Last year investors were delivered a gift of coal, but this year the Santa Claus Rally has arrived and investors have reason to celebrate.
What is the Santa Claus rally? The rally is referred to on Wall Street a the tendency for the market to trade higher during the final week of the year and through the first half of January.
Last year trade tensions weighed on the market, but this year there is optimism in the market with a "Phase One" trade deal reached, and the markets trading near all-time highs. Lower rates, strong consumer confidence, a positive earnings season, and lower interest rates have pushed the market higher, and the recent strength is likely to stretch into the new year.
Investors are very upbeat, and barring any negative news regarding the U.S. and China trade negotiations the market should trend higher ahead of the upcoming Q4 earnings season which kicks off mid-January. With such optimism in the market, it is definitely reasonable to expect a Santa Claus Rally into 2019.
Here are three stocks likely to benefit from this year's Santa Claus Rally.
Target (TGT)
Mega retailer Target (TGT) has strongly outperformed the market in 2019 and has been a standout in the hot retail sector. Target's aggressive investments in its e-commerce business and revamping its stores to improve the customer experience has been working, and Target is once again a threat to all the major retailers. The stock has risen 94% in 2019 and is currently trading just pennies below its all-time high. The stock's valuation remains reasonable with shares trading at 18 times future earnings which are forecast to rise at an annual rate of 10.3% over the next five years. The company will not report earnings again until February 19, so the stock will likely trade along with the overall market as the Santa Claus Rally extends into 2019. TGT trades at $128.30 with an average price target of $127.79.
Disney (DIS)
Shares of entertainment giant Walt Disney (DIS) have appreciated in value 34% on the year. The company has overcome falling numbers for ESPN with strong studio and amusement park segments. DIS is trading at $146.57, just shy of its $153.41 all-time high, and the stock is trading at 22 times earnings. Disney last reported earnings toward the start of November, topping estimates on both the top and bottom line. Disney's latest movie in its Star Wars franchise will release this holiday and will surely be another big box office hit for the company to give DIS shares are nice lift into the new year. Disney has grown earnings 5.2% over the last five years. Analysts see a lot of additional upside in DIS with an average price target of $158.94.
Microsoft (MSFT)
Tech titan Microsoft (MSFT) has been a top performer in 2019, with shares up 52% on the year. Microsoft's ability to carve out a leadership role in the fast-growing cloud-computing market has boosted investor confidence and pushed shares higher as earnings have grown. The company has reported earnings growth of 18% per annum over the last five years, and looking ahead analysts expect profits to rise at an annual rate of 14.5% over the next five years. The stock remains reasonably priced at 25 times future earnings at $154.90 and analysts have an average price target of $160.48. Microsoft topped estimates on both the top and bottom line in October and the company will next report on January 22.
