In the month of May, many investors will remember the old market saying “Sell in May and Go Away”. In one of Seasonal Insights previous issues, we looked at this phenomenon in detail by analysing the half-year results of the eleven largest stock markets by market capitalization. This study underscored that seasonal weakness in the summer months from May until October does indeed exist (also known as the “Halloween Effect”). Two countries in particular, France (CAC40 Index) and Taiwan (TWSE Index), recorded losses of more than 3% during the six-month period starting from May onwards.
However, are there still hidden gems to be found; or does the whole industry go short for the summer?
Stocks with the fizz
With the onset of summer, the demand for cool refreshing beverages increases. And who better represents fizzy drinks than PepsiCo? PepsiCo does seem to be one of the companies whose stock price starts rising with the warmer weather.
Seasonal Chart of PepsiCo over the past 10 years
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Keep in mind that a seasonal chart depicts the average price pattern of a stock in the course of a calendar year, calculated over several years (unlike a standard price chart that simply shows stock prices over a specific time period). The horizontal axis depicts the time of the year, while the vertical axis shows the level of the seasonal pattern (indexed to 100).
From the chart above, it is clearly visible that the end of March until the end of July over the past 10 years have been quite favourable months for this fizzy stock.
The frequency of positive returns generated over the highlighted time period did not underperform. This was even the case in the last 2 years, despite social gatherings and group activities being restricted due to the Covid pandemic. PepsiCo still made a positive outcome in every single year since 2012 – see pattern returns on the chart above.
Fast forward to today when more than 50% of Americans are now vaccinated, and outdoor recreational activities are gradually increasing. Is all of this further pushing up the demand for this stock?
Are “summer stocks” gaining on momentum?
Let’s look at other “summer” stocks that catch analysts’ attention during the summer months. As noted in many reports, airline stocks are solid picks for the summer since that’s the busiest season for air travel. Delta Air Lines ranks high on the list. But is the higher demand reflected in its stock price?
Average monthly return of the Delta Air Lines Inc. since 2012
http://tiny.cc/Seasonax_DeltaAirLines to conduct further analysis
As statistics shows, summer months are not the best performing for this specific stock. The strong seasonal phase in fact begins from September onwards and reaches its peak during November. One factor for this could be that whilst the demand for flying is higher in the summer, many people will book these flights in advance.
Interestingly, when looking at the stock trends of cruise lines this same trend is apparent. Norwegian Cruise Line Holdings Inc. performs better outside of the summer, when you might think demand for cruises would be lower.
Average monthly return of the Norwegian Cruise Line Holdings Inc. since 2013
http://tiny.cc/Seasonax_NorwegianCruise to conduct further analysis
Again, prices indeed incentivise advance purchases; it is cheaper for the consumer to make bookings months in advance.
However, whilst Delta Airlines and Norwegian Cruise Line Holdings Inc. may not be strong performers in the summer, analysts will consider many other “summer stocks” that do gain momentum during the summer months. Avis Budget Group, Inc., Pool Corporation or even the Walt Disney Company all fall within this category.
But is it so clear cut? Detailed consideration is key. It’s important to know that every stock has its own unique seasonal period that is based on solid fundamental drivers. These drivers include the timing of interest payments, tax or balance sheet deadlines, earning reports, the weather, investor sentiment at certain times of the year, internal companies’ production cycles, and so on.
Don’t be misled by catchy titles! Look to Seasonax the stocks before you decide to invest your money. By signing up for free to https://app.seasonax.com/signup you will be able to analyze more than 25.000+ instruments, including stocks, (crypto)currencies, commodities and indexes.
To identify these stock opportunities even more easily, we have launched a Seasonality Screener. The award-winning algorithms behind the screener are based on predictable seasonal patterns and are designed to find trading opportunities with above-average profit potential starting from a specific date.
Remember, don’t just trade it, Seasonax it !
Co-Founder and Managing Partner of Seasonax