Image: AI

Table of Contents:

• Introduction
• Top Stocks to Watch
• Analysis of Key Stocks
• Outlook for Q4
• Investing Considerations
• Conclusion

Introduction

After a brutal September, stocks could be primed for a comeback as 2022 heads into its final stretch. Several positive catalysts point to potential gains in Q4, from strong corporate earnings to easing inflationary pressures.

Certain stocks appear especially well-positioned to rally on an end-of-year rebound. We analyze seven of the top stocks to buy if markets turn upward in the fourth quarter. From Nike to Netflix, these names represent opportunistic buys at beaten-down valuations.

Let’s explore why these stocks could get “swept up in a big rebound,” as markets shift from pessimism back to cautious optimism.

Top 7 Stocks to Watch

Here are seven of the most compelling stocks to buy for a potential Q4 turnaround:

• Nike (NKE)
• Costco (COST)
• Meta Platforms (META)
• Peloton Interactive (PTON)
• General Mills (GIS)
• Netflix (NFLX)
• GameStop (GME)

These stocks represent a diverse mix of consumer discretionary, tech, and defensive names. While risks remain, the sharp selloffs make them intriguing value plays at current levels.

Analysis of Key Stocks

Nike (NKE)

Nike recently delivered fiscal Q1 results that topped EPS forecasts and reaffirmed guidance. Revenue grew 2% and inventories fell 10%, easing concerns. Sales in China notably rebounded, rising 5% amid an economic slowdown.

After falling nearly 50% from highs, Nike appears oversold. Its strong brand and fundamentals should drive a recovery. Nike’s discounted valuation and ahead-of-target inventory reduction create a constructive setup.

Costco (COST)

Costco’s consistent growth underscores its resilience even in a weakening consumer environment. Comp sales rose 8% in August and September, exceeding estimates. Shoppers continue flocking to its discount model.

With $2.5 billion in cash and rational inventory levels, Costco can ride out economic turbulence. The stock’s defensive attributes and below-average valuation boost its appeal for more risk-averse investors.

Meta Platforms (META)

Meta’s stock plunged on reduced operating margin guidance. But its new Quest 3 virtual reality headset represents a potential catalyst.

Expected to be a hot holiday seller, the $499 Quest 3 offers business use cases and partnerships with Microsoft’s Xbox. Meta also unveiled new Ray-Ban mixed reality glasses. If Meta can monetize its metaverse investments, shares could rebound sharply from oversold levels.

Peloton (PTON)

Beleaguered Peloton scored a huge win with its 5-year partnership with Lululemon, a previous competitor. The deal makes Peloton the exclusive digital fitness content provider for Lululemon’s channels.

This collaboration should significantly bolster Peloton’s reach and help stabilize its business. Peloton’s deep discount reflects lingering risks, but analysts see the Lululemon deal as a major positive turning point.

General Mills (GIS)

General Mills’ recession-resistant business showed its defensive nature this quarter. EPS and sales topped forecasts on strong consumer demand for its food brands. It also reaffirmed fiscal 2024 guidance for 4–6% profit growth and 3–4% higher revenue.

Trading 35% off its highs, General Mills offers a safe haven from market turbulence and inflation. Its essential food offerings and pricing power add protection during economic uncertainty.

Netflix (NFLX)

Netflix trades at the lowest valuation in 10 years after subscriber losses and margin pressures. But its upcoming Q3 results could confirm stabilization, especially with its new ad-supported tier.

While risks remain, Netflix is rolling out an aggressive lineup of new shows. If subscriber numbers begin recovering, upside could be substantial given negative sentiment priced in.

GameStop (GME)

GameStop remains ultra-speculative, but the meme stock could see renewed volatility if activist RC Ventures CEO Ryan Cohen’s turnaround gains traction.

Appointed CEO in July, Cohen has injected fresh energy into GameStop’s transformation beyond retail. A short squeeze could ignite if momentum builds or Cohen unveils a strategic vision. Risks stay elevated, requiring caution.

Outlook for Q4

Historical trends bode well for a potential stock rebound in the year’s final quarter. Q4 has been the strongest period for markets in midterm election years. The S&P 500 has posted positive returns in Q4 in 18 of the past 20 midterm election years, rising 4% on average.

Relieved by the avoidance of a government shutdown, markets appear overdue for a bounce after extreme pessimism. Easing inflation, strong employment, and robust consumer savings also counter recession forecasts.

With Q3 earnings arriving in October, upside guidance surprises could spark an earnings-driven rally. However, the Fed’s rate hike path and unpredictable geopolitical turmoil keep markets on fragile footing.

Investing Considerations

While valuations look increasingly attractive after huge declines, significant risks remain:

• Aggressive Fed rate hikes could tip economy into recession.
• Rising interest rates may continue weighing on valuations.
• Elevated inflation could impact consumer spending.
• Geopolitical crises like the Ukraine war add uncertainty.
• Stocks still appear vulnerable to disappointing earnings.

Investors should size positions modestly and average into stocks at these depressed levels. Prioritize resilient sectors and add exposure gradually rather than making big short-term bets.

An aging bull market, wavering profits, and reduced liquidity from quantitative tightening limit upside potential. Patience and selective accumulation could be rewarded over the longer-term.

Conclusion

With beaten-down valuations and stabilizing economic data, the stage may be set for a stock market comeback as 2022 wraps up. While major headwinds persist, stocks like Nike, Costco, and General Mills offer compelling value after steep sell-offs. Their upside potential heading into year-end makes them smart buys for opportunistic investors.

Of course, risks like higher rates, inflation, and geopolitics cannot be ignored. But adding selective exposure at recent lows could pay off long-term. By targeting quality names with upside catalysts, investors can position for an overdue relief rally while minimizing downside risk if markets trend lower.