5 Top Stocks to Buy in December

Through the end of November, the S&P 500 is up 3.2% since the start of the year. If the recent selling continues -- stocks are down almost 6% since early October -- 2018 is on track to be the worst year for stocks since 2015. And between rising interest rates, some signs that global trade is weakening, and a litany of other concerns, investors are concerned that the nearly decade-long bull run could be coming to an end.

And while there's no predicting what stocks will do over the next month, the coming quarters, or even the next few years, it's reasonable to expect stocks to continue doing what they have historically done: outperform every other investment class over the long-term.

Even better, the recent sell-off has created some great opportunities to buy. A select group of Motley Fool contributors have identified five stocks that investors should put on their short lists: Baozun (NASDAQ: BZUN), GrubHub (NYSE: GRUB), Brookfield Infrastructure Partners (NYSE: BIP), Financial Select Sector SPDR ETF (NYSEMKT: XLF), and Amazon.com (NASDAQ: AMZN).

This beaten-down China stock is worth buying now

Jason Hall (Baozun): Since peaking about six months ago, share of e-commerce platform services provider Baozun are down almost 50%, and that's after a double-digit recovery over the past couple of weeks.

So what gives? In short, it's tough being a tech stock right now, and even tougher being a Chinese tech stock. Between fears of a trade war with the U.S. and concerns about slowing economic growth in China, the second half of 2018 has been dominated by selling.

And while China's economy isn't growing at the rates it has in the past, and Chinese tech stocks are potentially exposed to the impact of trade actions by the U.S. because of China's spotty record of honoring intellectual property rights, Baozun is way too oversold at this point, considering its strength, the powerful niche it's steadily creating a massive position in, and the reality that China's consumer middle class is already one of the world's biggest and still growing quickly.

Baozun displayed its chops once again in the third quarter, delivering 25% revenue growth and 47% adjusted earnings-per-share growth, yet another quarter of double-digit improvement in both areas.

At recent prices, you can buy Baozun for around 21 times expected forward earnings. That's a cheaper multiple than the S&P 500 trades for on a trailing basis today, and Baozun is likely to grow earnings at a much higher rate than the U.S. stock market for years to come.

A market leader on sale

Brian Feroldi (GrubHub): Imagine if a platform company that you're quite fond of posted the following numbers in its most recent earnings report:

• Revenue up 52% to $247 million, exceeding expectations.
• Net income up 72% to $42.2 million, exceeding expectations.
• Revenue guidance that also exceeded expectations.

Would you expect that company's stock to be down nearly 45% from its recent high? Believe it or not, that's exactly what has happened to GrubHub's stock in the past three months.

If the company was in trouble, then I would agree with the huge decline. But the results indicate that GrubHub's food delivery platform remains as popular as ever. The number of active diners grew 67% to 16.4 million. Average orders per day grew 37% to 416,000. Total food sales soared 40% to $1.2 billion. These figures tell me that the company is still growing strong.

So what can explain the slump? The most likely answer is a combination of a stretch valuation and management's call for higher upcoming spending. Management stated on its call with investors that it plans on ramping up spending on marketing and delivery expansion by another $20 million to $30 million in the current quarter. Traders might be worried that the company's torrid profit growth rate might slow as a result.

My view is that Wall Street is missing the forest for the trees. GrubHub's business is growing like gangbusters, and the company is currently in a land-grab mode as it looks to secure its spot as the industry's top dog. While shares still can't be called classically "cheap", I think that right now is a great time for growth investors to buy a fast-growing market leader at a nice discount.

About to hit the accelerator

Matt DiLallo (Brookfield Infrastructure Partners): After delivering market-crushing returns in 2017, Brookfield Infrastructure Partners has cooled off considerably in 2018. Through the end of November, the global infrastructure giant lost about 14% of its value. That's mainly because the company's growth engine sputtered this year, as earnings have dipped the past two quarters after it sold an electricity transmission business in Chile earlier in the year.

However, a reacceleration is about to get under way, driven by the anticipated reinvestment of those proceeds into six acquisitions. Those deals, which should close over the next few months, will boost Brookfield Infrastructure's earnings by 20% while setting it up to grow at a faster pace in the coming years.

