November 4. The cloud communications provider reported earnings per share of $0.22 for the quarter, edging past the consensus estimate of $0.19 by $0.03.
The software maker earned $233.35 million during the quarter, compared to analyst estimates of $221.37 million. The company’s revenue was up 34.2% on a year-over-year basis. During the same quarter in the previous year, the firm earned $0.19 EPS.
RingCentral’s fourth quarter revenue guidance stopped at $238-240 million, while its EPS earnings guidance stood at $0.21 per share.
Analysts forecast the company to bring in around $238.00 million in current quarter sales.
RingCentral entered into a new partnership with Avaya [NYSE: AVYA] this quarter, which makes the Cloud-based communications expert the exclusive provider of unified communications as a service (UCaaS) to the American multinational technology company.
RingCentral also further cemented its relationship with the telecom giant AT&T (NYSE: T).
RingCentral has seen eight straight quarters of rising fund ownership, which has roused the interest of traders and investors.
Analysts’ 1-year outlook for RingCentral’s stock range from $170.00 to $225.00. On an average, they expect the company’s stock price to reach $190.00, which represents a +10.57% increase from its last closing price.
First Republic Bank [5.1% Rise with 75% Probability]
First Republic Bank [NYSE: FRC] is an American bank and wealth management company.
The San Francisco, California-based company and its subsidiaries offer private banking, business banking and private wealth management, including investment, trust and brokerage service to low-risk, and high-net-worth clientele in metropolitan areas in the United States.
While the company doesn’t typically rocket higher in December, it does have an extraordinary seasonal tendency to rise over the next 12 weeks by an average 5.1% in 3 out of every 4 years.
That translates to an annualized return north of 20% if it were to happen again. Even without the help of seasonal patterns, it’s got some other tailwinds.
Strong Loans and Deposits Balances Are Tailwinds
First Republic Bank [NYSE: FRC] announced financial results for the quarter ended September 30, 2019 on October 15.
The bank reported $1.31 earnings per share (EPS) for the quarter, up 10.1%, beating the Thomson Reuters’ consensus estimate of $1.21 by $0.10.
Its EPS was $1.19 in the same period a year ago. The bank earned $837.19 million, up 8.9% from the corresponding period last year. Analysts were expecting revenue to be around $830 million.
Analysts believe that rising loans and deposits balance work in the bank’s favor. Also, the bank can undertake expansion owing to its strong capital position. However, they believe that a diminishing net margin, despite rising interest rates, poses a challenge for the company.
Brokers’ one-year target prices for First Republic Bank’s stock range from $92.00 to $125.00. On an average, they anticipate First Republic Bank’s share price to reach $106.23 in the next twelve months, which represents a possible downside of 4%.
Bonus: Medidata Solutions
Medidata Solutions, Inc. [NASDAQ: MDSO] is an American technology company that provides cloud-based solutions for clinical trials worldwide.
It offers the Medidata Clinical Cloud, a platform that unites 3,000 professionals in Life Sciences across the globe, events to accelerate the business of clinical research. The New York City-based company’s platform solutions include Data Capture, Data Management, Trial Planning, Trial Management, and Analytics.
Medidata Solutions, Inc. [NASDAQ: MDSO] announced its quarterly earnings data in July. The cloud-based solutions provider reported $0.48 earnings per share (EPS) for the quarter, overtaking the consensus estimate of $0.17 by $0.31. The research software maker has been beating consensus EPS estimates for the last four quarters.
It reported $0.43 EPS in the same period a year before. The New York City-based company reported a revenue of $180.50 million during the quarter, edging past analyst estimates of $179.95 million. Its quarterly revenue surged by 15.43% on a year-over-year basis.
Analysts’ 12-month price targets for Medidata Solutions’ shares range from a low of $70.00 to a high of $93.50. On an average, they anticipate Medidata Solutions’ share price to reach $88.63 in the next twelve months. This suggests that the stock has a possible downside of 4.00%.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.