The 3 Stocks That Almost Always Soar This Month
The father of value investing, Benjamin Graham, famously said: “Price is what you pay; value is what you get.”
The key to investment success in the stock market is selecting stocks of companies with solid businesses that are selling at market prices below their intrinsic values.
But the stock market is inefficient, and stock prices can fluctuate below their fundamental values for short periods of time. Consequently, the best stock selection technique is a combination of long-term fundamental valuation analysis with shorter-term analyses of price patterns based on both calendar-based seasonality and technical chart reading.
Using stock seasonality involves quantifying seasonal price increases by examining a stock’s price history between a calendar start date and end date over a specific number of years. Then, invest in those stocks that have historically exhibited the most consistent one-way price direction during that time period.
Ten to twenty-five years is considered a reliable time frame. Because a business’ focus and competitive positioning can change significantly over time, a stock’s price action more than 25 years ago is probably less relevant to its current price action (perhaps stable blue-chip businesses like Coke and Procter & Gamble are exceptions).
Turn! Turn! Turn! (To Everything There Is a Season)
With apologies to The Byrds…frequency of gains is the most important component of seasonality analysis. One wants to see a stock price increase during the calendar time period in at least 80% of the years being analyzed.
Seasonality refers to particular time frames during the calendar year when a company’s stock price is influenced by recurring forces that produce a consistent price direction – either bullish or bearish. Some stocks tend to go up consistently at certain times in the year.
For example, consumer-related stocks (e.g., food, drugs, beer, leisure, utilities, media, and retail) outperform the overall market between May 1st and October 31st and manufacturing and production stocks (e.g., consumer durables, chemicals, construction, mining, steel) outperform between November 1st and April 30th.
Seasonal tendencies can be based on weather events (temperature, precipitation, planting cycle), spending surges (holiday and back-to-school shopping, end of government fiscal years, tax refunds), new-product announcements at industry conferences, or financial events (quarterly earnings reports, dividend hikes, and regulatory approvals).
The key is that the tendency is recurring and provides a high statistical probability that a stock’s price will continue to perform in the future in a manner consistent with previous price moves during a specific time of year.
Of course, there is no guarantee that future price patterns will mimic the past, and one can never completely discount the possibility of pure coincidence. Historical price patterns are unstable and could be temporary and coincidental, but in my experience knowing historical seasonality can – when combined with fundamental and technical analysis – improve the odds of a winning trade.
Although one can speculate, exactly what causes stock-specific seasonality is somewhat of a mystery. Maybe an individual company chooses to announce a dividend hike at a certain time each year that other companies don’t do, or a company has unique exposure in a foreign country that increases spending at a certain time of year when other countries don’t, or a company purchases its raw materials from a special supplier that cuts its prices at a certain time of year, etc.
As in physics, the behavior of objects is observable regardless of whether a good rationale for that behavior exists.
The great physicist Niels Bohr once wrote:
In our description of nature, the purpose is not to disclose the real essence of the phenomena but only to track down, as far as possible, relations between the manifold aspects of our experience.
A recent academic study of very long-term multi-asset returns (stocks, bonds, commodities, and currencies over a 217-year period), in the Journal of Financial Economics (December 2021) entitled “Global Factor Premiums” concluded that seasonality was one of the absolute best trade criteria for generating high returns on investment.
Bottom line: seasonality-based trading not only makes sense, but it WORKS and has continued to work for more than 200 years.
Nine Seasonally Strong Stocks
Using my firm’s high-powered seasonality software, I have uncovered nine stocks that tend to significantly outperform the market during three different calendar months: July, September, and December. My criteria include a minimum gain frequency of 80% over the past ten years, a minimum median monthly return of 2.0%, annualized return during the period that is at least 1.5 times the annualized return of the rest of the calendar year, and a Sharpe Ratio (a measure of return per unit of price volatility risk) of at least 0.25.
Please keep in mind that the following stock list is not set in stone; if any of these stocks perform badly during its special month in 2023, the seasonality statistics for the given stock will change next year and the stock may no longer qualify for this exclusive stock list. A new seasonality analysis of each stock must be performed each and every year.
3 July Stocks
1. Amgen (Nasdaq: AMGN)
- 90% positive seasonality
- Median return = 4.91%
- Annualized Return Multiple = 12.23
- Sharpe Ratio = 0.99
Amgen is the granddaddy of the biotechnology industry and produces seven major drugs: (1) Repatha for high cholesterol; (2) Otezla for psoriasis; (3) Enbrel for rheumatoid arthritis; (4) Prolia for osteoporosis; (5) Evenity for osteoporosis; (6) Lumakras for the treatment of non-small-cell lung cancer; and (7) Tezpire for the treatment of severe asthma.
In December 2022, the company agreed to acquire Horizon Therapeutics for $26.4 billion, which will boost its expertise in treating autoimmune diseases.
Possible rationale for July seasonality: FDA drug approvals, investor excitement from healthcare conferences in June (e.g., ASCO, Goldman Sachs), earnings report and dividend declaration near the end of the month.
