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When the pandemic hit, the method that the world chose to combat it crippled all commerce for months, creating one of the worst set of macroeconomic conditions ever. Entire industries are now on life support. As a result, governments are spending trillions trying to revive it. The riches are landing in the lap of a slew of hot stocks that keep breaking records. Meanwhile on Main Street things remain terrible. Millions of people are unemployed and businesses are boarded up by the thousands.

Today we highlight the opportunity that the coming holiday season will bring. It is counter-intuitive, but I am basing it from what I am seeing around me. I bet that things are going to be much better than expected. Within that thesis there will be many hot stocks to trade.

The three we suggest today should be outsized winners. They are already successful now and their fans are resolute.

  • Walmart (NYSE:WMT)
  • Overstock.com (NASDAQ:OSTK)
  • iShares Transportation Average ETF (BAT:IYT)

The headlines are busy reporting on disagreements between politicians. We look ahead and ignore this interim noise. That way we can find the next headline surprise before it breaks.

Hot Stocks to Buy: Walmart (WMT)

Walmart stock used to be boring. It was mired with the rest of brick-and-mortar retail as they struggled to compete with Amazon (NASDAQ:AMZN). Finally, the like of Walmart, Costco (NASDAQ:COST) and Target (NYSE:TGT) figured out how to win alongside Amazon. They successfully adapted to the new normal and they too set records.

I expected Walmart to win because it knows how to fight like Amazon. Way before it was an idea in Jeff Bezos’ head, Walmart was already bringing the hurt using the same strategy.

For the longest time, it toppled the competition because the company knew how to battle with thin margins. They were already winners before the shutdown. The quarantine simply gave it a new burst of energy and launched it into the stratosphere. WMT stock is still setting records even last month. The bulls are in complete charge and are buying the dips when they happen. That’s why it is trading inside a 30-month ascending channel.

Even though price is at the upper end of that range, it can still make new highs by January. The special driver for the upside surprise will be the success of their new membership program. They launched Walmart+ in September and I think it will start bearing fruit next quarter.

We already know how profitable membership programs can be from what Amazon and Costco have accomplished. Walmart has an even a bigger pool of clients to tap into. It spans almost 5,000 stores and an army of employees to support it. I expect big things from that, and therein lies the upside surprise. I want to be long the stock into the first quarter of 2021.

Overstock.com (OSTK)

Overstock.com is also part of the group of companies that are benefiting from the Covid-19 aftermath. Only they are thriving because of the pandemic not through it. Prior to the pandemic, Overstock was in horrendous shape. It was falling into an abyss under $5. After the March bottom, Overstock.com rallied 5,000%. That is not a typo. It gave up a lot of its gains since then, but it is still up a very impressive 1,100% year-to-date. The retracement dip does not change its trajectory.

People are still buying stuff online more than ever before. There is plenty of business pouring into all the e-merchants so it’s hard to mess that up. In addition, we are going into a holiday season and the virus is still rampant. They say that we will have a vaccine ready soon. I don’t think it can hit the market in time for people to feel safe by Black Friday. Therefore I expect the out-performance to continue from most online marketplaces.

The fear of crowds is still crippling a big chunk of the population. Shopping used to be a fun outing. With the restrictions that we have now, this is no longer true. I, for one, will do most of my shopping online.

The edge remains with the bulls, who I expect will retain control of OSTK stock. There is support near $70 per share and the upside is unlimited. This is definitely a hot stock worth holding through the holidays and into 2021.

iShares Transportation Average ETF (IYT)

Our third pick for the day is a derivative of the thesis. We expect big things from the holiday shopping season. We also stipulate that it will be mostly online sales. Therefore it is logical to expect that the folks who deliver the packages will also win. IYT stock is the way to capture that upside potential.

United Parcel Service (NYSE:UPS) and FedEx (NYSE:FDX) have been hot stocks out of the March crash. They have kept pace with Amazon, for example, and they haven’t given any of it back yet. These two make up almost 20% of the entire ETF.

The bottom line is that IYT should also perform very well even into 2021. Online shopping habits are here to stay. There might be logistics issues from high demand, but being too busy is a happy temporary problem. Most companies would welcome that any time. I am confident that when all is said and done the group will report upside surprises.

Technically the stock is coiled and ready to pop. A move above current levels will trigger a bullish pattern worth $40 more. Momentum buyers will flock to it because they love to buy high and sell higher. The investing media will be late to the party and we will then be happy to sell to it.

The thesis we presented today is sound. There are a few potential extrinsic hiccups between now and then. The politicians are still playing hot potato with the stimulus package. We had a preview this week of what the stock market will do if the negotiations completely fail. Any negative effects from interim headlines will be temporary.

The election is another distraction and a binary event at that. No one knows who will win. Even if they knew, they couldn’t guess how the markets will react to it. When the potential headline is this wild I simply ignore it. The VIX is high enough to account for it. Therefore, I expect that most stock prices already reflect a lot of uncertainty. Today’s hot stocks could still rally even if the entire markets fall. The price action has been crazy.

On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Nicolas Chahine is the managing director of SellSpreads.com.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.