Opportunity In Retail Stocks Into The Holiday Season

October is here and while the holiday season is still too far away for most to give it much thought, investors would be wise to position their portfolios accordingly.  The following statistics and thoughts may be of help for those considering the retail stocks sector as a potential investment.

Historically, 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.

To dig a little deeper let us look at returns of the Standard and Poor’s 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, in order 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 3.60% and 3.80% respectively.
  • October, November and December come in with an average monthly return over the same time-period of 1.75%, -0.45% and 0.75% respectively.

The simple conclusion is that on average since 2003 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 -17.00% and -12.60% returns in October and November 2008 may be skewing the average monthly returns ‘artificially’ low.

If we take the average returns of the S&P 500 for the months of October, November and December over the past ten years and add them we get to an average return for the index of 3.60% for the fourth quarter.  So, while retail stocks are also up in the last quarter on average the past ten years, the broader S&P 500 index seems to have outperformed on average to the tune of about 1.55%.

If we look a little 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 over the past ten years.

Autozone (AZO) averaged 7.50% in the fourth quarter for the past ten years and thus vastly outperforming the retail index.

A break out of the consolidation phase should allow AZO to move towards $400 and $420 eventually.

Another stock showing stellar returns during the fourth quarter over the past ten years is The Gap, Inc. (NYSE: GPS) with average return of 11.30%.

Neither of these stocks should be blindly bought in October regardless.  October has a tendency to be a volatile month, which is a topic I will discuss later this week.







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