December on average is a good month for investing in shares. The phenomenon known as the Santa Rally has happened in the majority of years since around 1950. It’s when shares typically rise as the calendar year draws to an end.
Reasons why it happens are opaque. It’s possibly due to seasonal goodwill among investors, who are more willing to buy around Christmas, markets rising on lower volumes over the holiday period, fund managers rebalancing their portfolios before the end of the year, Christmas bonuses being invested, and potentially bargain hunting before stock prices rise in January (known as the January Effect). All of these probably intertwine.
So far, this December has been going quite well. Touch wood that continues.
Investing in shares
To capitalise on a possible Santa Rally in the short term, and to position my portfolio ready for 2022, I’m keen to keep investing in shares. I recently added more high yielding Persimmon to my portfolio. As recently outlined in an article I also have Boohoo, finnCap, and Totally on my watchlist, along with some other higher yielding and small-cap growth stocks. Small- and mid-cap shares have struggled in recent months so are potentially fertile ground for finding fairly valued and cheap shares with growth potential.
Also, after the last year, shares in fast fashion companies have also become very cheap as have some of the ‘pandemic winners’ such as CMC Markets, the spread betting group, which benefitted from the volatile markets in 2020. So I’m personally thinking about investing in these types of shares.
A share catching my eye right now
Previously, I have looked at Up Global Sourcing (LSE: UPGS) as a growth share, well-positioned to provide a growing passive income. The dividend, particularly when it comes to year-on-year growth in the payout, remains attractive. More than that though, Up Global Sourcing is a growth-at-a-reasonable-price (GARP) opportunity, in my opinion.
Why do I think that? First of there’s revenue growth. It has gone from £79m in 2016 to £116 in 2020. That’s decent growth. The valuation is not high though. The forward price-to-earning (P/E) ratio is 13 and the price-to-earnings growth (PEG) ratio is 0.6. Together these indicate the shares may be undervalued.
Things might not work out so well if the supply chain issues last well into next year as that is forcing up costs for Up Global Sourcing and other similar consumer goods companies. The negative impact on profits would likely put investors off buying the shares, which in turn could hit the share price.
Up Global Sourcing is acquisitive and so there are potential traps associated with that, in terms of overpaying for acquisitions. The history of listed companies shows us when management goes for big acquisitions it can often destroy value. Micro Focus is a memorable recentish example. So that’s something I’ll keep an eye on.
Despite these risks, Up Global Sourcing strikes me as the kind of share I want to have in my portfolio. I will likely add it some time in early 2022 when I have more cash and have researched a bit further.