4 Strategies to Use If You Want to Invest in Seasonal Stocks
Seasonal stocks are companies that tend to perform particularly well during one part of the year. The best example of this is retailers during the holiday season. During Q4, retailers generally report significantly higher revenue than other times of the year. This is due to the rush of consumer spending on holiday gifts. For example, Amazon reported Q4 2021 revenue of $134.4 billion. This was much higher than both the quarters directly before ($110.8 billion) and after ($116.44 billion). Unfortunately, this strategy isn’t exactly a recipe for printing money.
The key to investing in seasonal stocks is identifying companies that will outperform during a specific time of the year. But, the problem is that investors almost always expect this outperformance. For example, Amazon reporting higher profits during the holiday season isn’t a surprise. Investors expect it to happen. For this reason, the good results are usually priced into Amazon’s stock months ahead of time. In order for this strategy to work, you need to find something that investors won’t expect.
With that in mind, this is actually a particularly good time to invest in seasonal stocks. That’s because COVID-19 has had such a big influence on company profits in recent years. Let’s take a look at a few potential strategies you can use.
No. 4 Summer
Summer is one of the best times to consider investing in seasonal stocks. In general, most people are out traveling and spending more money than normal. This leads to tons of potential companies that could outperform. Here are a few ideas to get you started:
- Cruises/Airlines: The summer is a huge time for people to book cruises and flights around the globe. For this reason, companies like American Airlines, Spirit and Norwegian Cruise Line could perform well.
- Booking Agencies: Companies like Booking.com and Trip Advisor will be helping millions of travelers reach their destinations.
- Hotels: Many of the big hotel chains like Marriott and Wyndham should experience tons of foot traffic. You can also explore hotel chains like Playa Resorts that focus on resort destinations.
- Camping: More people than usual will be heading out into the wilderness. Companies that outfit these campers could experience outsized profits.
- Car rentals: With so many travelers, Companies like Hertz and Avis will be able to charge a higher price per rental.
This is not an exhaustive list and there are probably plenty of other examples. In general, the more niche your idea is, the higher your chances of success. For example, lots of investors will expect a company like Airbnb to do well. But, fewer will be expecting ice cream stocks to do well.
No. 3 Fall
Once the summer is over, travel will probably slow down a little bit. Luckily, that doesn’t mean that you can’t find some seasonal stocks. There are still plenty of events that happen each fall. For example, you could invest in:
- Amusement parks: A company like Disney probably won’t experience outsized returns during the fall. That’s because Disney mostly thrives during the summer but is pretty much packed year-round. However, there are a few amusement parks that focus specifically on Halloween-themed events. For example, Six Flags and Cedar Fair both own parks known for their “Fright Nights.”
- Back to school: Every fall, kids return to the classroom. For the past two years, they’ve returned to virtual classrooms. This year, more kids should be attending school in person. This could lead to a spike in essential in-person school goods like backpacks, pens/pencils, folders, etc.
- Halloween candy: Inflation is reaching record highs. When the time to buy Halloween candy comes, consumers might head to the cheapest places to buy it. Could this lead to increased profits for Dollar General or Five Below?
- College football: The fall means the return of college football. This means that hundreds of thousands of fans will pack stadiums all over the country. This is a massive moneymaker for TV networks, apparel companies, concession makers and more.
Again, these are just a few places you can start when investing in seasonal stocks. Now, onto the next season.
No. 2 Winter
The biggest event during the winter is the holiday season. We’ve already discussed how this impacts retailers’ profits. Another trend to watch out for is people will be flocking to the mountains. Skiers and snowboarders only have a few months to hit the slopes. This could make the winter a good time to invest in a company like Vail Resorts. Or, you could invest in companies that produce winter equipment like jackets, hats and skis.
No. 1 Spring
Of all the seasons, spring is probably the hardest to identify seasonal trends. In general, spring is a relatively quieter time of the year. Consumers just spent tons of money during the holidays. They also probably took a good amount of time off to visit family. Now, most people are back to work for a few weeks.
However, spring is also the start of a new year. This makes it a huge time for setting new goals. The most common new years resolution is to get in better shape. This could lead to a surge in new gym memberships. If this happens, it would create outsized profits for gyms companies like Planet Fitness. It could also be good for home workout companies like Peloton.
Conclusions on Seasonal Stocks
One final tip is to remember to look at the whole picture before investing in seasonal stocks. For example, the summer is generally a good time to invest in cruise lines. However, if another COVID-19 variant emerges, then cruiselines will be one of the first businesses that are shut down. Based on just one event (a COVID-19 variant) cruises could turn from a great investment to a terrible one. This is why it’s so important to look at the bigger picture before investing in a company.
I hope that you’ve found this article on seasonal stocks to be valuable! Please remember that I’m not a financial advisor and am just offering my own research and commentary. As usual, please base all investment decisions on your own due diligence.