Color me old and tired, but when a Wall Street bank, a big wealth management firm, or a fund manager tells me that it is a “stock picker’s paradise,” as Bank of America’s Savita Subramanian did last week, I tend to feel a little skeptical. Not that it couldn’t be true. In fact, it almost certainly is true that the next few months will be good for stock pickers, because no matter what, it is always good for them. Some stocks do better than others in any market, and you will do better if you own the outperformers rather than the underperformers. That is so obvious that I am almost ashamed to include it in an article for a site with such well-informed readers as we have here, but Subramanian, who is presumably well compensated for her views, seems to be presenting it as a radical take, so who am I to argue.
The thing is though, when a company whose revenues depend on you paying them to pick stocks tells you it is a good time to pay someone to pick stocks, it is probably best to take that advice with a sizable grain of salt. Still, now that Thanksgiving is done and the leftovers have been used up or thrown away, an investor’s thoughts do turn to stock picking, trying to find stocks that might show some upside surprise as the holiday gift-giving season gets into full swing. With the major indices all right around their highs for the year, though, finding such stocks may not prove to be an easy thing to do.
The thing here for those trying to make some picks is to not overthink the problem. You are looking for likely outperformers in a market that has outperformed overall recently, so it makes sense to look at stocks that have followed that rally to some extent but have still lagged the indices on the year, and that can get a boost should holiday spending should consumers remain resilient.
That rules out some “obvious” stocks. Amazon (AMZN), for example, looks set for a great holiday season, but is close to its highs. The same can be said for TJX (TJX), the owner of several big box discount franchises, but their rival Kohl’s (KSS) has lagged the market. There are reasons for that, of course, but higher than expected holiday spending by consumers would quickly make those reasons seem a lot less important and the stock has plenty of room to run, being around 30% below its high for the year.
These days, just about any transaction involves using a credit or debit card, so card issuers and payment processors are usually good places to look for seasonal stocks. The big two, Visa (V) and Mastercard (MA) are, like the indices, around their 52 week highs and may even be a bit vulnerable should higher credit card interest rates result in higher default rates early next year. My preference, therefore, would be for pure processors rather than issuers, companies like Global Payments (GPN) and maybe Block (SQ). Both are trading well below their 52-week highs, and both can benefit from consumers that, so far, have shown no inclination to cut back their spending, regardless of higher interest rates.
Then there are logistics companies. The rise of e-commerce has made them big beneficiaries of holiday season spending, notwithstanding the fact that Amazon, by far the largest e-commerce company, has established its own logistics operation. Remember, I am looking for underperformers in the space which sometimes means looking at stocks that dropped earlier in the year, have participated in the recent rally to some extent, but are still well below their highs.
That describes UPS (UPS) pretty well. That stock dropped dramatically after a weak 2nd quarter of the year and continued lower as the market anticipated an equally poor Q3. Once that news was out of the way, though, UPS began to bounce back, rising 15% or so from its low a month ago.
That still leaves a lot of upside, even if it doesn’t get back to the high just below 200. There is one word of warning here, or for any logistics company that you might consider in this regard. OPEC+ will conclude their meeting later today (Thursday) and announce their intentions. Most believe they will simply stick to current output levels, but should they announce further cuts as some believe, all logistics stocks, companies whose fuel bill is such a big part of their cost structure, will take a hit. I would therefore wait until the end of the day before getting involved, but with that one proviso, UPS looks like another company whose stock is depressed, and for whom an injection of holiday cash would be very welcome.
KSS, GPN, SQ, and UPS are all stocks that will benefit from holiday spending, but that, for various reasons, have lagged the market as it climbed to highs for the year. However, in business, a big injection of cash can solve a lot of problems, and if consumers continue to spend at current rates, that is exactly what all four companies will get. That makes them picks for me, whether we are really in a “stock picker’s paradise” or not.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.