In the meantime, investors can pick up shares of Brookfield Infrastructure for a bargain price. The company estimates that it should generate $3.60 per unit in annualized cash flow when that last deal closes next year, which implies that it currently sells for less than 11 times cash flow. Meanwhile, earnings should grow from that level by around a 7.5% annual pace over the next several years, assuming it doesn't make any additional acquisitions, which should enable it to increase its 4.9%-yielding distribution by a 5% to 9% yearly pace. That growing income stream should give Brookfield Infrastructure the fuel needed to generate market-beating total returns -- especially when factoring in its low valuation, which should improve as earnings reaccelerate -- making it a great stock to buy this month.

One entire sector looks cheap

Matt Frankel, CFP (Financial Select Sector SPDR ETF): As we head into December, I have my eye on several bank stocks. Bank of America is down by about 10% over the past three months despite impressive profitability and efficiency. Goldman Sachs is trading for less than its book value for the first time in more than two years. And there is little not to like about the recent results from JPMorgan Chase. I could go on.

The point is that most of the banking industry looks extremely attractive right now. For 2018, the financial sector has underperformed the S&P 500 by more than six percentage points, and there are some major catalysts that could fuel profits. Sure, most of the benefits of tax reform are now reflected in bank earnings, but rising interest rates and the strong economy should keep earnings moving higher.

The Federal Reserve has raised rates eight times in the current cycle, but it hasn't had quite the effect investors had anticipated on bank interest margins -- not yet, at least. And, the tight labor market and growing wages in the U.S. should create more demand for loans and other banking products.

So instead of trying to pick just one bank, it could be a smarter idea to just buy them all. Of course, it's not practical for most investors to buy a handful of bank stocks all at once, so I'm looking at the Financial Select Sector SPDR ETF -- a low-fee index fund that allows you to benefit if the entire banking industry performs well.

Stuff your stocking with this e-commerce Goliath

Todd Campbell (Amazon.com): If you've been on the sidelines and not owned Amazon.com yet, now could be the perfect time to make the leap and buy its shares. There's no telling where Amazon will trade from here, but its shares have declined about 17% since early September, and there's good reason to believe buying it now could pay off.

The company generates about one-third of its total annual revenue in November and December, and this holiday season, the National Retail Federation estimates that retail sales will increase 4.1% from last year. That estimate, however, may seriously underestimate the potential upside for e-commerce, given that internet retailers are increasingly accounting for a larger percentage of retail spending.

According to data crunchers at Adobe Analytics, e-commerce sales could grow 14.8% to $124.1 billion this holiday season, and I suspect that a lot of that growth will head Amazon's way.

On Nov. 27, Amazon reported that its post-Thanksgiving weekend sales broke previous records and that Cyber Monday was the single best day in its history. During the five-day stretch from Thanksgiving through Cyber Monday, Amazon customers ordered a whopping 180 million items, and Amazon's best-selling product was its own Echo Dot virtual assistant.

Assuming this holiday sales momentum continues, and I think it will, then it seems likely Amazon's next earnings report will be a good one. The past doesn't guarantee the future, but a solid report could inspire a rally, especially considering Amazon's shares have posted gains in seven of the past 10 years during Q1, after gaining in just five of the past 10 Q4s.

The longer-term opportunity for shareholders doesn't seem to have peaked for Amazon, either. Despite e-commerce's popularity, the U.S. Census Bureau reports that e-commerce still accounted for only 9% of total U.S. retail sales in the third quarter. That suggests there's still plenty of opportunity ahead of the company, making this company a top stock to buy on its recent drop.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Brian Feroldi owns shares of ADBE, Amazon, and Grubhub. Jason Hall owns shares of Amazon, Bank of America, Baozun, and Brookfield Infrastructure Partners. Matthew DiLallo owns shares of ADBE, Amazon, Baozun, and Brookfield Infrastructure Partners. Matthew Frankel, CFP owns shares of Bank of America. Todd Campbell owns shares of ADBE and Amazon. The Motley Fool owns shares of and recommends ADBE, Amazon, and Baozun. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.