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Riding the Santa Claus Rally: Why I'm Betting on These 2 Top Ranked Technology Stock

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The price action in stock market indexes this year has mirrored the seasonal tendencies to an almost uncanny degree. Many of the major rallies and corrections align with those seen in the seasonal chart of the S&P 500 below.

Based on the seasonal trends as well as the broadly bullish factors pushing stocks higher this year, I believe equities should see a final push higher during the next few weeks, as is consistent with the annual Santa Claus rally.

In this article, I will share two stocks that enjoy top Zacks ranks, compelling valuations, and strong technical momentum trading setups, which should lead the market higher.

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PDD Holdings Inc.

PDD Holdings Inc. (PDD - Free Report) , also known as Pinduoduo, is a Chinese e-commerce platform that leverages social commerce and group buying dynamics. Founded in 2015, Pinduoduo has gained prominence for its innovative approach to online shopping, encouraging users to team up with friends and family to secure discounts on a wide range of products.

The platform is known for its focus on value-for-money deals, often making it a popular choice for budget-conscious consumers in China. Pinduoduo's rapid growth has positioned it as one of the major players in the Chinese e-commerce market.

Pinduoduo earnings estimates have been unanimously upgraded by analysts over the last two months, giving the stock a Zacks Rank #1 (Strong Buy) rating. Current quarter earnings estimates have been revised higher by 28% and are expected to grow 40% YoY to $1.69 per share. FY23 earnings estimates have increased by 15.5% and are forecast to jump 43% YoY to $5.89 per share.

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Image Source: Zacks Investment Research

PDD Holdings Inc also has a very reasonable valuation. Today, it is trading at just 20x FY24 earnings. Additionally, with 3–5-year annual EPS growth forecasts of 40.5%, it has a PEG Ratio of just 0.5x, which can be considered a discounted valuation.

Last week, following its Q3 earnings report, PDD crushed analysts’ estimates and gapped considerably higher. EPS came in 38.4% above analysts’ estimates, and sales showed a 94% YoY increase. Since then, PDD stock has built out a convincing technical bull flag.

The earnings gap and flag is a fantastic trading setup and because it is further bolstered by a top Zacks rank, it has even better odds of trading higher. If PDD Holdings Inc stock can trade above the $143.50 level, it would signal a technical breakout. Alternatively, if the stock breaks down and closes below the $138.25 level of support, investors may want to wait for another opportunity.

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Pinterest (PINS - Free Report)  is a social media and visual discovery platform. It allows users to discover and save ideas for various interests, including home decor, fashion, recipes, travel, and more, by creating digital collections known as "boards."

Users can explore and share images and content they find inspiring or interesting. Pinterest serves as a platform for both personal inspiration and business promotion, with many businesses and content creators using it to reach and engage with their target audiences through visual content. PINS has 482 million monthly active users and generates revenue through ad sales.

Pinterest has seen its earnings estimates steadily trend higher since late this summer, giving it a Zacks Rank #2 (Buy) rating. Current quarter earnings estimates have been revised higher by 11% over the past two months and are projected to grow 76% YoY to $0.51 per share. FY23 earnings estimates have been boosted by 11.5% and are expected to climb 73% YoY to $1.07 per share.

Zacks Investment Research
Image Source: Zacks Investment Research

Like Pinduoduo, Pinterest is trading at a very appealing valuation for such a high growth company. PINS is trading at 26.4x 2024 earnings and anticipates EPS growth of 36% annually over the next 3-5 years. That gives it a PEG Ratio of 0.73.

Pinterest stock is also forming a very nice technical trade setup. After breaking out from a flag last week, the price has begun to form another flag from which to trade from. If PINS stock can breakout above the $34.10 level, it would indicate a long signal. However, if it can’t hold above the $33.25 level, investors may want to wait for another setup.

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Bottom Line

Although 2023 is rapidly coming to a close, these final few weeks can be an awesome time to secure some year end trading profits. While investors certainly shouldn’t risk any significant profits from what has been a banner year, there is no reason to let this very bullish period pass without taking advantage. 

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