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Undervalued Stocks In The Dow Jones Industrial Average

The Dow Jones Industrial Average Features Undervalued Stocks

DowJonesBuying low and selling high is what investing is all about, which is why finding undervalued stocks is so important.  Searching for undervalued stocks is important at any time of the year, but it is especially important as a new year dawns and investors look for places that present value to invest their money for the new year.

Just because stocks are undervalued stocks does not mean they are unknown or financially stressed companies.  Stocks can become undervalued for many reasons, even well known stocks, such as those included at part of the Dow Jones Industrial Average (DJIA).  They can also become undervalued without any particular financial stress being exerted upon a company, if they are in an unfavorable sector or are just not liked by Wall Street.  It is undervalued situations like this that provide excellent investing opportunities, as stock prices tend to revert to their mean over time.

The Most Undervalued Stocks on the Dow Jones Industrial Average

JP MorganWhile a rather narrow gauge of stock market performance, the Dow Jones Industrial Average (DJIA) is considered one of the premiere stock market indexes, because it features some of the bluest of blue chip stocks.  These blue chip stocks are considered relatively stabile companies, so when they become undervalued, it is worth taking a look at them.  The following is a snapshot of currently undervalued stocks that may make good long-term investments, as Wall Street realizes these companies are more valuable than the levels they are currently trading at.  .

  • JP Morgan Chase (NYSE: JPM) – Trading with a Price to Earnings (P/E) ratio of under twelve dollars per share, JP Morgan Chase appears to be one of the components of the Dow Jones Industrial Average that is undervalued.  After seeing an earnings collapse during the Great Recession of 2008 / 2009, JP Morgan Chase has increased earnings per share from $3.05 in 2010 to approximately $4.83 during 2014, which is a healthy 11.66% annual earnings growth rate.  If this earnings growth rate were to continue, JP Morgan Chase should see a nice appreciation in its shares in coming years.  While it may be a lot to expect such a high earnings growth rate to continue in coming years, it is possible with the economy expanding.  The stock market appears to be factoring in a much lower earnings growth rate for JP Morgan Chase, which means there is a great potential for upside earnings surprises for this financial stock.
  • Chevron Corp (NYSE: CVX) – This energy company trades with a Price to Earnings (P/E) ratio of under eleven dollars per share.  Fair or not, solid energy companies such as Chevron have seen drops in their share prices and low valuations, due to the steep drop in oil prices during the second half of 2014.  Chevron has grown earnings from $8.58 per share in 2010 to nearly $11.40 per share in 2014.  Even with the drop in oil prices, Chevron should be able to stay close to its historical earnings per share growth rate of approximately 6.50% per year.  The stock market thinks otherwise, and is valuing Chevron for a steep drop in earnings growth.  If oil prices recover during 2015, Chevron is poised for a nice rebound, as earnings beat expectations.
  • Intel Corp (NASDAQ: INTC) – While Intel Corp trades with a Price to Earnings (P/E) ratio over seventeen dollars per share, it is important to understand that relative to its peers in the technology sector, Intel Corp has trades with a low Price to Earnings (P/E) ratio.  With an annual growth rate that has averaged over 13 percent per year and earnings per share that have grown from $1.27 in 2010 to an over $2.10 during 2014, Intel Corp has the earnings growth trajectory to move higher in coming years.  Intel Corp was a laggard for years on the NASDAQ Stock Exchange, as Wall Street was unsure if the company would make the transition from the personal computer era to the mobile computing era.  That all changed in recent years, as Intel Corp has risen to the challenge and become a major player in the mobile computing microprocessor space.  The company’s earnings and stock price have responded, but not fast enough, and Intel Corp remains undervalued when compared to its peers.
  • American Express Company (NYSE: AXP) – American Express also has a Price to Earnings (P/E) ratio over seventeen dollars.  However, American Express is in an excellent position to grow earnings as the United States economy recovers and consumers ramp up spending and drive more transactions through the company’s network.  American Express caters to the high-end credit card user, who have done quite well since the Great Recession ended, and will continue to do well as the economic recovery picks up steam.  For the first time in years, American Express has the opportunity to dramatically increase its penetration with merchants, as the company rolls out OptBlue, which reduces transaction costs for merchants and makes them more likely to use American Express to process both in-store and online orders.  It also reduces American Express’ processing costs, so any increase in merchant activity from OptBlue will go to American Express’ bottom line.

