After a tough year, more than one expert reckons ASX shares will follow the historical pattern and shoot upwards heading into Christmas.
The reasoning is that the market can finally see the light at the end of the tunnel. There is optimism that inflation can be tamed and interest rises could slow or stop sometime next year.
Considering this, Shaw and Partners portfolio manager James Gerrish was recently asked for his best stocks to buy to take advantage of the Santa rally:
A warning before the picks
As a preamble, Gerrish reminded investors that short-term predictions are fraught with danger.
"This is a scary question to answer because with potentially high returns comes high risk," he said in a Market Matters Q&A.
Gerrish said 10 days ago he would have named Megaport Ltd (ASX: MP1) as one to buy for the Christmas rally. But over last Wednesday and Thursday it fell more than 31%.
"It produced a very sobering experience."
The best bets for the Santa Rally
Getting back to the question, Gerrish's team feels like the technology stocks are due for a recovery as we wait for Santa to come.
After all, the S&P/ASX All Technology Index (ASX: XTX) has sunk almost 36% over the past 12 months.
The prediction has disappointed so far, though.
"The underlying theme is we're looking for a recovery in the tech sector but this has proved elusive 3-weeks into October."
But the team is sticking with the theory, as Gerrish picked five stocks he thought would rally the fastest and furthest heading into the new year:
- Seek Limited (ASX: SEK)
- REA Group Limited (ASX: REA)
- Hub24 Ltd (ASX: HUB)
- Altium Limited (ASX: ALU)
- James Hardie Industries plc (ASX: JHX)
These are point-in-time picks, he warned.
"This list is likely to change over the ensuing weeks. But at this stage, I would go with some of our most recent purchases plus older existing holdings and one we are currently stalking."
Seek shares are down 37% so far this year, while giving out a 2% dividend yield. Fellow online classifieds provider REA Group is almost 30% lower than when 2022 started, while paying out a 1.36% yield.
The Hub24 share price has only lost 16.85% year to date, while Altium is down 22%.
James Hardie is painfully 41% lower than the start of the year, while handing out a 2.9% dividend yield.
