Despite a modest sell-off on Friday amid light trading, U.S. stocks head into December in a strong position. All three broad market indices closed at all-time highs on Wednesday. The S&P 500 has gained 25% so far this year; returns from the tech-heavy NASDAQ Composite clear 30%.
At the moment, there don’t seem to be any obstacles to further gains. The U.S. macroeconomic picture remains solid, even if growth has slowed in recent quarters. Federal Reserve rate cuts have satisfied the market. Fears of a recession appear to have faded, as cyclicals and industrials have rallied nicely.
Monday’s big stock charts highlight three stocks that could benefit if the rally continues — or accelerates. To varying degrees, all three have been left out of the market’s recent strength. And all three big stock charts suggest these names have upside ahead.
Walmart (WMT)
To be sure, Walmart (NYSE:WMT) hasn’t had a bad run of late. WMT stock still has gained 27% so far this year, modestly ahead of the S&P 500. But sideways trading has held over the past seven weeks, which leaves shares in an interesting spot at the moment:
- Technically, WMT stock does have the potential to make a move here. It’s hugging 20- and 50-day moving averages. Those averages could serve as support as Walmart stock moves back toward the high end of its uptrend range or resistance that leads WMT to fade back below $115.
- In this market, peer movements would suggest a positive bias. Target (NYSE:TGT) has continued to soar after another blowout earnings report. Amazon (NASDAQ:AMZN) has posted a nice breakout after lagging the rally for several months. Meanwhile, Walmart’s third-quarter earnings were solid enough for a brief rally that quickly reversed. Investors seem bullish toward the nation’s largest retailers, and one would think that bullishness reads across to Walmart stock at some point.
- That said, there is a valuation concern here. Walmart stock trades at over 22x next year’s consensus earnings per share estimate. That’s a big multiple relative to its historical range, and particularly relative to current muted growth. As I wrote in October, WMT stock still comes down to trust in the company and its e-commerce efforts. In a bull market, given strength in large-cap retail, I’d expect investors to find that trust eventually.
Comcast (CMCSA)
For Comcast (NASDAQ:CMCSA), the sideways trading has lasted even longer. But as with WMT, the second of Monday’s big stock charts shows potential upside, as do peer comparisons:
- Support has held repeatedly at $44 after serving as resistance in past months. If CMCSA stock can again hold that level, it would avoid a bearish reversal out of the narrowing ascending triangle. That would also get shares above moving averages, leaving room toward a breakout to the high end of a broader uptrend that dates back to March. It’s not a perfectly bullish chart, but it’s a chart that suggests any near-term strength could lead to more upside, and potentially a breakout.
- Meanwhile, peers have rallied nicely amid optimism toward streaming opportunities. Disney (NYSE:DIS) has risen sharply since its fourth-quarter earnings report last month. AT&T (NYSE:T) had rallied until recently. Even Netflix (NASDAQ:NFLX) has bounced. Comcast stock might be set up for a similar boost as the April launch of its Peacock streaming service approaches.
- Those streaming launches might be seen as a negative for CMCSA stock. More options might mean accelerating cord-cutting, and additional pressure on Comcast’s already-declining base of video subscribers. But Charter Communications (NASDAQ:CHTR) would seem to face similar risk — and CHTR stock is at an all-time high. Here, too, it seems like Comcast stock is being left behind while peers gain.
- Meanwhile, Comcast stock looks rather cheap, at less than 13x forward earnings. That’s with a much stronger balance sheet than AT&T, and a defensive base of Internet subscribers. If markets keep rallying, and investors look for value, CMCSA stock probably will be high on their list.
Shake Shack (SHAK)
Fundamentally, the steep decline in Shake Shack (NYSE:SHAK) looks like a well-deserved reversal. SHAK stock had a nosebleed valuation after it was one of the market’s biggest winners during second-quarter earnings season.
Even after the pullback of late, SHAK still isn’t cheap. A roughly 100x multiple to 2020 earnings estimates on its face would appear to suggest more downside ahead. But technically, the third of Monday’s big stock charts shows more room for optimism:
- Support has held at $60, a level which served as resistance in the spring. The 20-day moving average is in sight. Stabilization is the first step after such a big decline, and SHAK stock at least seems to have cleared that hurdle.
- Again, it would seem simple to argue that pressure can continue given valuation. But we’ve been here before, and investors who bought last year’s dips in Shake Shack stock were rewarded.
- At no point during that period was SHAK stock anywhere close to cheap. Yet it probably shouldn’t be. There’s the potential for margin expansion as near-term investments are lapped, and significant whitespace for new units and thus new sources of profits.
- To be sure, that’s not to dismiss the fundamental concerns here entirely. Even considering margin potential and the sell-off, valuation remains worrisome enough that long-term investors may have a difficult time with the price tag. Broad market optimism needs to hold for SHAK to maintain current levels. That said, growth stocks aren’t cheap these days — and traders might want to try and front-run more aggressive investors who see a chance in SHAK to buy growth at a discount.
As of this writing, Vince Martin has no positions in any securities mentioned.