ATT

  • AT&T, Inc. (NYSE: T) – AT&T has a Price to Earnings (P/E) ratio over of just over ten, which makes it one of the lowest Price to Earnings (P/E) ratios of the thirty Dow Jones Industrial Average stocks.  AT&T’s stock has struggled to move higher in recent years, due to strong competitive pressures in the communications industry that make it hard for the company to increase prices.  However, with such a low Price to Earnings (P/E) ratio and a $1.88 annual dividend that translates into a 5.50% annual yield, AT&T seems like a good value for investors looking for exposure to the stock market, while also collecting a hefty annual dividend.

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Oil Companies To Buy

Oil Companies To Buy In Undervalued Oil Sector

Oil Companies To BuyThose looking for value in late 2014 should be looking at oil companies to buy and hold for the long-term. With the recent steep sell-off in crude oil futures, there are a number of undervalued oil stocks that are worthy of consideration.   While the sell-off in crude oil has hurt many invested in the oil sector, it has created some tremendous buying opportunities, as many solid oil companies have sold off in tandem with the oil markets.

Oil prices have fallen significantly since the summer of 2014, with the world crude oil benchmark Brent Crude falling from $115 per barrel to under $63 late in 2014. That is a more than a 45 percent drop. Needless to say, this rapid decline in oil prices has hit the price of oil stocks across the board. Oil companies with solid and shaky balance sheets have seen their share prices fall during the second half of 2014, which has provided an excellent buy in level for value investors looking to buy into a key stock market sector at discounted prices. If course, it is important to scan oil companies carefully, since some of the weaker ones may not survive the current sell-off in oil prices.

Oil Companies

The thing for long-term investors to keep in mind is that these types of broad sector sell-offs cause many well financed and managed companies to sell-off along with the more marginal companies. It is times like these that long-term investors need to make a shopping list and start buying shares of the stronger oil companies that will survive and thrive as oil prices plunge and eventually recover.   In fact, many of the solid oil companies will come out of the oil price drop even stronger, once oil prices recover at some point in the future. Not only will this drop in oil prices force them to take a hard look at their cost structure and to make painful but necessary cost reductions that will ultimately make them more efficient and profitable, it will also allow them to pick up the assets of weaker oil companies that are forced to sell their assets at deeply discounted prices to survive the downturn in oil prices or to satisfy creditors.

Specific Oil Companies To Buy Based On Valuations

Exxon MobilWith the broad stock market trading at Price to Earnings (P/E) ratios that are well above the long-term average of fifteen, many oil companies are now comparatively cheap with Price to Earnings ratios well below fifteen. In other words, many oil companies present good value in an overvalued stock market. Of course, the key is to find the oil companies that are undervalued and avoid the ones that are selling for cheap because they have financial problems that warrant their price drops. With this in mind, it is time to consider some of the stronger oil companies that currently represent good value, such as the following oil company stocks that are trading below fair value, due to the swoon in oil prices:

