Most of our top stock picks of 2024 built on gains or cut into deficits for the third quarter
Subscribers to Chart of the Week received this commentary on Sunday, September 29.
It feels like just yesterday we were unveiling Schaeffer’s Top Stock Picks of 2024, and now, with the fourth quarter already upon us, we’re in the home stretch of the year. The third quarter was replete with broad market tech corrections, a seismic political paradigm shift, and a sharp V-rally from equities that rejected general stock market malaise and September seasonality. And all of this can be reflected in our Top Pick progress report.
Of our 12 picks, nine finished the third quarter with outsized gains, and 10 either built on their year-to-date gains or cut into their 2024 deficit. Even though election volatility looms large over the fourth quarter, encouraging inflation data and a fast-acting Federal Reserve indicate a risk-on environment with three months to go in the year. And more important than any macro momentum, some of our Top Picks still have contrarian potential.
The big Q3 winner was tech stock Samsara Inc (NYSE:IOT), which added 41% thanks to a 13.6% post-earnings pop on Sept. 6. Despite a record high of $50.07 on Sept. 25, IOT still has short squeeze potential, with shorts hitting the exits in the most recent reporting period but a healthy 7.1% of the stock’s total available float.
Another Q3 highlight was Gilead Sciences, Inc (NASDAQ:GILD), which was down 17.6% year-to-date to start the quarter, but is now above its year-to-date breakeven level. If a corner has indeed been turned, keep an eye out for upgrades and/or price-target hikes that could boost GILD; half of the 26 brokerages in coverage maintain tepid “hold” ratings, while the consensus 12-month price target of $82.33 is now a discount to its current perch at $83.59.
DoorDash Inc (NASDAQ:DASH) has taken investors on a wild ride in 2024, but at the end of the day, the 44.7% year-to-date gain is a lesson in exercising patience in the long run. An 8.3% post-earnings pop on Aug. 2 was met with some consolidation, but the 30-day moving average stepped up as support. The shares have since bounced from that trendline to score a record high of $144.80 as of this writing. Unlike GILD or IOT though, DASH doesn’t have much contrarian potential to unwind, and a 14-Day Relative Strength Index (RSI) all the way up in overbought territory at 86 is worth monitoring.
Other observations include steady gains from Cincinnati-based Cintas Corp (NASDAQ:CTAS), which as we noted in the summer was entering multiple periods of bullish seasonality. CTAS and overseas chipmaker Taiwan Semiconductor (NYSE:TSM) are the only stocks to push higher in all three quarters. Dropbox Inc (NASDAQ:DBX) used a 12.6% quarterly gain to cut into its year-to-date deficit, while pet e-tail stock Chewy Inc (NYSE:CHWY) appears to have stabilized its uptrend.
You can’t bury your head in the sand as an investor, and in this case that means assessing stock picks that have fallen short. Walgreens Boots Alliance Inc (NASDAQ:WBA) continues its precipitous drop and somehow seems destined for penny stock territory. Despite a 39% rally in Q3, video game stock Unity Software Inc (NYSE:U) still has work to do to get into the black to end the year. The video game stock will have to contend with its overhead 200-day moving average to get there, though. Unlike most tech stocks, UiPath Inc (NYSE:PATH) spent the quarter trading in a tight range, consolidating around $12.50 and looks to be contending with a confluence of downward-sloping trendlines above. Cybersecurity stock Cloudflare Inc (NYSE:NET) is trading in a similar pattern but has much less of a deficit to pare in order to break into the black.
If there’s one common thread among the majority of our top picks, it’s their cheap options at the moment. Excluding TSM and WBA, all other 10 names boast Schaeffer’s Volatility Indexes (SVI) that sit in the 22nd or worse percentile of their annual range. This implies that options players are pricing in relatively low volatility expectations at the moment.
The chances of a ‘soft landing’ for the U.S. economy are increasing with each encouraging data point. Factor in China’s recent aggressive stimulus measures, and the global economy appears poised for stable growth heading into 2025. Provided there are no surprise earnings shocks, or unexpected election volatility, many of our top picks seems poised to embrace this goldilocks environment and ‘kick’ into the finish line.