Will we have a Santa Claus rally or won’t we? That’s the question that investors are wondering as the end of the year approaches. A Santa Claus rally is defined as a market that meets two conditions. First, the market shows a sustained increase in the last five trading days of a calendar year. And second, that increase carries into the first two trading days of the following year.
In 2018, December was a month many investors would love to forget. Stocks of U.S. companies posted their worst December since the Great Depression. The S&P 500 alone fell 9%.
But according to The Stock Trader’s Almanac from 2016, “Since 1969, the Santa Claus rally has yielded positive returns in 34 out of the past 45 holiday seasons. … The average cumulative return over these days is 1.4%.”
December is historically the strongest trading month of the year. Investors move money around based on tax implications. This is also a month that investors may invest holiday bonuses. Another theory is that institutional investors, who tend to be more pragmatic, go on vacation. And as the saying goes, while the cat’s away, the mice (i.e. retail investors) will play.
Whatever your reason to be in a buying mood, it’s important to look for stocks that are already in an uptrend. With that in mind, here are three stocks that look primed for a Santa Claus rally.
Santa Claus Rally Stocks: Disney (DIS)
Year-to-Date Gain: 34.3%
Every time investors try to count Disney (NYSE:DIS) out, the company just continues to deliver. In 2019, investors expressed concerns about falling theme park attendance and the cost of absorbing assets from 21st Century Fox. Then Baby Yoda arrived. Or more specifically, the company launched its highly anticipated streaming service Disney+ on Nov. 12. The service drew 10 million subscribers the first day. Not surprisingly, analysts are realizing that their forecasts for new subscriber growth were conservatively low.
But lost in the hullabaloo about Disney+ is the fact that Disney’s bread and butter still comes from its theme parks. Theme park revenue was up 11% in the last quarter to $6.8 billion. The company is forecasting that revenue to grow to $10 billion by the end of fiscal year 2024. By that time, Disney+ should be generating significant revenue.
And don’t forget, Disney is churning out one blockbuster after another. This year has already seen the studio produce Avengers: Endgame, Frozen 2 and soon Star Wars: The Rise of Skywalker. The consensus price target for DIS stock is $155.95. This is only a modest gain from current levels. However, some analysts give the stock a more aggressive price target of $175, which would be a boost of nearly 20%.
Lululemon Athletica (LULU)
Year-to-Date Gain: 89%
Some investors may tend to be cautious about a stock that has already gained over 80% for the year. Not me. Lululemon (NASDAQ:LULU) may become a victim of unreasonably high expectations. The company is set to report earnings after the bell later today. But if managements estimates are correct, the athleisure company will fall short of analysts’ expectations on both the top and bottom line. LULU also announced its COO Stuart Haselden is leaving the company to become the CEO of a New York City startup, Away.
But I see any bad news as just a temporary bump in the road. Lululemon has a catalyst that comes around the same time every year. As consumers resolve to make 2020 the year they adopt a more health-conscious lifestyle, they will be looking for the right workout apparel. Lululemon invented the category of “athleisure” wear, and I imagine that many consumers will be unwrapping gifts from LULU or spending their gift cards purchasing merchandise off the company’s website.
And with the company expanding into a line of menswear as well as developing a subscription-based loyalty program, it is truly expanding its target audience.
Year-to-Date Gain: 89.5%
Target (NYSE:TGT) was just named the Yahoo Finance Company of the Year for 2019. The company has shown that there is a way for retailers to compete with Amazon (NASDAQ:AMZN), and to compete successfully. Shareholders have been rewarded by a stock that has gained 89.5% in 2019. By comparison, Walmart (NYSE:WMT) and Amazon are up 27.5% and 15.9%, respectively.
But retail is a notoriously “what have you done for me lately” business. And some analysts were concerned that after reporting positive earnings, the company’s stock would be due for a correction. Instead, the stock is holding its gains. As InvestorPlace’s John Jagerson and Wade Hansen wrote, recent economic headlines should provide a catalyst for TGT stock.
First, the Dec. 6 jobs report suggests the consumer will be in a buying mood this holiday season. The other catalyst comes from positive news on the trade front. The announcement that the U.S. will at least further delay imposing additional tariffs on China will provide a boost to the bottom line during a holiday season that is already looking like it will be a good one for the Minneapolis-based retailer.