  • Royal Dutch Shell (NYSE: RDS.A and RDS.B) is one of the largest integrated oil companies in the world that does everything from oil exploration and production to retail sales of oil products. With deep pockets, Shell will be looking to pick up assets of weaker rivals on the cheap with this swoon in oil prices.
  • Halliburton (NYSE:   HAL) is one of the biggest players in the oil services sector of the oil market. Halliburton provides services and products for the exploration, development, and production of oil and natural gas to companies worldwide.
  • EOG Resources (NYSE: EOG) explores for, develops, produces, and markets crude oil and natural gas. The company is well positioned to take survive the current drop in crude oil prices.
  • Exxon Mobil Corporation (NYSE: XOM) is the world’s largest integrated oil company.   Exxon Mobil has operations in just about every aspect of the oil industry in many countries around the world and has increased its exposure to natural gas in recent years. The company is well positioned to survive the drop in oil prices and pick up cheap assets from other oil companies in distress.
  • Kinder Morgan (NYSE:   KMI) is one stock in the oil sector that has not fallen since the summer of 2014, and for good reason. The large operator of oil, refined products, and natural gas pipelines and distribution centers has not seen a drop in its business as a result of the drop in oil prices, since pipeline operators make money no matter what crude oil is selling for. This is because Kinder Morgan charges for transporting and distributing oil and oil products, the prices for which are largely unaffected by price gyrations in the oil markets.
  • Ultra Petroleum (NYSE: UPL) is involved in both oil and natural gas production, with a focus on natural gas production in the Marcellus Shale area in Pennsylvania. The company also owns ample oil reserves to tap in southwest Wyoming once oil rises in price. The company has successfully hedged through 2014 against the recent oil drop. Given the company’s conservative management, additional hedging and cost-containment are likely, as they weather the current drop in oil prices. Look for Ultra Petroleum to rebound if West Texas Intermediate crude oil gets back above $60, which is their average break-even cost.
  • Chesapeake Energy   (NYSE: CHK) still sufferers from its reputation for wild speculation in oil and natural gas fields under former Chief Executive Officer (CEO) Aubrey McClendon. However, the company’s past reputation as a wildcat outfit that would drill just about anywhere does not reflect the new direction that its new management team has taken the company in recently. The company has been cutting debt significantly and cut interest expenses in half. Chesapeake Energy has a majority of its drilling dedicated to natural gas, with just 16% of drilling activities dedicated to crude oil production. Its low exposure to the domestic crude oil markets and very aggressive and conservative hedging strategy has kept the company well insulated from the recent downturn in oil prices.

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How To Make Money During 2015 Stock Market Volatility

How To Make Money During 2015 | Why 2015 Will Be Different

Make Money

With 2015 looming ahead for Wall Street, it is time to consider how to make money during 2015 stock market volatility, a year that is likely to be distinctly different than any year since the Great Recession of 2008 and 2009. This is because 2015 will usher in a change in the Federal Reserve’s monetary stimulus and interest rate policies. There is literally a whole generation of stock market traders and investors that have never traded or invested at a time when the Federal Reserve is raising short-term interest rates. Many are surely in for a surprise, as 2015 is setting up to be a year full of stock market volatility, but there is no reason for you to be surprised, if you know what to expect during 2015.

The thing to remember to make money during 2015 is that the Federal Reserve is no longer going to provide the stock market a backstop, at least not under normal market conditions. Instead, the Federal Reserve will likely be raising short-term interest rates during 2015, which will cause stock market volatility and will affect specific stock sectors in different ways. This is a big departure from the Federal Reserve’s stance since 2009, when it began an unprecedented effort to support the stock market through near zero interest rates and Quantitative Easting (QE), in an effort to produce a “wealth effect” to bolster economic activity. Many stock market analysts suspect the Federal Reserve’s support for the stock market is a primary reason why the stock market has rallied to such great heights since the depths of the March 2009 lows.

Make Money During 2015

It is time for a whole new generation of traders and investors to learn the phrase “Don’t Fight the Fed”, as the Federal Reserve helped buoy the stock market for many years, but will now change its stance and ostensibly act as a dampening influence on the stock market, as it raises short-term interest rates. While a sharp sell-off in the stock market is not a likely outcome from the Federal Reserve’s tightening policies in 2015, their rate hikes will make it harder for the stock market to put up double digit gains during 2015 and should cause more volatility as they are implemented.

The reasons why are many. For one thing, as short-term interest rates increase, fixed income investments will also increase the yields they pay investors, which will siphon off money that has been going into the stock market, or could even cause some investors to cash out of stocks and put their money into more stabile fixed income investments. Another major reason is that as short-term interest rates rise, the borrowing costs for corporations will also rise, which will put pressure on corporate profit margins and earnings, which consequently could impact quarterly earnings reports in a negative manger, causing stock market analysts to lower their earnings expectations for individual companies.

