Like the weather, the stock market also goes through seasonal changes. And, smart investors know that seasonal stocks present trading opportunities. This is especially true under current market conditions when prices are down. If you can identify patterns and trends to determine the best times to buy and sell, it could translate to large financial gains in your portfolio.
What Are Seasonal Stocks
Many companies experience seasonal spikes and lulls depending on consumer demands. These companies that perform well during a specific time of the year are known to investors as seasonal stocks. Being able to identify seasonal trends could allow you to capitalize on these fluctuations.
To give you an example, think about the retail industry. National retailers ramp up their inventory and hire additional staff before the holidays to prepare for the largest sales events of the year. In addition to all the shoppers who are buying gifts for their loved ones, many smart consumers hold off on their large purchases to take advantage of these seasonal deals. As you probably guessed, retailers report greater revenue in Q4 every year due to the increase in spending.
Although it has had a strong performance every quarter, Amazon is a good example of a seasonal stock. Last year alone, it reported $134.4 billion in revenue for Q4. This was significantly higher than the quarters immediately preceding and following, with $110.8 billion for Q3 2021 and $116.4 billion in Q1 2022.
However, the rise is factored into the stock pricing months ahead of time. While it is a sound stock to invest in, it probably won’t bring double-digit yields because of these built-in adjustments. If you want to find seasonal stocks that will give you greater returns, you must do your research. Perform your due diligence, analyze the historical data, and discuss it with your financial advisor to see which ones would be a wise investment.
Strategies for Investing in Seasonal Stocks
If you want to find a successful strategy, then you need to identify which companies will outperform the market during specific times of the year. However, this is much easier said than done. Stocks like Amazon are expected to perform better, so you’re unlikely to see a higher return on your investment.
Therefore, you have to find companies that other investors won’t be looking at or expecting to outperform the market. Since Covid-19 has had such a large impact on the stock market, it’s a good time to consider buying seasonal stocks. But keep in mind, no matter how good an investment seems, picking stocks is a gamble and comes with inherent risks.
Three Seasonal Stocks That You Should Be in Your Portfolio
Unfortunately, there is no insider secret or grand reveal. Choosing the right seasonal stock comes down to common sense and a little bit of luck. But most importantly, research is the key to success in the stock market. If you want to capitalize on seasonal fluctuations, then you must evaluate the long-term trends, and the company itself, before making any trades. However, market analysts can all agree that these three types of stocks show a lot of potential through the winter months ahead.
Energy and Utilities
When people need to stay warm, they turn up the thermostat. While this means higher bills for consumers, it also means greater profits for utility companies and their investors. This is one reason why companies in these sectors remain among the best-performing in the stock market, even with rising inflation and cost of living. And based on current trends, it is highly likely that energy costs will continue to rise.
Investors should be aware that companies in these sectors have been popular stock picks in recent years. So, it may be hard to find a bargain these days. However, market analysts have been looking at companies in smaller, regional sectors such as Public Service Enterprise Group(PSEG) since it offers a healthy yield at a decent price. Smaller markets may also offer other hidden opportunities as well.
Snow Equipment
If the recent storms in the northeast are any indication, then choosing to invest in companies like Home Depot (HD) or Lowe’s (LOW) could be a safe bet for the winter months. Those who live in colder climates will need snow shovels, rock salt, generators, and other items to get through the snowy winter. And, they are also the go-to retailers for many people needing holiday decorations and lights. Although many hope for a mild winter, harsher weather conditions could translate to greater seasonal profits for stockholders.
Winter Gear
Those who work outdoors, especially during the colder months, know how important it is to have quality winter apparel. So, it makes sense that people spend more on these items in the months leading up to winter. This means it could be a good seasonal stock option to add to your portfolio. Companies like VF Corp that own The North Face, Timberland, Smart Wool, and other famous apparel brands perform particularly well in the final quarter. So when the temperatures drop, sales increase, especially since these remain some of the most dominant brands among outdoors laborers and enthusiasts.
Key Takeaways
Seasonal stocks are a great strategy for utilizing historical data of a company’s performance and may indicate the best times to buy and sell. But even if there are consistent patterns, there are no guarantees. It is impossible to know how the market will perform because it constantly changes. Outside factors, such as a recession or the emergence of a new Covid-19 variant, affect the market in ways you can’t predict. So even if you try your hand at stock-picking, don’t lose sight of the big picture. While historical analysis can help you detect patterns, no one can see the future.
Read More
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