Arjun Deiva, CFA, is regional director of FactSet Canada’s Consulting Division.
What we are looking for?
Stocks with upward price momentum ahead of a potential “Santa Claus rally.”
The screen
Prepare for a seasonal financial upswing with a potential Santa Claus rally – a market phenomenon characterized by a surge in stock prices during the final trading days of December and the first few trading days of January. According to LPL Research, this trend has manifested 79 per cent of the time since 1950. As the holiday season draws near, savvy investors may consider bolstering their portfolios with stocks that have demonstrated positive price momentum in recent periods.
We began identifying companies with upward price momentum by using FactSet’s universal screening tool and applying the following parameters:
- Traded on a U.S. exchange
- Market capitalization greater than US$200-billion
- Positive one-week and one-month total returns
- 50-day moving average price greater than 200-day moving average price (referred to as the “golden cross,” a commonly used indicator of positive stock price momentum)
- Relative Strength Index (RSI) less than 70. RSI is a frequently used trading indicator. A figure above 70 suggests that the stock is overbought and could fall in the near future.
We ranked the 11 remaining companies by their one-week price returns.
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What we found
Technology companies represented six of the 11 companies passing our screen. Technology stocks tend to experience more significant increases during rallies in the market, as well as more substantial drops during downturns. Given the recent market upswing and the potential for a further rally toward the end of the year, increasing exposure to technology companies may lead to strong short-term returns.
Advanced Micro Devices Inc. AMD-Q and Broadcom Inc. AVGO-Q, two semi-conductor stalwarts, ranked No. 1 and No. 2, respectively, with one-week total returns of 13.5 per cent and 12.7 per cent. These stocks have also performed exceptionally well this year, with year-to-date total returns of 107.5 per cent and 87.4 per cent. This remarkable performance could be attributed to a rebound following a difficult 2022 for technology stocks, during which AMD was one of the hardest hit, experiencing a sharp 55-per-cent decline. Moreover, both AMD and Broadcom are also seeing strong demand for their artificial-intelligence products. Chip makers play a crucial role in the AI revolution, as they produce the hardware required to produce AI outputs.
Costco Wholesale Corp. COST-Q, a prominent retailer, ranked No. 4 on our screen with a one-week total return of 3.1 per cent and is the only company that was not classified as finance or technology. Unlike tech companies, Costco specializes in essential goods whose sales remain resilient irrespective of worsening macroeconomic conditions. In fact, Costco’s flagship membership program recently achieved a record 93-per-cent renewal rate, further highlighting the company’s resilience. Consequently, Costco may offer a layer of downside protection relative to some of the more volatile technology firms that also made our list.
The information in this article is not investment advice. FactSet assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained above.
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Arjun Deiva, CFA