You might think that the stock market would be really quiet during the holidays. After all, many investors are on vacation and take a break from buying and selling stocks. Interestingly, though, the S&P 500 often rises noticeably in the final five trading days of December and the first two days in January.
Three Motley Fool contributors think they've identified fantastic stocks that are especially likely to enjoy this kind of "Santa Claus rally." Here's why they picked AbbVie (ABBV -4.58%), CRISPR Therapeutics (CRSP 0.34%), and Pfizer (PFE 0.55%).
A rally has already begun for this stock
Keith Speights (AbbVie): We won't have to wait until after Christmas for one beaten-down stock to rally. The rally has already begun for AbbVie: Shares of the big drugmaker have jumped more than 10% since Thanksgiving. I think this momentum could continue into the new year.
Two big business-development deals appear to have renewed investors' interest in AbbVie. On Nov. 30, the company announced plans to buy ImmunoGen for $10.1 billion. A week later, AbbVie revealed that it intends to acquire Cerevel Therapeutics for $8.7 billion. Both transactions appear to be smart moves that will bolster AbbVie's pipeline and, in the case of ImmunoGen, add an approved cancer therapy with fast-growing sales to its lineup.
Speaking of cancer therapies, investors also have a reason to be optimistic about AbbVie's epcoritamab. The drugmaker recently announced positive results for the experimental bispecific antibody in a phase 1/2 study for treating relapsed/refractory follicular lymphoma. The therapy has already been approved in both the United States and the European Union in treating certain types of large B-cell lymphoma. Analysts project that epcoritamab could generate peak annual sales of close to $3 billion.
I also think that the increasing prospects of interest-rate cuts next year could entice some income investors to shift money into AbbVie stock. Lower rates will cause bond yields to fall, but could provide a catalyst for stocks. AbbVie's current dividend yield of 4% and its status as a Dividend King could be a winning combination for income investors seeking better alternatives to bonds.
This biotech already got a holiday gift
Prosper Junior Bakiny (CRISPR Therapeutics): The past few weeks have been eventful for CRISPR Therapeutics. The most crucial development for the company is that it finally earned approval for gene-editing therapy Casgevy as a treatment for sickle cell disease in the U.S. and the U.K., and for transfusion-dependent beta-thalassemia (TDT) in the U.K. A U.S. approval decision on the TDT indication is expected by March 30, 2024.
However, CRISPR Therapeutics' shares have been falling, probably partly because some investors decided to take their profits now that the biotech has achieved this important milestone. So why think CRISPR Therapeutics could profit from a Santa Claus rally?
These things are always hard to predict, but the feat the company just accomplished is nothing to sneeze at. It earned the world's first approval for a CRISPR-based gene-editing treatment -- a technique that recently won its creators a Nobel prize.
Furthermore, with a price tag of $2.2 million in the U.S., Casgevy's total addressable market is massive. Even with just the 32,000 patients it plans to target together with its partner, Vertex Pharmaceuticals (NASDAQ: VRTX), it comes out to a total of a little over $70 billion. That's before we consider that CRISPR Therapeutics and Vertex could target far more patients if given label expansions. Casgevy's peak sales probably won't come anywhere close to matching its full market opportunity, but they don't have to for CRISPR Therapeutics to be a big winner.
While it isn't surprising to see some investors jump on the opportunity to take some profits, others might soon decide to initiate positions given how promising CRISPR Therapeutics' prospects just became. This could be just the first of many approvals for breakthrough gene-editing therapies for the biotech.
That's why a Santa Claus rally could be in the cards for CRISPR Therapeutics. More importantly, long-term investors should stick with the stock regardless of what transpires in the next two weeks.
With a beaten-down valuation, this pharma could be due for a rally
David Jagielski (Pfizer): One underrated stock that investors have been dumping this year is Pfizer. The healthcare giant is on track to generate up to $61 billion in revenue this year -- more than it brought in before the pandemic. It's been busy loading up on acquisitions to bolster its growth prospects, but investors can't get past looming patent cliffs and the steep declines in COVID-related revenue this year.
While those are valid concerns, the stock should be trading at higher levels than it is now. If you ignore the brief market crash of 2020 when investors went into a panic about the coronavirus, then Pfizer's stock would be trading at near-seven-year lows right now.
But Pfizer's business isn't in peril the way it would have to be to justify the massive sell-off the stock has seen this year. Down 44%, it's trading at just 9 times forward earnings while the S&P 500 averages a multiple of 20.
The company has multiple growth catalysts it can tap into. CEO Albert Bourla has a plan to add $25 billion to the company's top line by 2030, through acquisitions and in-house drug development, to offset declines from patent cliffs and diminishing demand for COVID-related products.
Pfizer is coming off a tough quarter in which it reported a net loss of $2.4 billion for the period ending Oct. 1. But the big drugmaker is trimming costs and plans to shave $3.5 billion in annual expenses as it scales down its COVID operations.
Overall, I think this is still a top stock to own. Its valuation is attractive, and the dividend yield currently stands at 5.7%. Pfizer just might be ripe for the picking in a Santa Claus rally, as value investors recognize the great bargain offered by the stock.
