Wall Street is heading toward completing a terrible 2022. Year to date, the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — have tumbled 8.2%, 18.6% and 31.6%, respectively. Major indexes are set to terminate a three-year winning streak and record the worst yearly performance since 2008.
Market participants are busy analyzing whether a year-end rally in Wall Street — popularly known as Santa Clause rally — will materialize this year. U.S. stock markets tumbled in the last two weeks, although the Fed reduced the magnitude of its interest rate hike in the December FOMC meeting. However, Fed Chairman Jerome Powell’s hawkish comments for next year unnerved investors.
Recent Positives
Despite headwinds, we believe a Santa Clause rally is likely this year. Peak inflation seems behind us. Less-than-expected inflation rates in October and November with respect to several measures have clearly indicated this.
On Dec 21, the Conference Board reported that Consumer Confidence in December came in at 108.3, marking its highest reading since April. The consensus estimate was 101.2. November’s data was revised upward to 101.4 from 100.2 reported earlier. A similar type of metric, the preliminary data of consumer sentiment for December reported by the University of Michigan, also showed the same type of results.
Consumers’ 12-month inflation expectations fell to 6.7% in December from 7.1% last month, marking the lowest level since September. The present situation index, based on consumers’ assessment of current business and labor market conditions, rose to 147.2 in December from 138.3 last month.
The expectations index, based on consumers’ short-term outlook for income, business, and labor market conditions, increased to 82.4 in December from 76.7 in November.
In fact, economic indicators like a tepid housing sector, declining commodity prices (except food and energy), growing accumulation of inventories on the part of manufacturers and retailers, a gradual slowdown of the ISM manufacturing PMI and retail sales along with a decline in the job openings rate are all pointing to the cooling down of the U.S. economy.
For this reason, the Fed may loosen its monetary tightening in 2023. The U.S. stock market is highly oversold. Stocks of several corporate behemoths are currently available at a lucrative valuation. The Dow, the S&P 500 and the Nasdaq Composite – have corrected significantly in December plummeting 3.5%, 4.9% and 6.6%, respectively. Therefore, at least a pullback rally at the year-end cannot be ruled out.
Stock Selection Process
Momentum investing calls for the continued appraisal of stocks, ensuring that an investor does not pick a beaten-down name or overlook a thriving one. Momentum investors buy high on anticipation that a stock will only ascend in the short to intermediate term. At this stage, momentum stocks with a favorable Zacks Rank are likely to become an ideal combination of investments.
We have narrowed our search to five momentum stocks that have solid upside left for December. Each of our picks carries a Zacks Rank #1 (Strong Buy) and has a
Momentum Score
of A. You can see
the complete list of today’s Zacks #1 Rank stocks here
.
The chart below shows the price performance of our five picks in the past month.
Image Source: Zacks Investment Research
Veritiv Corp.
VRTV
is engaged in offering North American business-to-business distribution solutions. VRTV provides packaging, print and print management, publishing, supply-chain, facility and logistics solutions that span the entire lifecycle of core business operations. VRTV’s customers vary across a number of industries, including manufacturing, healthcare, retail and more.
Veritiv has an expected earnings growth rate of 48.2% for the current quarter. The Zacks Consensus Estimate for current-quarter earnings has improved 8.4% over the last seven days.
Caterpillar Inc
.’s
CAT
revenues and earnings grew year over year for seven straight quarters thanks to its cost-saving actions, strong end-market demand and pricing actions that offset the impact of the ongoing supply-chain snarls and cost pressures. We expect CAT’s adjusted earnings per share for 2022 to grow 29.2%, while revenues are predicted to rise 13.5%.
The Construction Industries space is expected to benefit from rising construction activities in the United States and other parts of the world. Backed by demand for commodities fueled by the energy-transition trend, a thriving mining sector will aid the Resource Industries segment. CAT’s dividend yield and payout ratio are higher than its peers. A strong liquidity position, investments in expanding services and digital initiatives should help Caterpillar deliver outsized returns.
Caterpillar has an expected earnings growth rate of 47.2% for the current quarter. The Zacks Consensus Estimate for current-quarter earnings improved 0.3% over the last seven days.
Arista Networks Inc.
ANET
develops markets and sells cloud networking solutions in the Americas, Europe, the Middle East, Africa, and the Asia-Pacific. ANET benefits from the expanding cloud networking market, driven by strong demand for scalable infrastructure. The company recently joined the Microsoft Intelligent Security Association.
Arista Networks continues to gain from solid momentum and diversification across its top verticals and product lines. It is well-poised for growth in the data-driven cloud networking business, with proactive platforms and predictive operations. ANET introduced an enterprise-grade Software-as-a-Service offering for its flagship CloudVision platform.
Arista Networks has an expected earnings growth rate of 47.6% for the current quarter. The Zacks Consensus Estimate for current-quarter earnings improved 1.3% over the last 60 days.
First Financial Bancorp.
FFBC
operates as the bank holding company for First Financial Bank that provides commercial banking and related services to individuals and businesses in Ohio, Indiana, Kentucky, and Illinois.
FFBC accepts various deposit products, such as interest-bearing and noninterest-bearing accounts, time deposits, and cash management services for commercial customers. FFBC also provides real estate loans secured by residential property, such as one to four family residential housing units or commercial property comprising owner-occupied and investor income-producing real estate consisting of apartments, shopping centers, or office buildings.
First Financial has an expected earnings growth rate of 17.2% for the current quarter. The Zacks Consensus Estimate for current-quarter earnings improved 1.5% over the last 30 days.
WhiteHorse Finance Inc.
WHF
is a business development company focused on originating loans to privately held small-cap companies across a broad range of industries. WHF specializes in originating senior secured loans, lower middle market, growth capital industries. It prefers to invest in the United States. WHF typically invests between $5 million to $25 million in companies having an enterprise value between $50 million and $350 million.
WhiteHorse Finance has an expected earnings growth rate of 33.3% for the current quarter. The Zacks Consensus Estimate for current-quarter earnings improved 2.3% over the last 30 days.
Zacks Top 10 Stocks for 2023
In addition to the investment ideas discussed above, would you like to know about our 10 top picks for the entirety of 2023? From inception in 2012 through November, the
Zacks Top 10 Stocks
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