During the summer, seasonal stock picks are more challenging as the market tends to experience a temporary slowdown. However, certain industries and seasonal stock picks can still thrive amid these market lulls. Yet, recent stock market wobbles suggest that Wall Street’s summer plans are in jeopardy; investors were expecting rate cuts and easy profits, but stubborn inflation has dashed those hopes as the Fed has signaled that interest rate cuts are unlikely in the near future.
Despite casting doubt on summer strategies, investors now must be more discerning in choosing seasonal stock picks. Although the S&P 500 has historically grown from May to October, it has only increased by 2% compared to 7% from November to April. As such, investors may consider airline, energy and consumer goods as seasonal stock picks this summer.
Airline stocks typically see an uptick in business during the summer regardless of interest rates or inflation. In addition to increased travel, energy usage also improves, though as temperatures rise, energy companies operating in harsh environments may benefit most. Finally, consumer goods offer stability during market uncertainty and act more like defensive plays during market lulls.
Delta Air Lines (DAL)
As vacations and leisure trips increase, Delta Air Lines (NYSE:DAL) is poised to capitalize on this trend. For the March quarter, the airline reported it generated about 71% of revenue from domestic passengers. American travelers believe this summer is a good time to travel. They are projected to spend at a record pace and “destination insights with Google,” a tool that compares travel data to explore how demand is changing, shows travel interest is rising. Delta presents a compelling opportunity as one of the top seasonal stock picks.
The company is currently undervalued at a low price-to-earnings (P/E) ratio of 6.7x. For comparison, this is well below the industry average of 14.3x, suggesting it has some catching up to do. After beating earnings per share (EPS) forecasts for multiple consecutive quarters, the stock may be poised to appreciate now and into the future. Analysts forecast 15% share price appreciation, targeting around $60 per share.
Delta maintains it is on target to generate 5% to 7% revenue growth this year. Along with earnings of $2.20 to $2.50 per share and between $3 billion and $4 billion in free cash flow (FCF), the airline is positioned for growth. Having already paid down $1.2 billion in debt. Delta Air Lines demonstrates stability over the summer period.
ConocoPhillips (COP)
As temperatures rise, ConocoPhillips (NYSE:COP) deserves consideration for investors seeking seasonal stock picks during market lulls. The company recently brought several new projects online that helped stabilize pipeline throughput. This may help increase oil production in Alaska as melting ice eases working conditions. ConocoPhillips is expected to produce an extra 100,000 barrels per day from its combined fields over the next years while also constructing its larger Willow project.
Over the past five years, ConocoPhillips’ EPS has grown 11% annually. Dividends have also increased at a faster pace as the company reinvests profits into growth. Consensus estimates suggest year-over-year (YOY) sales will rise 17%. This aligns with analyst price targets of $144 per share, representing an upside of 17% from current levels.
As forecasts for oil prices point to an increase from $78 to $84 per barrel, the above factors may boost output and revenues for ConocoPhillips. That sets up the oil stock to outperform this summer. It offers investors exposure to rising demand for oil and a low stock valuation at a P/E ratio of 11x versus the industry’s 14x.
Archer-Daniels-Midland (ADM)
Consumer food companies can offer a solid defensive play during market lulls, with Archer-Daniels-Midland (NYSE:ADM) being the last of the seasonal stock picks. Founded in 1902, this agricultural company procures, transports, stores, processes and merchandises agricultural commodities, ingredients, flavors and solutions. Its diversity and long history give the company stable revenues and cash flow. In Q1, it returned more than $1.5 billion to shareholders.
The company’s share price has underperformed both the food industry and the overall market over the past year. Yet ADM remains undervalued. It trades at a P/E ratio of just 10x while the industry goes for 18x, and its PEG ratio of 1.7 is much less than the industry’s 2.74.
Despite challenges in operations, the stock might have some catching up to do. ADM’s nine-day relative strength index (RSI) trades 8% below the industry average. The company’s diverse portfolio of brands, consistent performance, and dividends provide stability for investors seeking seasonal stock picks to manage volatility amidst market lulls.
On the date of publication, Stavros Tousios did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
