A lot of experts expect the stock market to rip higher in the fourth quarter of 2023.
Research shows that when stocks have a good first eight months of the year (as they did this year), they tend to deliver strong gains for the next six to 12 months.
And given that many fund managers have missed out on the big gains that global equity markets have delivered this year, we’re likely to see some chasing of performance in Q4.
Keen to capitalise on the next leg up for the market? Here are three top stocks to look at now.
London Stock Exchange Group
One UK stock that I think could do well if we see a Q4 rally (especially if tech stocks continue to rise) is London Stock Exchange Group (LSE: LSEG) or ‘LSEG’ for short. It’s one of the world’s leading financial markets infrastructure and data companies.
It recently advised that it has made a “strong start” to its new partnership with tech giant Microsoft and noted that customers will begin to see the benefits next year.
It also said that it’s rolling out artificial intelligence (AI) across its business and that this will enhance the value of its data.
I’m not convinced that this is reflected in the valuation though. Currently, the forward-looking P/E ratio here is about 22 versus 27 for US rival S&P Global.
Of course, a P/E ratio of 22 is not exactly low. So, the valuation here does add some risk.
I like the risk/reward skew at current levels though.
Uber
Another stock that could potentially benefit from a market rally is ridesharing and food delivery company Uber (NYSE: UBER), which is listed in the US.
Uber stock has had a great run this year. However, I’m convinced it can go much higher.
One reason I’m bullish is that the company has recently moved into digital advertising. This is likely to push its revenues and profits (Uber is now profitable) up significantly.
Another is that at some stage in the near future, Uber is likely to join the S&P 500 index. This should increase demand for the stock.
I’ll point out that Uber shares could be volatile going forward. After the big jump this year, there’s always the chance of a pullback.
With a market cap of just $90bn (small by US standards), though, I see a lot of growth potential.
Volex
Finally, in the UK small-cap space, I like the look of Volex (LSE: VLX) right now.
It’s an under-the-radar manufacturing company that makes products for the electric vehicle (EV), data centre, and healthcare industries.
Volex shares have done well this year. But they still look cheap.
Currently, the company sports a forward-looking P/E ratio of just 12.7, which I see as way too low given the group’s exposure to high-growth markets (it recently partnered with Tesla to develop EV charging products).
Now, manufacturing is a cyclical industry. So, if we saw an economic deterioration in Q4, this stock could underperform.
Taking a medium-term view, however, I think this stock is likely to move higher.
It’s worth noting that HSBC just slapped a 510p price target on Volex. That’s about 60% above the current share price.
