2 stocks that could fly in a Santa Rally

Champagne poured into a row of flutes
Champagne poured into a row of flutes

With the stock market down and not yet recovering since a sell-off back in October, now could be a great time for investors to put their cash to work ahead of any potential Santa rally. This year, Brexit may put a spanner in the works and prevent the market rising as it traditionally does in December. But even without a market bounce-back over the next month or so, I think these two stocks deserve consideration for any portfolio because of their growth potential in 2019 and beyond. And if their prices stay low in December, all the better for buyers.

Cleaning up in the USA

Ashtead (LSE: AHT) the construction equipment rental company, is one of my favourite stocks that I’m not invested in (only due to a lack of cash). It’s a business that has done very well for investors with research by AJ Bell showing that total return on a £1,000 investment made a decade ago would now be a staggering 5,399% higher. I expect the company’s growth to continue (although not at the astronomical rate of the last decade), despite fears around Brexit, a US/China trade war and other macroeconomic factors.

This is because, as I’ve written before, Ashtead has major market share in both the US and the UK. It is the second largest and the largest company, respectively, in its sector by market share in those countries, giving it huge economies of scale and bargaining power and providing a protection against challengers. The company also invests heavily in its equipment to sustain growth. During the three months to July of this year, Ashtead spent £465m on new equipment. This was up from £377m in the same period of the year before.

With the share price having fallen 22% over the last six months, this stock is looking better value than it has for a long time, the P/E is down to just under 14 now. I believe it this means Ashtead is now great value for investors and could be a winner if there’s a Santa Rally.

Margin concerns hit this AIM stock

Shares in the life science research company Abcam (LSE: ABC) have also been struggling. The company has a market-leading position as a supplier to the growing and ever more important life sciences market. Despite this, the shares have been faltering and have followed the market downwards.

Since October the share price has dropped nearly 18%. Partly general market conditions are to blame as market sentiment has fallen taking many share prices down. But a warning in September that margins would be lower due to increased investment also upset investors. The actual financial picture for the company looks much better though, as preliminary results for the year ended 30 June showed profit before tax grew 33.1% to £69.1m with revenue and EBITDA also up strongly, 7.4% and 15.9% respectively.

The margin downgrade is most likely just a temporary blip, as it was due to investment and not pricing pressures, and the company is still growing strongly. The P/E for Abcam is above 35 meaning it will need to show strong growth to keep investors happy, but investment in growth means the knocked down shares could now rise if there’s a Santa Rally and beyond that through 2019.

Capital Gains

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Andy Ross has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.