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How to Holiday Trade
The holidays are all about brand names. Parents, spouses, friends and other loved ones hit the malls to find the perfect gifts for the people that make their lives worth living. Not everyone is creative, though, which is why the Michael Kors and Apple stores of the world make a sizeable chunk of their profits in October, November and December.
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The holiday boost favors investors with stakes in consumer goods. They ride the vigor of the annual shopping wave in their stock portfolios. But these kinds of stocks work best for long-term plays in blue-chip companies that reach a large volume of consumers during that special time of year.
To expand your investments most effectively during the holiday season, stick to analysis that singles out a company’s performance in November and December.
Though Apple stores attract millions to their doors, all ready to buy the latest iPod or iPad, the AAPL stock has still underperformed the S&P 500 by 13.2 percent on average for the past five years. Foot Locker, on the other hand, beat the market by 8.1 percent over the same time period. Of course, owning shares of FL does not sound as exciting nor as elite as being able to spot AAPL in your portfolio, but think about the dollar figures here. Letting branding affect you as you shop for a new watch is one thing, but don’t let that kind of thinking slip into your trading strategy.
To help this process, critically analyze the business news circus on the television in the month or so leading up to Christmas or New Years. The morning news shows are usually filled with non-headlines that are actually product placements by major companies that are aiming to make their product the gift of the year. Take hoverboards, for example. The rotating skate boards took over Good Morning America in early October 2015, with a special crew dancing to Justin Bieber’s “What Do You Mean?” at Times Square.
After the performance, the anchors raved about the ease at which the dancers manipulated their devices to create convincing choreography. The boards had made an appearance on the show at an earlier date, but the hosts struggled to use them competently. I’m sure the hoverboard dancers helped alleviate parents’ fears about safety or ease of use as they saw young and agile humans take command of their vehicle.
But the marketing magic of hoverboard execs didn’t last past the 2015 holiday season. The industry met a serious blow in February 2016, when the U.S. federal government declared that it found not a single model of the device on shelves at the time to be safe. Major retailers like Amazon and Toys R’Us soon stopped carrying them and city ordinances began to forbid pedestrians from riding the boards on public sidewalks.
And the fires didn’t help.
From December to February, citizens reported over 50 fires related to hoverboards, according to national figures. The government said custom authorities had been working to keep the devices from entering the country due to the suspect batteries causing the conflagrations. The hype fell flat soon after those real headlines hit news screens and print copy.
More useful information about product enthusiasm from the grassroots can be found on Twitter. Products in high demand “trend” quickly. Fake accounts and other tricks by corporate marketers have made this method tricky to rely on, so take those hashtags with a grain of salt.
Amongst consumer goods companies, the real bullish stories during the final quarter of the year occur when profits jump 45 percent, but were expected to rise by just 25 points. Once you see that increase translate into comparably higher stock gains, you know you’re about to cash in on a smart seasonal play.
Other promising scenarios occur when markets are expecting a big company to take a loss, but consumer enthusiasm tells a different story. That scenario works vice versa, too.
According to Forbes, there are three things to be on the lookout for to spot “divergent” opportunities:
- Find a stock expected to perform poorly as Christmastime rolls by, and
- Also expects to make big sales during the holidays, and
- Also exhibits social data that points to brand decay amongst its loyal fan base.
To give a clearer picture as to why these traits could point to a high-potential trading opportunity, let’s put a spotlight on Nike. The premium sportswear company’s fall 2016 stock prices had been on the decline as top financial firms warned investors against using their funds to buy more of the company’s stock. They cited “low purchase intent mentions” in social media and focus groups as their key cause for concern.
Come November, the analysts changed their tune, but by then it was too late for investors to make a play that would profit handsomely. Nike knew its brand would return to the forefront of its fans’ minds as the holidays approached. New Years fitness resolutions routinely spur binge shopping sprees at Nike, Adidas and all the other companies within this line of business.
As emotions run high at the end of November and through December, keep cool when you approach your trading regime. Stay decisive and stick to credible financial analysis, but don’t forget to listen to popular music, watch the “in” movies and don’t skip the ads. They could end up being your biggest clue for your next trade.