Strategies on Cherry-picking Blockbuster Stocks to Benefit from Christmas Rally

  • Dec 01, 2019 AEDT
  • Team Kalkine
Strategies on Cherry-picking Blockbuster Stocks to Benefit from Christmas Rally

The holiday season is here and there are a lot of chances that Christmas Rally would be witnessed this year as well. The Santa Claus Rally or Christmas Rally defines a constant rise in the share market that happens in the final week, during the month of December. There are several justifications for this rally to happen like the investing of holiday bonuses, feeling of optimism and happiness of New Year.

Investors have great anticipations from the yearly market events during December and January, expecting Christmas Rally to deliver a good reward, but it has the same probability of emptying the investor’s basket too.

S&P/ASX200 Index Performance in December 2018

S&P/ASX200 last year performance (Source: ASX)

As can be seen the index recorded a decrease during the month of December 2018 but rallied just before the start of January this year.

Why does the market perform this way in December?

There are many reasons cited for why the market experience greater than average increase in stock value. Here are some of them which have been suggested:

  • People are investing in anticipation of the January effect when stocks rise more than usual;
  • Mutual fund managers with large stock positions buy a little more in order to drive the price of their holdings up and show better returns for the year;
  • Investors are likely to sell for tax loss harvesting before Christmas to ensure that it is done before the end of the year, artificially pushing stocks lower just before Christmas;
  • End of year bonuses are given and are invested in the stock market, boosting prices to go higher;
  • People are in a more optimistic mood as a result of the holiday season.

Let’s now discuss four stocks that may be a part of a Santa Rally, i.e. Nufarm Limited from materials sector, Jumbo Interactive Limited from consumer discretionary sector, Polynovo Ltd from healthcare sector and G8 Education Limited from consumer discretionary sector.

Nufarm Limited (ASX: NUF)

Nufarm Limited is engaged in the business of manufacture and sale of crop protection products and its proprietary seed technology business.

NUF’s Update on Six-month Results

The company notified that during the time of reconciling accounts with German consumers for the FY19 period, other sales rebate has been recognised from consumers that relate to Nufarm’s 2019 financial year. The matter has been sent to external auditors and the investigation is going on. It is not expected that this will result in restatement of FY19 financial statements but will affect FY20 half year earnings. There will be an impact of $9 million on EBITDA after the completion of the investigation.

The company also stated that trading conditions for FY20 to date has been difficult. Due to which, there has been lower earnings in all the regions for the first quarter as compared to the previous year. It was particularly due to lower demand in North America and high channel inventories has resulted in first quarter’s EBITDA of about $20 million below the corresponding period for this region.

Stock Performance

The stock of NUF closed the day’s trading at $4.950 per share on 29th November 2019, down by 1% from its previous closing price. The company has a market capitalisation of $1.9 billion as on 29th November 2019 with an annual dividend yield of 1.2%. The total outstanding shares of the company stood at 379.64 million, and its 52-week low and high is $3.605 and $6.940, respectively. The stock has given a total return of 10.62% and 16.28% in the time period of 3 months and 6 months, respectively.

Jumbo Interactive Limited (ASX: JIN)

Jumbo Interactive Limited is engaged in the selling of lottery tickets via the internet and mobile devices both in Australia and qualified foreign jurisdiction and www.ozlotteries.com website is been operated by it in Australia under agreement with Tabcorp Holdings Limited (ASX: TAH).

UK Gambling Commission Allows the Acquisition of Gatherwell

The company announced on 25 November 2019 that its of late acquiring of Gatherwell Limited has been given a green signal by the UK Gambling Commission, enabling the procedure of purchase to go ahead.

The acquisition will be affective from 1 December 2019 and the contribution to the company’s financial results for the seven months to 30 June 2020 is anticipated to be approximately $8.6 million of ticket sales, around $1.6 million of revenue, and almost $0.5 million of net profit before tax.

Stock Performance

The stock of JIN closed the day’s trading at $20.52 per share on 29th November 2019, edging up by 0.687% from its previous closing price. The company has a market capitalisation of $1.27 billion as on 29th November 2019 with an annual dividend yield of 1.79%. The total outstanding shares of the company stood at 62.42 million, and its 52-week low and high is $6.478 and $27.920, respectively. The stock has given a total return of -9.42% and 15.66% in the time period of 3 months and 6 months, respectively.

PolyNovo Limited (ASX: PNV)

PolyNovo Limited is engaged in the development of innovative medical devices for several medical applications, utilising the patented bioabsorbable polymer technology NovoSorb®.

Highlights of AGM

PNV released the Chairman’s address during the AGM conducted on 15 November 2019, wherein he stated that the growth in PolyNovo over the past year has been extraordinary. In FY18 period, BTM sales were recorded of $1.7 million and for the six-month period closed 31 December 2018, it was noted at $3.7 million. Though by the end of FY19 year, they were at $9.3 million. He further added that forecasting the company’s growth was difficult and commercially sensitive.

However, to give some limited guidance, the sales for each month have been greater than $1 million, which can be deduced to $12 million per annuum. In the four months to October 2019, the company is more than 100% ahead of the four months to October 2018. October 2019 BTM sales are more than 100% higher than October 2018 sales. In other words, the company expects the sales run-rate to increase as the months go on.

Highlights of FY19 (Source: Company’s Report)

Company Appoints New Non-Executive Director

The company announced the appointment of Dr Robyn Elliott to the board of directors as Non-Executive Director on 28 October 2019. He is a skilled pharmaceutical professional with more than 30 years of experience at global organisations and has a Bachelor of Science (Hons) Chemistry and PhD Inorganic Chemistry from Monash University.

Stock Performance

The stock of PNV closed the day’s trading at $1.790 per share on 29th November 2019, down by 4.278% from its previous closing price. The company has a market capitalisation of $1.24 billion as on 29th November 2019. The total outstanding shares of the company stood at 661.09 million, and its 52-week low and high is $0.530 and $2.660, respectively. The stock has given a total return of -10.95% and 57.14% in the time period of 3 months and 6 months, respectively.

G8 Education Limited (ASX: GEM)

G8 Education Limited is engaged in the business of:

  • Ownership of early education centre franchises;
  • Operation of early education centres owned by the company.

G8 Announces Sale Of 25 Centres in WA

On 14 November 2019, the company notified the market that it has entered into an agreement to sell off 25 of its centres in Western Australia to Sparrow Early Learning Pty Ltd (Sparrow).

  • The centres are to be sold for ~$6.4 million, which equates to an FY19f EBIT multiple of about 4.1x;
  • The funds will primarily be used to repay debt with a view to ultimately recycling proceeds into growth opportunities as they arise;
  • It is expected that this divestment will not have any material impact on the Group’s statutory results.

Stock Performance

The stock of GEM closed the day’s trading at $1.965 per share on 29th November 2019, up by 0.255% from its previous closing price. The company has a market capitalisation of $901.95 million as on 29th November 2019. The total outstanding shares of the company stood at 460.18 million, and its 52-week low and high is $1.905 and $3.635, respectively. The stock has given a total return of -18.33% and -38.17% in the time period of 3 months and 6 months, respectively.


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