For investors, Christmas always comes early.
Holiday shopping season is always good for stocks, and the rally usually starts in early November. Since 1950, November and December have been the two best performing months for the S&P 500.
Retail stocks benefit most from holiday shopping season, of course. And in this technologically advanced age when demand for gadgets has never been greater, retailers that sell devices and software such as smartphones, electronic tablets, video games and Hi-Definition televisions make a killing around the holidays.
And like most good holiday-season gifts, many tech stocks sell at a significant discount this time of year.
That's because the best two-month stretch for stocks not only begins with November, the month also marks the end of the year’s worst six-month stretch.
This year, the tech-heavy Nasdaq index has fallen 1.5% since May 1 – when the whole “sell in May, go away” phenomenon supposedly begins. The other two U.S. indices are up slightly since May.
With the holiday season right around the corner, a bounce-back in the tech sector is likely – even in a down economy.
Here are three depressed tech stocks well positioned for an especially sharp bounce-back over the next two months:
-Microsoft (NASDAQ: MSFT): The company just came out with bad third-quarter earnings last week. And that’s all the more reason to buy it now. If you subscribe to my colleague Kevin McElroy’s “buy bad news” theory – that when solid companies are beaten down by bad publicity is the best time to buy them – then Microsoft is in an ideal position. Shares have slipped 5% since last Friday’s weak earnings, and have declined 13% since the beginning of May. Microsoft’s stock has been pummeled to the point where shares are currently trading at just 8.5times forward earnings – a steal for such a respected blue-chip technology company.
Now the company is revamping its mobile strategies just in time for the holidays. This Friday, Microsoft will release the Surface – an electronic tablet intended to rival Apple’s iPad. Expanding into the mobile arena should help Microsoft balance out declining PC sales. And an exciting new product should inject life into a stock that’s trading at its lowest level since early January.
-Netflix (NASDAQ: NFLX): It has been a rough 15 months for this once fast-rising tech stock. Shares have fallen off 77% since mid-July of 2011, spurred by a series of very public missteps by CEO Reed Hastings and the rest of the online video company’s management team. But its streaming-video subscriber base continues to expand – from 22.7 million U.S. users at the end of the second quarter to a projected 23.8 million users after the company releases earnings later today. More importantly, Netflix’s international business is growing rapidly, increasing its customer base by 20% last quarter.
This is the stock I handpicked as my top investment for 2012. Though it’s down 6% so far this year, I still believe it will be in the black by year’s end. There have been plenty of growing pains, to be sure, and management certainly angered a few customers by jacking up subscription prices by 60% last year. But the fact remains that the company is growing, and more and more people across the world are subscribing to the dominant presence in the online video market. Surely there will be a few more people giving the gift of a Netflix subscription this holiday season.
-Apple (NASDAQ: AAPL): Don’t look now, but the world’s largest company has hit a bit of a rough patch. Apple shares are down 10% in the past month thanks in large part to the company’s underwhelming iPhone 5 release. The stock is currently below its 50-day moving average and is trading at less than 12 times forward earnings.
That discount shouldn’t last long, with the much-rumored iPad mini unveiling later today. That should give the stock a nice boost. However, the smart move would be to wait until the company releases its third-quarter earnings on Thursday. Depending on how that goes, Apple's shares could sink back down after the initial iPad mini fervor. With the usual blowout holiday quarter likely in the offing, this week may be your last chance for a while to buy Apple at a significant discount. Consensus analyst estimates peg the stock at about a $780 price target – close to a 20% hike from its current level.
So buy Apple before another blowout holiday season hits – with the caveat that you might want to wait until after this week’s earnings are released.