×

Four stocks that are top picks for the fourth quarter

Stocks were broadly higher on Monday, with the S&P 500 making a record high on the first trading day of the fourth quarter. After three great quarters, some strategists said their top picks for the final stretch of 2017 include banks and a large restaurant operator.

As the year draws to a close, short-term rates are heading higher, and bank stocks are set to benefit, said Chris Verrone, head of technical analysis at Strategas Research Partners. The 2-year Treasury note yield has risen considerably as the Federal Reserve has raised its benchmark interest rate target and made moves toward reducing its balance sheet.

"Very simply, when the 2-year yield is rising, financials tend to outperform. Banks have spent much of the year going sideways. We're finally starting to see some signs of life here," Verrone said Friday on CNBC's "Power Lunch."

Specifically, he likes Citi and JPMorgan. After spending much of this year in a range from about $80 to $95, shares of JPMorgan are starting to break out, Verrone said. He sees the stock going to $110 or $115; this target implies between 14 and 19 percent upside from its current level of around $96 per share.

The yield on the 2-year Treasury note was around its highest level of the year on Monday, around 1.49 percent, rising from 1.26 percent in mid-September.

Some stocks that look well-positioned heading into the fourth quarter appear cheaply valued at current levels, said Mike Binger, senior portfolio manager at Gradient Investments.

Binger recommended buying Darden Restaurants, the restaurant operator and owner of large chains like Olive Garden and LongHorn Steakhouse.

"There's been a big pullback in the stock; I think it's an extreme overreaction," he said on "Power Lunch," citing the stock's decline last week after its quarterly earnings report. Darden shares fell 6.5 percent the day it reported.

The report reflected same-store sales that missed analysts' expectations. Binger said this aspect of the report was "no big deal; they're still outperforming their peers," and said he projected 10 percent earnings growth for the next year. At 16 times forward earnings, he said the stock is cheaply priced.

Another stock Binger recommends is Air Lease, a California-based aircraft leasing company based in California.

"They constantly lower their cost of funding, they have a young, efficient fleet of airplanes. They're expected to grow 17 or 18 percent next year; the management does nothing but beat quarters. And at 10 times earnings, it's way too cheap," he said.

Disclosure: Mike Binger owns Darden Restaurants and Air Lease for clients, but does not own the stocks personally.

Videos

Trades to Watch

Trader Bios

About

Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

Read more

Connect