2. Apple (Nasdaq: AAPL)
- 90% positive seasonality
- Median return = 5.98%
- Annualized Return Multiple = 4.90
- Sharpe Ratio = 1.09
Apple leads the world in consumer products innovation with iPhone, iPad, Mac, Apple Watch, Apple TV, Apple Music, AirPods, iCloud, and Apple Pay. The company generates tremendous network effects from its unique iOS ecosystem with more than 935 million paid subscribers across its multitude of products.
Possible rationale for July seasonality: investor excitement from product refreshments and announcements at worldwide developers conference (WWDC) in June, earnings report near the end of the month.
3. Alphabet (Nasdaq: GOOG, GOOGL)
- 80% positive seasonality
- Median return = 6.43%
- Annualized Return Multiple = 10.86
- Sharpe Ratio = 1.12
Alphabet is a holding company that operates through its Google and “Other Bets” business segments. The Google segment includes its main Internet products such as Google ads, Android-based operating systems, Chrome browser, mobile phone and Chromebook hardware, Google Cloud, Google Maps, Google Play, Search, and YouTube. The “Other Bets” segment consists of eight startup companies focused on artificial intelligence that run the gamut from life sciences to self-driving companies (e.g., Access, Calico, CapitalG, Verily, Waymo, and X).
Possible rationale for July seasonality: online ad spending tends to bottom in early summer, so there is investor excitement over expected increases in ad spending as autumn approaches, earnings report near the end of the month.
3 September Stocks
1. O’Reilly Automotive (Nasdaq: ORLY)
- 80% positive seasonality
- Median return = 2.97%
- Annualized Return Multiple = 1.60
- Sharpe Ratio = 0.63
O’Reilly Automotive is the second-largest specialty retailer of automotive aftermarket parts in the U.S., serving both the do-it-yourself and professional service provider markets, with 5,929 stores in 47 states and 42 stores in Mexico.
Possible rationale for September seasonality: New car models for the upcoming year are introduced near the end of the month, return to work and school after August holiday requires car repairs.
2. Southwest Airlines (NYSE: LUV)
- 80% positive seasonality
- Median return = 3.48%
- Annualized Return Multiple = 3.59
- Sharpe Ratio = 0.28
Southwest Airlines is the nation’s largest domestic air carrier, operating 770 planes and initiating more than 3,000 weekday departures among a network of 121 airport destinations in the United States and ten additional countries. LUV is the least leveraged airline company so it is best able to weather any economic downturn.
Possible rationale for September seasonality: return to work and school after August holiday requires airline travel, investor excitement from Cowen Global Transportation and Sustainable Mobility Conference, company extends its flight schedule into spring of following calendar year.
3. TotalEnergies SE (NYSE: TTE)
- 80% positive seasonality
- Median return = 2.83%
- Annualized Return Multiple = 5.56
- Sharpe Ratio = 0.35
TotalEnergies SE is a France-based integrated oil and natural gas company that explores for, produces, and refines oil around the world.
Possible rationale for September seasonality: crude oil and gasoline prices trough after the summer driving season concludes in August, so there is investor excitement over expected increases in energy prices as winter approaches and increased demand for heating oil and electricity. Dividend is declared mid-month.
3 December Stocks
1. Exelon (Nasdaq: EXC)
- 80% positive seasonality
- Median return = 2.56%
- Annualized Return Multiple = 3.10
- Sharpe Ratio = 0.59
Exelon is the largest transmission and distribution (T&D) electric and natural gas utility in the country with more than 10 million customers. Diversified service area comprised of seven jurisdictions, including the large metropolitan area surrounding Chicago, Philadelphia, Baltimore, and Washington D.C.
Possible rationale for December seasonality: Heavy electricity usage during the Thanksgiving, Christmas, New Year’s Eve holiday season thanks to both cold weather and nighttime illuminations.
2. Chubb Limited (NYSE: CB)
- 80% positive seasonality
- Median return = 2.02%
- Annualized Return Multiple = 2.06
- Sharpe Ratio = 0.41
Chubb Limited is the world’s largest publicly-traded property and casualty insurer. In January 2016, ACE Limited acquired The Chubb Corporation and adopted the Chubb name globally. Chubb has more than $200 billion in assets, $46.8 billion of gross premiums written, and operates in 54 countries and territories. The company serves multinational corporations, mid-size and small businesses with property and casualty insurance and risk engineering services, and affluent and high-net-worth individuals with substantial assets to protect.
Possible rationale for December seasonality: Insurance companies often raise their insurance premiums in December effective at the beginning of the new calendar year.
3. The Estee Lauder Companies (NYSE: EL)
- 80% positive seasonality
- Median return = 4.01%
- Annualized Return Multiple = 3.65
- Sharpe Ratio = 0.58
Estee Lauder Companies is the only company focused solely on prestige makeup, skin care, fragrance and hair care with a diverse portfolio of 25+ brands sold in 150 countries.
Possible rationale for December seasonality: Demand for makeup increases during the holiday season to look good at parties and for gift giving.