Stocks to buy

Making stock predictions is challenging, but historical market data does provide useful insights. Since 1928, the average change in the S&P 500 index has been positive for each month of Q4. The average returns for the last three months have been 0.6%, 0.9%, and 1.3% respectively. Based on the market seasonality factor, I am bullish on the index performing well.

However, the S&P 500 index trending higher does not necessarily imply that all stocks will surge. There needs to be specific impending catalysts for stocks to trend higher. This column looks at the blue-chip stocks to buy that are likely to have a strong Q4 and potentially a strong Q1 in terms of price action.

If my estimates are right, I believe that the blue-chip stocks discussed are likely to deliver 20% to 30% returns in the next two quarters. Let’s discuss the reasons to be positive.

Costco Wholesale (COST)

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Without a doubt, Costco Wholesale (NASDAQ:COST) is among the best retail stocks to buy. COST stock has been in an uptrend with a rally of almost 25% for year-to-date. With the Company beating quarterly profit and sales estimates for Q4 2023, am bullish on the stock remaining in an uptrend.

It’s also worth noting that with the holiday season approaching, the coming quarters are likely to be good for Costco. It’s expected that U.S. retail sales will grow at 3.7% on a year-on-year basis this holiday season. This is one of those stock predictions to pay attention.

In terms of cash flows and value creation, there are two important points to note. First, Costco reported a membership fee of $4.6 billion for the last financial year. Continued growth in membership fees will support cash flow upside. Further, Costco reported healthy operating cash flows of $11 billion for FY 2023. Robust cash flows allow ample room for value creation through dividends and share repurchases.

Chevron Corporation (CVX)

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Chevron Corporation (NYSE:CVX) is among the most undervalued oil and gas stocks to buy at current levels. The business is a cash flow machine and CVX stock has trended higher by just 10% in the last 12 months. A big breakout on the upside is imminent for this 3.6% dividend yield stock.

The first and the most important trigger for CVX stock trending higher is the outlook for crude. Chevron CEO believes that oil is headed for $100 per barrel soon. With production cuts translating into tight supply, the outlook is positive. Further, rate cuts in 2024 can translate into crude maintaining positive momentum.

It’s worth noting that oil averaged $100.93 in 2022. During that year, Chevron reported operating cash flow of $47.5 billion. If the outlook is similar for the next year, CVX stock is likely to surge in the coming months. All in all, it’s one of those stock predictions to keep an eye on.

Nvidia (NVDA)

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Nvidia (NASDAQ:NVDA)has surprised investors with a ferocious rally for the year-to-date. After touching highs of $502, NVDA stock was corrected by almost 20%. However, a fresh rally has ensued and the stock currently trades at $435. I will not be surprised if the stock trades above recent highs before the end of the year.

Investors will point out that NVDA stock trades at a forward price-earnings ratio of 41 and valuations look stretched. I would however look at the revenue trajectory and the earnings potential. The stock trades at a price-earnings-to-growth ratio of 1.21 as compared to the industry median of 1.77.

For Q2 2024, Nvidia reported revenue growth of 101% on a year-on-year basis to $13.5 billion. Further, operating cash flow for the quarter was robust at $6.4 billion. With the Company expanding its AI offering and expanding into new markets like India, the growth momentum will be sustained. This is likely to ensure that the stock trends are higher.

On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.