3 sizzling stocks for a year-end rally
Tune out the mess in Washington and zero in on mispriced issues.
By Jamie Dlugosch
The legendary end-of-the year rally is on its way. We could be entering a very favorable time for investors.
Best buy your stocks now or you might miss out on what could be another 5% to 10% in market returns.
Fretting about obstacles facing the market? At the top of the list could be the approaching end to Federal Reserve bond-buying. Many believe that the market will fall once this crutch is removed.
Or maybe you are concerned about the looming debt ceiling debate in Washington. The incessant back and forth will frighten any investor. This time real damage could be done.
Perhaps you have that nagging feeling that stocks have just gone too high at the end of a long bullish cycle. Valuations are at a peak.
Keep the faith and zero in on mispriced stocks
If you think hard enough, you could find many other reasons not to be an investor in the market today. Resist the urge.
Instead, focus on opportunities. By that I mean owning stocks that are mispriced in the market. I’ve often seen these mispriced stocks jump 15% to 20% or more in a very short time period -- and often in a market environment when such a jump is least expected.
I can identify these opportunities using something I like to call the P/E Gap -- the difference between a stock’s price-to-earnings ratio and its expected profit growth rate. I use the P/E Gap as a way to rank the entire universe of stocks from top to bottom.
Own those stocks and you can put the wall of worry behind you.
Here are three top-rated P/E Gap stocks to buy now, before the year-end market rally.
JetBlue Airways (JBLU)
The discount airline is a perfect stock to own for an end-of-the-year rally. The airline sector is enjoying a renaissance of profits and growing revenues. No longer are fare hikes and fee increases threatened by too much competition. Despite its travails, the economy is growing and not likely to slow any time soon.
Shares of JetBlue have appreciated nicely in the last year this despite three consecutive earnings misses. Analysts are still optimistic. JetBlue is expected to earn 46 cents per share this year and 62 cents per share in 2014. That’s an impressive 35% growth rate. You can buy that growth on the cheap for just 11 times 2014 estimated earnings. That’s a steal and makes this stock a likely high flyer during the end-of-the-year rally.
The good times in the notoriously challenging oil refinery industry came to a screeching halt in June. Shares of Tesoro have dropped 30% since peaking at the end of May. I’m a sucker for a discount and this one looks too juicy to pass up.
Oil prices have been relatively stable in 2013 and that’s a good thing for oil refiners. Too much volatility and there is a risk of losses in what is typically a low-margin business. Stable prices mean the opposite. The pump is priming for Tesoro to make big profits in coming quarters. Wall Street expects the company to earn $4.16 a share in the current year. That number shoots higher by nearly 50% to $6.18 in the following year. Investors can buy that growth for seven times 2014 estimated earnings. I don’t care what the market does the rest of the year, this one can only go higher, and I want to own it.
This is a great time to own overnight delivery expert FedEx. FedEx should soar in what is projected to be a solid holiday season. FedEx shares recently jumped after it delivered a solid earnings report, but there is more meat on the bone. Analysts expect the company to earn $6.97 a share in the current fiscal year ending May 31, 2014. That number should appreciate by 24% in the following fiscal year.
At current prices, FedEx shares trade for 16 times current fiscal year estimated earnings. With the company reaffirming guidance in its last earnings report, the risk here seems low no matter the market environment. Look for FedEx to outperform the market during what should be a healthy year-end rally in stocks.
Jamie Dlugosch does not own shares in any stocks mentioned in this article.
More from Traders Reserve
- The real winner in the phone and tablet wars
- 3 stocks to sell before the Fed tapers
- The debt ceiling negotiation vs. the stock market
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
These companies won't soar like other plays in the sector, but they make for great income sources.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.