Buy Hold Sell: 5 stocks for a Santa Rally

It's beginning to look a lot like Christmas. Glittering trees adorn every office lobby, the local bars and restaurants are brim with cheer, and workers are prepped for a well-earned break after what has been a very unusual few years.

But there's one question on investors' minds: Will we see a classic Santa Rally this year? Well, history certainly suggests it could. According to the Wall Street Journal, for the month of December: 

• The S&P 500 has risen 73% of the time since 1928, delivering a 1.4% gain on average. 
• The NASDAQ has gained 61% of the time since 1971, recording an average return of 1.7%.
• The Dow Jones has lifted 71% of the time in December since 1896, delivering investors an average return of 1.4%.

So could the ASX enjoy a rally too? According to Blackmore Capital's Marcus Bogdan and Firetrail Investments Blake Henricks the answer is a resounding yes. Woo hew! 

Here, they join Bell Direct's Grady Wulff in full Christmas garb for their analysis of five stocks poised for a possible Santa Rally into the new year. 

Note: This episode was filmed on Wednesday 23 November 2022. You can watch the video, listen to the podcast, or read an edited transcript below.

Edited Transcript 

Grady Wulff: Hello and welcome to Livewire's Buy Hold Sell. I'm Grady Wulff and this is our last episode for 2022 so we thought we'd get in the festive spirit. Now, let's face it, 2022 has been a very hard year for reading markets and markets in general, so can investors hold out a little bit of hope for a Santa Rally to finish off this year with a bang? To find out if we can hope for a Santa Rally, I'm joined by Blake Henricks from Firetrail and Marcus Bogdan from Blackmore Capital. Gentlemen, thanks for your time today.

First of all, Marcus, can we expect a Santa Rally to end this year off on a high?

Marcus Bogdan: Well, I think we've front-loaded the results - we've had strong results in October and November, so I think that'll take some of the fizz out going into the end of the year. But I still think we can continue to rise modestly from these levels.

Grady Wulff: Blake, is a Santa Rally coming our way?

Blake Henricks: I always play the stats. The stats are, the market goes up over the long term, so I'm going to say yes. We're dressed up. I'm feeling good. The Santa Rally is on.

JB-HI-FI (ASX: JBH)

Grady Wulff: I'm feeling a Santa rally today as well. Now let's get to the real reason we're here, the stocks. JB Hi-Fi, it's one of my frequently visited Christmas stores for all my nephews' presents. Blake, buy, hold, or sell?

Blake Henricks (HOLD): That's a hold for me. JB, to me, has really rotated into more of a staples business, particularly on the electronics side, but they still also have that exposure to housing. The multiples aren't too expensive. It's probably on 13 times looking out a couple of years. The multiple actually goes up as some of these earnings revert. They own the market now, but it's too elevated for me. The trading conditions are too good at the moment. I just don't think it can continue. So for me, it's a hold.

Grady Wulff: Marcus, Blake's got a hold on it. Shares are down 10% year to date. Is it a buy, hold, or sell for you?

Marcus Bogdan (HOLD): It's a hold. Look, it's been stronger for longer. It's an outstanding retailer, but I think it is largely in the price. And I am cautious about going into 2023 as interest rates start to bite. Hence, it's a hold.

Webjet (ASX: WEB)

Grady Wulff: Marcus, Webjet. Let's talk about the travel sector. Are you a buy, hold, or sell on Webjet?

Marcus Bogdan (BUY): It's a buy. An outstanding recent result, both in revenue and in earnings. Exceptionally strong balance sheet and it's playing into a very strong recovery in travel. And I think that recovery will persist for the foreseeable future.

Grady Wulff: It is a sector that's soaring. Blake, its shares have lifted 11% year to date. Are you a buy, hold, or sell on Webjet?

Blake Henricks (HOLD): I'm a hold on Webjet. I love to travel. We really like the travel sector. We've seen Qantas' results, and we've seen Webjet had a very strong result. The thing I like about Webjet is that it has pivoted more to that B2B (business to business) side and so those earnings are going to be more robust with higher margins. We look out a couple of years and we say it's probably on a low 20s PE. I think that's okay, but it's had a very good run. What we've seen in many categories is, as they rise, they tend to then moderate. I think we're probably up for a bit more of a period of that here. For me, it's a great company, but more of a hold.

Endeavour Group (ASX: EDV)

Grady Wulff: Now, Endeavour Group. It's spun out of Woolworths, alcohol and hotels group. Blake, buy, hold, or sell?

Blake Henricks (SELL): For me, it's a sell. I remember in the GFC, there was a lot of consumer stimulus handed out. I remember talking to some of the casinos of the day and they were saying, "Poker machine revenues are very high, but we're not seeing any stimulus." A year later, as that stimulus rolled off, they said, "Oh, well, perhaps we did see it." What you're seeing at the moment in electronic gaming machines or pokies is that spending is up 20% versus pre-COVID-19 levels, and it's actually flatlined at those levels. I think the market has become a bit complacent about how strong some of those spending levels are. Our view is, as that reverts, you are going to see an impact on Endeavour. You've also got heightened regulatory risks. For me, it's a sell.

Grady Wulff : Sell for Blake. Marcus, shares are up 5% year to date. It has done pretty well since it debuted last year. Buy, hold, or sell for Endeavour?

Marcus Bogdan (HOLD): It's a hold for us. We still like the retail business, Dan Murphy and BWS, and customers are still buying premium products there. You've got the recovery in hotels. Revenue is up 90% in the first quarter and the multiple is reasonable at around 23 times. Hence, it's a hold.

Goodman Group (ASX: GMG)

Grady Wulff: Absolutely. Now, I've asked you to bring along a stock that is on your nice list this year. What stock have you brought for me?

Marcus Bogdan (BUY): It's Goodman Group. The stock has derated quite significantly as interest rates have risen. It's gone from a price-to-earnings multiple of around 30 times to around 19 times today. It's a global leader in logistics warehousing, which I think is a longer-term play, particularly the higher quality ones. Very strong balance sheet, it's the best property balance sheet on the market and it's meeting guidance. With earnings per share growth of 11% and a PE of 19 times, it's a buy.

The Lottery Corporation (ASX: TLC)

Grady Wulff: Absolutely. Blake, which stock are you adding to your nice list this year?

Blake Henricks (BUY): Well, someone asked me last night what I wanted for Christmas. I spent probably ten minutes surfing the web. I have no idea what I'm going to get, but I remember my Grandma used to give me scratchies. So for my wife this year, I'm going to buy a Powerball ticket. For me, the stock I'm going with for the Santa rally is The Lottery Corporation. It's the recently spun-out wagering business of Tabcorp. It's got these long-dated licences. It's on 17-18 times EBITDA. There's not a lot of CapEx in the business, and it's highly cash-flow generative. Going into Christmas, that's what I'm pushing.

Grady Wulff: That's all we have time for today on Livewire's Buy Hold Sell. I'm Grady Wulff. If you enjoyed that episode as much as I did, why not give it a like? Remember to subscribe to our YouTube channel. We're adding so much great content every single week.

Which stock do you think could be poised for a Santa Rally? 

Blake has named The Lottery Corporation and Marcus selected Goodman Group, but we would love to know what you think. Let us know which stock you believe could be in for a Santa Rally in December in the comments section below. 

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