After a soft end to Q3 that saw the major indices dip as much as 5% through September, equities bounced back hard in yesterday’s session with many stocks gapping up on the open. A gap up as it’s known is a particularly bullish signal that often coincides with the start of a trend reversal. Many on Wall Street and Main Street alike will have been waiting earnestly for the recent softness to end, so let’s take a look at a few stocks that could be on the verge of fresh rallies.
1. Ford
Yesterday’s 5.5% jump in shares of automotive giant Ford (NYSE:F) means they’re now up 20% since the last week of September. Up to then, shares had been taking a breather for much of the last month of the quarter after an eye-watering 300% move that started way back in March of last year. Thursday’s gap could be the signal that investors are ready to take Ford back to fresh multi-year highs before the holiday season.
It's been a little more than a week since the folks over at Bank of America reiterated their Buy rating on the stock as well as their $18 price target. Even with yesterday’s jump that suggests there’s an upside of around 20% still to be had. Analyst John Murphy and his team wrote at the time that “we believe under its Ford+ strategy, the company is on the verge of executing something analogous to our Core to Future framework, by which it will strengthen its core business pillars to fund its future business".
Bullish words indeed that were bolstered by fresh monthly sales numbers this week which had US sales up 34% month on month in September and more importantly, electric vehicle sales up 92%. There’s no doubt that this is a new company compared to the Ford of old, and they’re fast making a habit of trending aggressively higher.
2. JD.com
Yesterday’s 6% jump in shares of the Chinese e-commerce giant, JD.com (NASDAQ:JD) erased all of their October losses to date and strengthens the bull’s argument that a fresh rally is on the cards. Chinese stocks in general have logged a couple of poor quarters on the hop, as Beijing tightens its antitrust rules and regulations.
Shares are still down 30% from February’s all-time high, but, crucially, they’ve started to put in higher lows which tells us the bears and the sellers are running out of steam. The stock’s MACD is on the verge of its first bullish crossover since August, and the last one precipitated a 30% move higher in just two weeks.
Investors in JD, and Chinese stocks in general, will be expecting a lot more than that, but every rally has to start somewhere and it’s looking more and more likely that the downtrend of the past six months is about to be broken. For those of us considering increasing our exposure to Chinese equities, you could do worse than pick JD. They’re trading at a reasonable price-to-earnings (PE) ratio of 21 while still posting year on year revenue growth of 37%.
3. Caterpillar
Despite the gap up in their shares yesterday, Caterpillar (NYSE:CAT) will need to do some more to fully convince investors that their recent downtrend is close to its expiry date. Unlike the two stocks mentioned above, there’s no crystal clear sign yet at least that shares have put in a low and this makes them the riskier of the three. Still, they were among the better performing names on the Dow Jones Industrial Average index yesterday and are worth some consideration. As Biden’s infrastructure bill edges closer to completion, Caterpillar stands to do very well from it in the long run.
This potential was a large driving force in the stock’s 180% run from March 2020 to June of this year. Shares are down 20% since then, even with yesterday’s jump. Still, it was only last month that Credit Suisse named them as one of the two top stocks in their “Top of the Crop” list, which was defined as those stocks with the “highest conviction combined with the least demanding market expectations."
This could mean we’re looking at a sleeping giant that’s on the verge of waking up from its nap. Comparatively speaking the stock’s PE ratio of 19 is attractive and if shares can build something from this week’s jump, there’s a strong argument to be made that they’ll be testing all time highs again before the end of the year.