Those two factors are likely to cause more stock market volatility during 2015 than in recent years. However, the stock market should continue on its upward trajectory during 2015, albeit at a slower pace and with more volatility along the way, since the Federal Reserve will be raising interest rates in response to strong economic growth in the United States. The strong growth will act as a positive influence on corporate earnings and stock prices.

The Stock Market Trading Pattern as the Federal Reserve Increases Interest Rates

Stock Market Volatility

So, how does this all translate into how to make money during 2015? The best way to figure out the answer to this question is to take a look at how the stock market has historically performed during the initial period of Federal Reserve interest rate hikes and how it has behaved thereafter.

When the Federal Reserve starts raising short-term interest rates sometime during 2015, most likely around the middle of 2015 if Federal Reserve Governors’ public statements are correct, the stock market will likely sell-off briefly. Even if the interest rate increases are well advertised in advance, stock market participants will make moves to adjust to the higher rates, which means a sell-off and volatility. This will provide three trading opportunities: going short before the interest rate hikes, buying Exchange Traded Funds (ETFs) that increase in value when stock market volatility increases, and ultimately going long after the sell-off has run its course.

A historical look at the stock market’s performance during Federal Reserve interest rate hikes indicates that while the stock market initially reacts negatively and sells off, over the medium term, stock indexes increase in price, since rate hikes occur due to a strong economy. This is why an initial sell-off caused by interest rate hikes should be bought, since stocks will rise for at least a couple of years after the first interest rate hike, fueled by a strong economy and strong corporate earnings reports.

Just beware that when the Federal Reserve raises interest rates too high, usually about two to three years after the initial hikes, high interest rates will eventually choke off the economy and cause a recession. If a recession is looming, going short and buying volatility Exchange Traded Funds is a prudent trading strategy to make money.

How To Make Money During 2015 Stock Market Volatility | What To Buy

With the understanding regarding how Federal Reserve interest rate hikes affect the stock market, there are a number of specific ways to make money during 2015, as a new round of interest rate hikes begin and cause stock market volatility.

Ahead of the first interest rate hike, go short via a short-oriented Exchange Traded Fund, such as ProShares Short S&P500 (NYSE: SH). Also ahead of the first interest rate hike, purchase volatility Exchange Traded Fund, such as VelocityShares Daily 2x VIX ST ETN (NYSE:   TVIX). Once the initial interest rate hike sell-off has run its course, go long via a long-oriented Exchange Traded Fund, such as SPDR S&P 500 ETF (NYSE: SPY).

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Hottest 2014 Holiday Stocks


4K TV

The holiday shopping season has gotten off to an early start with Black Friday specials starting before Thanksgiving, which means it is time to take a look at the hottest 2014 holiday stocks for this holiday season to consider them for a stock investment portfolio or a swing trade.  This year, the hottest 2014 holiday stocks not only include technology companies with hot products, but some retailers and entertainment companies as well.

What is different this holiday season versus recent holiday seasons is the pick-up in employment and significant drop in gasoline prices, both of which are putting more money in consumer’s pockets for the 2014 holiday season.  There are also some hot products on the shelves this holiday season that are getting consumers to open up their wallets and spend like they have not spent in years.  All in all, the 2014 holiday season is shaping up to be the best holiday season for United States retailers in years, which should help boost well positioned stocks that are selling the hottest products.

Hottest 2014 Holiday Stocks – Technology and Retailers That Sell Technology

We live in a highly technological world.  The holiday season is a time when many people seek out the most technologically advanced products as gifts.  During the 2014 holiday season it appears that high tech mountable cameras and ultra-high definition 4K televisions are going to be the hot technology gifts that everyone is going to scramble to buy.  There are key companies that will benefit from the popularity of these gifts.  These include not only manufacturers, but also electronics retailers who rely upon hot high tech gifts to get consumers into their stores and drive their sales.
GoPro

An obvious winner will be GoPro, Inc. (NASDAQ:  GPRO), which has taken the world by storm with their wearable cameras that allow people to capture themselves in action doing all sorts of fun things.  GoPro cameras will undoubtedly be one of the hottest gifts of this holiday season, and GoPros’ stock will likely get a boost from big sales of the company’s cutting-edge cameras.  There is also the possibility that GoPro impresses so much this holiday season that the company becomes a takeover target from a larger technology company seeking to expand its revenue and earnings base, but we will have to wait until 2015 to see if any buyout offers are made for GoPro.

