Keep an Eye on Wall Street’s Holiday-Season Hot Stocks

Retail is a Q4 laggard, so seek out the outperformers

By Serge Berger, InvestorPlace Chief Technical Analyst

October is here, and while the holiday season is still too far away for most to give it much thought, investors should be positioning their portfolios accordingly. Hopefully, the following statistics and thoughts will help guide your way.

Looking back to 2001, retail stocks have correlated fairly closely with the S&P 500. This should not be very surprising given the cyclical nature of retail stocks and the S&P 500 overall.

Digging a little deeper, let’s look at the returns of the S&P 500 Retailing Index on a seasonality/month-by-month basis. The following statistics are taken from a fairly limited sample — only looking back to 2003 — to focus on the recent years when central banks interfered most heavily in the markets. Since 2003 …

  • March and April were the best months for the retail index, with an average return of 3.6% and 3.8%, respectively.
  • October, November and December come in with an average monthly return of 1.75%, -0.45% and 0.75%, respectively.

The simple conclusion is that, on average, this nets out to a positive return of 2.05% for the last quarter of the year for the retail index. As a side note, the -17% and -12.6% returns in October and November 2008 might be skewing the average monthly returns “artificially” low.

However, if we take the average returns of the S&P 500 for the months of October, November and December during the past 10 years and add them together, we get to an average return for the index of 3.6% for the fourth quarter. So, while retail stocks also are up in the last quarter, the broader S&P 500 seems to have outperformed on average to the tune of about 1.5 percentage points.

If we look deeper still, we find a few well-known retail stocks that have massively outperformed both the retail index and the S&P 500 on average during Q4 in the past 10 years.

Click to Enlarge
AutoZone (NYSE:AZO) averaged 7.5% returns in the fourth quarter for the past 10 years, vastly outperforming the retail index.

A breakout of the consolidation phase should allow AZO to move toward $400 and $420 eventually.

Another stock showing stellar returns during the fourth quarter during the past 10 years is The Gap, Inc. (NYSE:GPS), with average returns of 11.3%.

Neither of these stocks should be blindly bought in October, as it has a tendency to be a volatile month — a topic I will discuss in the coming days. Still, they historically have been a couple of retail’s top performers during the quarter.

Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter.

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