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3 Top U.S. Stocks to Watch in December

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You might regret it if you don't put these stocks on your radar right away.

The S&P 500 might look like it's on the way to one of its worst annual performances in recent times, but that doesn't hold true for all stocks. Some companies out there are staring at solid growth catalysts that could lift up their share prices if things work in their favor as expected, and you wouldn't want to wait until the new year to put these stocks on your radar.

Here's why our Motley Fool contributors believe Green Plains ( GPRE 0.75% ), XPO Logistics ( XPO 2.55% ), and Microsoft ( MSFT 0.98% ) are three such stocks you should track closely now.

A leaner balance sheet. Now what?

Maxx Chatsko (Green Plains): The country's (former) third-largest ethanol producer looks a lot different at the end of 2018 than it did at the beginning. That's because Green Plains management decided that it was carrying way too much debt to comfortably operate in its low-margin commodity industry. To rectify that, management sold off several ethanol facilities representing 20% of total output, along with its vinegar business (vinegar is made from food-grade ethanol) -- the world's largest. And it paid off all of its $770 million in term debt.

Green Plains will now focus on efficient ethanol production and downstream opportunities in protein, such as high-protein animal and aquaculture feed, and its cattle feedlot business. It will save approximately $90 million per year in interest expense, which more than offsets the operating income contributed by the vinegar business. That will go a long way to improving the company's operating and financial flexibility, but there's still some uncertainty as to how things will shake out.

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Image source: Getty Images.

On the one hand, the most profitable months of the year for ethanol production are December and January, when industrial facilities in the Midwest can use cold winter air for cooling instead of water. On the other hand, the American ethanol industry is reeling right now, due to a combination of vast oversupply and uncertainty regarding federal subsidies.

Green Plains reported an operating loss of $60.7 million for its ethanol segment in the first nine months of 2018. That was offset by higher-margin segments to result in total operating income of $8.5 million during that period, but that included the vinegar business. In other words, while the focus on cleaning up the balance sheet is understandable, the new focus on ethanol production is certainly questionable at best.

As dire as the situation appears now, this is a good stock to watch. If more long-term clarity is handed down regarding federal subsidies, national ethanol blending rates in gasoline are increased by 50% (rumored to be in the works), ethanol exports continue to thrive, and the leaner operating strategy pays off in the next several quarters, then Green Plains could be a bargain.

Don't overlook the opportunity in this sell-off

Neha Chamaria (XPO Logistics): In December 2017, XPO Logistics' e-commerce volumes jumped 24% during the period of Black Friday through Cyber Monday. It was such a busy season for the freight and logistics giant that it hired 6,000 seasonal workers for its U.S. operations to handle the extra traffic. The company went on to report strong fourth-quarter numbers.

This holiday season has been even stronger for the e-commerce industry: Adobe Analytics said that digital sales hit a record on Thanksgiving and jumped 23% on Black Friday, and Cyber Monday sales are expected to be around 18% higher than last year. There's no reason to believe XPO Logistics isn't working overtime yet again.

Yet XPO shares have slumped nearly 16% in the past month, making it a top stock to watch this month. I believe XPO is an incredibly well-placed company in its industry, thanks primarily to its dominance in the last-mile space, which gives it a strong edge over rivals like FedEx and UPS.

XPO has aggressively expanded its last-mile reach in recent months to 85 hubs that can facilitate nearly 14 million last-mile services this year, including doorstep delivery, assembly, and installation of heavy goods such as home appliances and furniture. With self-service options through Google Home (an Alphabet product) and Amazon Echo, and deploying robots (among other things), XPO has also shown a zeal to adopt new-age technologies for its products and services. Having generated 15% higher revenue during the first nine months of 2018, XPO is on well on track to end the year on a strong note. Keep an eye on this company.

Microsoft's cloud bets continue to pay off

Chris Neiger (Microsoft): This month, Microsoft officially became more valuable than Apple (temporarily, at least), which is reason enough to take a closer look at what Microsoft is doing with its business. More specifically, though, investors who've been watching Microsoft transition from its Windows and Office businesses to its cloud computing opportunities should be amazed at the company's metamorphosis.

A smartphone held up with a cityscape in the background, and a superimposed graphic with various icons showing connection points

Image source: Getty Images.

In the most recent quarter, reported at the end of October, the company's revenue jumped 19% to $29.1 billion, and net income popped 34% from the year-ago quarter to $8.8 billion. Microsoft put up these impressive numbers by growing some of its key businesses; sales from the company's intelligent cloud segment increased by 24% to $8.6 billion. Those sales were helped by Microsoft's Azure cloud computing platform, for which sales skyrocketed 76% in the quarter.

Under the leadership of CEO Satya Nadella, Microsoft has become a key player in cloud computing with its Azure platform. Not only have sales from the cloud computing market boosted Microsoft's top line, but the cloud also represents a massive opportunity for more growth. The public cloud computing market will be worth $302.5 billion by 2021, and Microsoft currently holds the No. 2 position in the space.

Investors who've sat on the sidelines, waiting for Microsoft's transition to the cloud to take shape, shouldn't wait any longer. Microsoft has already proved that its future is in the cloud, while its leadership, under Nadella, has its feet firmly planted on the ground. The combination of big ideas and practical execution has boosted Microsoft's value over the past few years -- and it's why investors should give the company's stock strong consideration right now.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Microsoft Corporation Stock Quote
Microsoft Corporation
$326.19 (0.98%) $3.18
XPO Logistics, Inc. Stock Quote
XPO Logistics, Inc.
$75.48 (2.55%) $1.88
Green Plains Inc. Stock Quote
Green Plains Inc.
$36.48 (0.75%) $0.27

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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