All is calm, and all is bright on this Christmas Day. As we all open our presents and sit around a fire with hot chocolate (or whatever other beverage one prefers), some may still be thinking of the biggest gift that could be left in their stockings — a big potential gain through the middle of January.
The so-called “Santa Claus rally” refers to the period of time between Christmas and roughly mid-January when stocks historically perform the best. This three-week period has a roughly 80% success rate over time of providing gains, with some of the biggest gains in the year typically taking place during this window.
To a certain extent, I think much of the hoopla has become a self-fulfilling prophecy. But for those who think another such rally is around the corner, here are two top ways I’d play this trend.
Shopify
Canada’s premier growth stock, Shopify (TSX:SHOP) has shown no signs of slowing down lately.
Now, the company’s share price did dip recently, as investors became increasingly concerned with the company’s spending levels on AI. Indeed, Shopify can certainly be included among this group, as the company has been investing in AI integrations to improve monetization and traffic to its core websites.
However, the difference between Shopify and other major players spending billions on chips and data center buildouts is that this is a company with very targeted efforts and a disciplined capital expenditure strategy. Thus, I’m of the view that Shopify should be able to weather whatever headwinds may materialize next year, if these concerns float to the surface again.
In the meantime, the company is seeing accelerating growth from its subscription and SaaS businesses, which I think should drive higher margins. And as more mid-to-large-cap companies adopt its e-commerce platform software, total gross merchandise value (GMV) should surge, driving Shopify’s valuation to new all-time highs. That’s my base case, at least.
Toronto-Dominion Bank
Take a look at the stock chart below. Toronto-Dominion Bank (TSX:TD) is starting to look like a parabolic growth stock. Of course, the reality is much different.
This leading Canadian bank is among the most impressive growers in the financial sector, seeing robust revenue and earnings growth from both its domestic portfolio, as well as the company’s solid retail banking presence in the U.S.
I think most of this recent rise has to do with the steepening of the yield curve, which allows TD Bank and its peers to earn much higher net interest margins. That’s basically the spread between what these banks borrow at (near-term rates, which are coming down) and the longer-term rates they lend out at (think mortgages over many years).
With an increasingly positive outlook for its own balance sheet and margin growth in the coming quarters, I think TD stock could continue to be a winner heading into 2026. That’s especially true for those who believe another Santa Claus rally is coming our way.
