Which Companies Should Benefit From A Santa Rally?

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 |  Includes: AAPL, CAT, CMG, GOOG, MA, PCLN
by: Jacob Steinberg

Last year, we saw the textbook example of a Santa rally. Between mid November and early January, the market surged almost non-stop. In fact, the rally continued all the way into mid March. By the time the rally was done, Dow Jones Industrial index moved from 11,200 points to 13,200. S&P 500 index moved from 1,160 points to 1,416 points, and Nasdaq index moved from 2,441 points to 3,120 points. All major indexes easily posted larger gains in 2 months than they did in the last decade. Now it's that time of the year again and many investors will be expecting a Santa rally. On the other hand, the market is already near all-time highs with Dow Jones trading at 12,266 points, S&P 500 trading at 1,430 points and Nasdaq trading at 3,016 points (at the time of writing this article).

Many people can't help but wonder whether there is much room for market to go up from here. After all, in the last decade, the Dow Jones index has tried to pass 13,500, S&P has tried to pass 1,500 and Nasdaq has tried to pass 3,100 on multiple occasions with very little success. It looks like this level is a large and strong glass-ceiling for the market which will not be passed until the global economy starts seeing strong growth. On the other hand, if we look at individual companies rather than the indexes, we see a totally different picture. There are a lot of companies that could benefit from a possible Santa rally this year.

Apple (NASDAQ:AAPL) is one of these companies. Analysts think that Apple is worth $780 per share, which is $200 above its current price. The company is expected to post strong results during the holiday season, with analyst estimates ranging from $12 per share and $15.5 per share in earnings for the quarter. And this range comes after nearly all the analysts covering the company reduced their earnings estimates. A possible Santa rally can take Apple where it deserves to be, which is probably somewhere around high $700s.

Caterpillar (NYSE:CAT) is another company that could definitely benefit from a possible Santa rally. The investors have oversold this industry giant mostly due to fear. Caterpillar is expected to earn between $1.56 and $2.45 in this quarter. The analysts believe that the company is worth nearly $100 per share, which provides a possible upside of 14% given the company's current share price of $86. As recently as last February, the company was trading for $116 per share, mostly due to last year's Santa rally. Can we see the company pull another Santa rally? I think it is likely.

Google (NASDAQ:GOOG) currently trades for $681, which is more than $100 below what analysts think it is worth. On average, analysts think that Google is worth $800 per share. This is because the company is expected to achieve net earnings of $9 per share in this quarter. Many people underestimate Google for the recent bad performances but the company always manages to surprise the investors in the long run. Last year's Santa rally took this company's share price from $563 to $656 in a matter of months. Similar results could be expected if this year's Santa rally materializes.

Very few companies love a Santa rally as much as Chipotle (NYSE:CMG) does. During last year's Santa rally, the company's share price went over the roof as it jumped from $299 to $425 in a few months. The company will probably stop being a high-flyer for a while, but there is still a lot of growth left in it. I don't expect this stock to jump as much this year as it did last year, but still it can jump a lot.

Priceline (NASDAQ:PCLN) enjoyed last year's Santa rally big time as its share price jumped from $459 to $764 from November to March. While the company continues to provide cautious outlook regarding the near future, many analysts expect a lot from this stock. At the end of the day, Santa rally is mostly about expectations, so this should help Priceline this year, just like it did last year.

MasterCard (NYSE:MA) is another company that absolutely loves Santa rallies. Last year, the company's share price moved from $345 to $435 during this rally. The analysts expect MasterCard to post double-digit growth for the foreseeable future. If the company repeats its performance during the last Santa rally, it could easily see $600 per share by next March.

A word of caution: Santa rallies tend to happen for a variety of reasons such as high optimism during holidays, the buying behavior tied to the expectation of a Santa rally itself, last minute efforts from the fund managers to prove their funds to be profitable. Usually Santa rallies tend to be on low volume, because many traders are on the sidelines during this period. Santa rallies are not a sure thing, and they are not guaranteed. They may or may not happen. Use caution while investing/trading.

Disclosure: I am long AAPL, GOOG, CAT, PCLN, MA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.