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Thursday, April 08, 2021

Beat the Heat - Stocks to watch out for, this summer!

by سنشري للاستشارات في Investment Insights

Beat the Heat - Stocks to watch out for, this...
Beat the Heat - Stocks to watch out for, this summer!

*This performance is only observed with historical backtests and not traded by the company.

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The product and investment ideas do not consider the risk profile and financial position of the recipient and may not be suitable for everyone. Trading in financial markets and use of margin involves a significant risk of loss, which can exceed deposits. Please read the complete disclaimer carefully.
Disclaimer

The flyer attempts to analyze summer seasonality patterns in the below mentioned US stocks & as such does NOT constitute a Buy | Hold | Sell recommendation on any of the stocks.

Rationale

Hello Summer time! Deep summer is when laziness finds respectability. It’s that time of the year when your body physically requires more water in order to keep itself hydrated. Need for cooler temperatures and strategies for beating Natsubate(Japanese term – Summer Fatigue) become the need of the hour.

Financial investments too require some fine tuning. The below analysis is based on 4 US stocks that have shown best positive seasonality trend during the peak summer months of May, June & July. The analysis is based on duration of last 6 years (2015 – 2020).

Sr No Stock Ticker Code Last Price ( As of 05/04/2021 Market Close) No. of Bloomberg Analysts Recommendations( Buy | Hold | Sell)
1 Monster Beverage Corporation $ MNST $ 93.44 14 | 6 | 1
2 Comfort Systems $ FIX $ 76.42 0 | 4 | 0
3 Lennox International $ LII $ 323.25 1 | 11 | 6
4 Primo Water Corp $ PRMW $ 16.87 11 | 2 | 0

1) Monster Beverages

The Company produces the popular beverage – Monster Energy. Latest Q4 earnings showed a robust double digit revenue growth. Over the last 20 years, the company has delivered stellar CAGR of 42.4%. The company sponsors Mercedes F1 team and counts Red Bull as its chief rival. During the months of May, June & July MNST stock has delivered average returns of 1.01 %, 5.18% & 5.29% respectively. July specifically has been the best month for the company’s share prices with only one negative return of -0.05% seen in 2016.

Chart: Monster Beverages Seasonality Analysis

2) Comfort Systems

The company is a mechanical & electrical contracting service firm that primarily caters to the HVAC market. Founded in 1997, the company has 10,000+ employees with presence across 70 different US cities. Comfort Systems current year earnings estimates are looking promising with estimates rising from $3.00 to $3.3. Latest quarterly EPS for the company came in above analyst expectations at $0.99 as against expectations of $ 0.80/share. The company’s share prices have shown a positive trend in months of May & June with average gains of 1.82% & 3.5% respectively. June specifically has been the best month with only one negative return seen in 2018.

Chart: Comfort Systems Seasonality Analysis

3) Lennox International

The company is one of the leading providers of global climate solutions in the heating, air conditioning & refrigeration markets. It provides energy efficient climate control solutions for key industrial players that assist them in reducing their carbon footprint. On the quarterly earnings side, the company has beat market estimates on each of the last 4 occasions. The company’s next earnings are due on 19th of this month. Seasonality wise, the company’s share prices have demonstrated average returns of 3.5%, 1.14% & 2.89% for the months of May, June & July.

Chart: Lennox International Seasonality Analysis

4) Primo Water Corp

The company is a leading pure-play water solutions provider in North America, Europe & Israel. Latest Q4 earnings showed a revenue increase of 15% on y-o-y basis. It’s total revenues rose by 9% in 2020. The company operates under a razor – razor blade model. This tactic relies on selling dependent good at loss & selling the paired consumer good at profit. The main razor for the company in this case is its water dispenser that is sold through major retailers and online mediums. The dispensers help increase household penetration which drives recurring purchases of Primo’s razorblade offering. Primo’s razorblade offerings include Water Direct, Water Exchange, and Water Refill. May & June have been historically the best month for the company with just 1 negative yearly return & average return of 2.75% & 3.06% respectively.

Chart: Primo Water Corp Seasonality Analysis

Risks & Assumptions

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The strategy might suffer from look-ahead bias which occurs due to the use of information or data in a study or simulation that would not have been known or available during the period being analyzed. This can lead to inaccurate results in the study or simulation.
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Future price movements may not be exactly the same as the historical price movements and this could lead to variation in performance.
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Testing can sometimes lead to over-optimization. This is a condition where performance results are tuned so high to the past they are no longer as accurate in the future.
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The model assumes no slippages in trading. Slippage refers to the difference between the expected price of a trade and the price at which the trade is actually executed.
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Drawdowns in actual trading can be higher than the tested system and losses could be significant in the event of leverage.
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Unforeseen events can lead to variation in performance from the tested trading strategy.
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The tested result has been computed with price feeds available from Bloomberg.
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The testing environment has not considered transaction or any other costs.
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Trading indicators used for the purpose of testing has been provided by Bloomberg.
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The strategy might suffer from data mining fallacy, selection bias and backfill bias.

Data Source: Bloomberg
Prices & Statistics as of: 05/04/2021 (US Market Close)

Arun Leslie John
Chief Market Analyst

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