Ultra-high definition 4K television will also be a hot item this holiday season.  High definition 1080p televisions were all the rage about five years ago.  Ultra-high definition 4K televisions are now available that have a considerably clearer picture than the earlier generation of 1080p televisions, four times to be exact.  With additional discretionary income and a need for a television upgrade, many 4K televisions are expected to be purchased during the 2014 holiday season.  Thereafter, sales of 4K televisions should race higher as more people see the difference between 4K television and the older 1080p television format, so stocks that benefit from 4K television sales this holiday season should continue to benefit for years to come.

4K television manufactures should benefit.  These include some well-known names in the consumer electronics space, such as Sony Corporation (NYSE:  SNE), Samsung Electronics Co. Ltd. (OTC Pink:  SSNLF), and LG Display Co., Ltd. (NYSE: LPL).  4K television retailers, such as Best Buy Co., Inc. (NYSE:  BBY) and Amazon.com Inc. (NASDAQ:  AMZN), should also benefit.  In fact, Best Buy has already benefited, as they reported strong third quarter sales that beat Wall Street analyst estimates and sent their stock price soaring higher.  Best Buy should continue to be a winner in the fourth quarter of 2014 and in coming years, as consumers upgrade their televisions to 4K televisions.

Hottest 2014 Holiday Stocks – Apple, In a Class of Its Own

Apple, Inc. (NYSE:  AAPL) continues to confound skeptics and bears, and once again features some of the hottest products of the 2014 holiday season.  Specifically, the iPhone 6 line of smart phones has been a huge success, with Apple selling millions of iPhone 6s during the fall of 2014.  Apple’s iPads are also hot sellers during the 2014 holiday shopping season.  The surge in iPhone sales and steady demand for iPads have sent Apple’s stock AAPL up over 20% since October 2014 lows.    Apple is having a great holiday sales season and should report strong fourth quarter earnings as a result.

Hottest 2014 Holiday Stocks – Don’t Forget About Disney

Elsa and AnnaDisney, which is officially known as The Walt Disney Company (NYSE:  DIS) has the hottest kids product of the 2014 holiday season, as their hit Frozen movie continues to pay dividends through sales of Frozen products.  Elsa and Anna dolls that feature the main princesses in Frozen are an extremely hot item this holiday season, as are other products associated with the Frozen movie.  The success of Frozen is driving Disney sales this holiday season, and the company should report robust sales in the fourth quarter of 2014 when they report in early 2015, making DIS one of the hottest 2014 holiday stocks.

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Stocks That Do Well As Interest Rates Rise

Focus On Stocks That Do Well As Interest Rates Rise

Interest Rates RiseThere are certain stocks that do well as interest rates rise. There are also stock sectors to focus on for outsized gains as interest rates rise. While past performance is no guarantee of future results, a look at the history of the stock market indicates that there are certain stocks and stock sectors that tend to outperform as the Federal Reserve raises interest rates to keep a lid on inflation pressures.

With the Federal Reserve expected to start raising interest rates sometime in 2015, it is time to start making a shopping list of stocks and stock sector tracking Exchange Traded Funds (ETFs) to buy as the inevitable stock market swoon occurs when the Federal Reserve announces its first interest rate hike.   Keep in mind that the Federal Reserve has not raised interest rates for eight years, since before the 2008/2009 financial crisis. Also, the Fed will be raising short-term interest rates off of the lowest levels they have ever been. Because of these factors, there will likely be a great deal of apprehension surrounding the 2015 interest rate hikes, which could lead to a sell-off that creates a buying opportunity for traders and investors that know stocks that do well as interest rates rise.

A Look At Stocks That Do Well As Interest Rates Rise

Which stocks should traders start tracking in anticipation of interest rate hikes starting sometime during 2015? Let’s take a look at some stock sectors that traditionally perform well as the Federal Reserve raises short-term interest rates.

