The festive decorations are out in full force, even though there’s still around a week to go in November. As stocks head into December with considerable momentum behind them, questions linger as to what the next move of this mini-market rally will be.
Undoubtedly, the bounce in the S&P 500 has been notably sharper than the steady multi-month descent to multi-month lows. And as investors feel a bit better about picking up a value play now, there’s an aura of hope in the air; it’s hard not to think a Santa rally could take us to even higher highs. It’s been quite a while, but stocks may finally have what it takes to sustainably power higher from here.
Of course, chasing market rallies (especially sharp ones) can be a recipe for disaster. That said, valuations don’t look too absurd. And if you take a look at some of the market’s more battered plays, I think waiting around for a pullback to those October lows makes little sense, especially after the recent cool inflation reading.
Sure, food and shelter are still getting absurdly expensive. But there’s hope that costs could begin to backtrack, perhaps sooner rather than later. Additionally, Black Friday and the holiday season may be the nudge it takes to push consumers to open up their wallets a bit wider.
In this piece, we’ll check out three retail stocks that I’d watch to run going into Santa rally season!
Spin Master
Spin Master (TSX:TOY) is a toymaker that’s been hit at the hands of a weakened consumer. The stock has pretty much traded sideways since its late 2022 plunge. As the holidays approach, I think Spin and the rest of the toy industry could be in for a wave of relief.
At the end of the day, Spin Master makes the must-have toys of the year. And as consumers start feeling a bit more optimistic going into year’s end, perhaps parents may be more generous with gift-giving this time of year. Full-year guidance has been recently reduced, so I think there’s room for a positive surprise.
Of course, it will probably take more than a hot season of sales to propel Spin stock much higher from here. In any case, I think the valuation is modest at 15.65 times trailing price to earnings ahead of a consumer-spending environment that may inch closer toward normalcy.
Aritzia
Aritzia (TSX:ATZ) is another hard-hit discretionary play that’s in need of a relief rally. Unlike Spin Master, Aritzia has been violently crashing over the past year, shedding over 53% of its value over the timespan. Can things go from bad to worse? If the economy sags lower from here, then sure, ATZ stock’s pains could continue for another year or more.
That said, I’m a firm believer in the brand and the growth story. If the economy turns, ATZ stock may be quick to make up for lost time. Whether ATZ can inch higher for the holidays, though, remains to be seen. I have no idea what the near-term trajectory will be. That said, I view shares as oversold and dirt cheap at $23 and change. If you like the brand, why not nibble on a few shares this Black Friday?
Sure, there’s no way around margin pressures. But if you’re looking for a post-recession performer, I think you may be looking at one with Aritizia.