Financial stocks do well as interest rates rise for a couple of reasons. First off, interest rates rise because the economy is stronger, which means more loan and financial related activity occurs, which are the two main sources of income for financial companies. Second, since financial institutions will be able to charge clients higher interest rates for loans as the Federal Reserve raises interest rates, the gap between the interest rates that they charge for loans and what it cost them to borrow money widens, increasing their income and profit margins.

Bank of America

While there are many ways financial stocks to choose from, the ones that might benefit the most from this round of Federal Reserve interest rate hikes are the ones that fell the most during the Great Recession.   Large banks, such as Bank of America Corporation (NYSE: BAC), JPMorgan Chase & Co. (NYSE: JPM), and Citigroup Inc. (NYSE: C), could be beneficiaries from higher interest rates and an uptick in demand for financial services. Online brokers might also be winners, as stock and financial instrument trading activity picks up.   Stocks such as E-TRADE Financial Corp. (NASDAQ: ETFC), Charles Schwab Corp. (NASDAQ: SCHW), and TD Ameritrade Holding Corp. (NASDAQ: AMTD) could have a couple of good years ahead of them.

Industrial stocks and energy stocks tend to outperform during times of economic expansion, as demand for industrial and energy products increases. Large industrial companies, such as General Electric (NYSE: GE) and large integrated oil companies, such as Exxon Mobil (NYSE: XOM) should do well with a positive economic backdrop. You can also play these sectors via Exchange Traded Funds that hold some of the biggest stocks in each sector, such as Energy Select Sector SPDR ETF (NYSE: XLE) and Industrial Select Sector SPDR ETF (NYSE: XLI).

The consumer discretionary stock sector is another sector that tends to do well as interest rates rise. As the Federal Reserve increases interest rates, consumers are typically flush with extra cash to spend on consumer goods because the economy is good and wages and income are growing. In this environment, stocks of companies that sell luxury goods tend to outperform. Companies such as Procter & Gamble Company (NYSE: PG) and luxury retailer Tiffany & Co. (NYSE: TIF) will likely do well in the faster economic growth environment that accompanies rate hikes.

Microsoft

Even the information technology stock sector does better during interest rate increases, as companies and consumers have more money to spend during the strong economic times to spend on upgrading and improve their computer systems and other information technology infrastructure. Companies such as Hewlett Packard (NYSE: HPQ) and Microsoft (NASDAQ: MSFT) should outperform during this time period.

The insurance sector of the stock market also does well during times of interest rate increases for a different reason than many other sectors. Insurance companies invest the money they collect from policy holders heavily into bonds. As interest rates increase, the annual yield earned from their large bond holdings increases considerable, which has a positive effect on their earnings and stock price. Look at companies such as Assured Guaranty Ltd. (NYSE:   AGO) to perform well.

Are you looking for more conservative stocks to buy as the Federal Reserve increases interest rates? Utility Stocks should do well as the stock market climbs a wall of worry over interest rates and investors seek the stability and dividends provided by established utility companies. While utilities do a lot of borrowing, their borrowing is at the longer end of the yield curve, and the impact of rising interest rates is generally muted for utilities. They can also offset the effects of higher interest rates via rate hikes.

Stocks To Avoid As Interest Rates Rise

Stocks to avoid as interest rates rise are ones that are highly leveraged with short-term debt, as their debt service costs will rise as short-term interest rates rise. This could include companies in a number of stock market sectors, so check company balance sheets before investing. Two sectors in particular that may fare poorly as short-term interest rates rise are Real Estate Investment Trusts (REITs) and oil exploration companies, since companies in these sectors are known to obtain loans on a short-term basis to cover operating costs.

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The November to May Seasonal Trading Strategy

Understanding The November to May Seasonal Trading Strategy

November to May Seasonal Trading StrategyThe flip side of the “sell in May and go away” stock market trading pattern is the November to May seasonal trading strategy. While May to October is traditionally a weaker time of the year for stocks, the months of November to May tend to put up some of the biggest gains for stocks. There are a number of reasons why stocks tend to outperform from the late fall to the middle of spring. Stock market traders and investors can put this seasonal stock market strength to work for them to increase their trading and investing returns by increasing their exposure to stocks during this seasonally

Of course the November to May seasonal trading strategy does not work every year. It is just a statistical reality that when many years of data are analyzed the November to May time-frame has higher stock market returns than the May to October time-frame. If you want to have exposure to stocks to participate in the annual gains that stocks normally make, the November to May time period is the best time to have maximum exposure to stocks.

There are a number of reasons for the seasonal strength in stocks from late in the year until the middle of the following spring. New revenue and earnings guidance for the upcoming year come out during the third quarter earnings season, which is centered around November. If the earnings guidance is strong from corporate American, stocks react by moving higher in anticipation of stronger earnings in the following year. Stock analysts plug the higher earnings estimates into their models, which causes them to increase their bullish stance on stocks that appear ready to outperform. Another factor is the tendency for fund managers to chase the market during the last two months of the year to bolster their year-end performance.   After the new-year, buying pressure on stocks continues as a surge of new money enters the stock market from year-end bonuses and investors making annual contributions to retirement accounts.   As the new year progresses, fourth quarter earnings from the prior year and first quarter earnings from the new year often provide the stock market a boost, as they demonstrate progress towards higher earnings and stock valuations.
Seasonal Trading Strategy

By May, the seasonal surge in stocks typically runs out of steam, as traders look to book profits and take a break from the stock market, which is known as “sell in May and go away.” This is the time to lighten up on increased stock exposure that was taken during the previous fall. Although stocks can continue higher from May to October and keeping a portion of an investment portfolio in the stock market makes sense, the late spring to early fall tend to be more volatile and dangerous times to hold stocks, as the outlook for the coming year is unclear and the stock market is prone to selling off due to geopolitical events. For those wishing to implement the November to May seasonal trading strategy, lightening up in May and putting money into more conservative interest bearing investments until October will ensure that money is available to invest in the stock market, if weakness develops in the early fall.

How To Implement The November to May Seasonal Trading Strategy

Trading StrategyWhat is the best way to implement the November to May seasonal trading strategy? The answer to that question will vary, depending upon one’s trading or investing outlook and their tolerance for risk.

If a trader or investor is aggressive, then they can overweight their stock exposure during the month of October, if any weakness in the stock market develops. To be truly aggressive, a trader or investor can buy highly volatile momentum stocks that move higher faster than the overall stock market, in anticipation that momentum stocks will outperform the broader stock market.

If a trader or investor is more conservative in their approach, a lesser percentage of their investment portfolio should be dedicated to stocks during the traditionally strong months of November to May. To spread the risk among numerous stocks, a trader or investor that leans towards playing the market conservatively can gain exposure to the stock market by buying Exchange Traded Funds (ETFs) that track stock market indexes. To gain exposure to the biggest market cap technology stocks that trade on the NASDAQ, buying the NASDAQ 100 tracking ETF (NASDAQ: QQQ) provides a way to provide exposure to the hot technology sector.   To gain more broadly-based exposure to the stock market, SPDR S&P 500 ETF (NYSE: SPY) can be purchased to track the S&P 500 index.

The way to trade the November to May seasonal trading strategy is to buy stocks during any weakness that develops during the early fall in the month of October. You then hold stocks through the end of the year and into the new year, until the months of April and May, at which point you lighten up on stock holdings to lessen exposure to stocks during the traditionally weak May to October time-frame.

Be Cautious Regarding The November to May Seasonal Trading Strategy

The November to May seasonal trading strategy is not a sure thing.   It can be trumped by macro forces that affect the stock market. For example, the financial and stock market meltdown during late 2008 and early 2009 caused the November to May seasonal trading strategy to fail during that time-frame. This strategy, as with most seasonal stock trading strategies, requires normal economic and stock market conditions to prevail. Which means the November to May seasonal trading strategy should be utilized when the economy is growing and the stock market is trading based on expected economic growth.

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