If you believe in the power of seasonal trends, the concept of The January Effect stocks might pique your interest. Fundamentally, the hypothesis suggests that at the beginning of the year, equities feature a tendency to rise more than in any other month. Typically, this idea tends to focus on small-capitalization enterprises, which was the subject of the original research.
One tangible reason why the January Effect may be a practical catalyst for your portfolio centers on tax considerations. For example, due to tax-loss harvesting, some investors may decide to dump certain positions to benefit on the back end. But once the new year rings, these same investors may buy back the same securities, hoping for a rebound.
It’s also possible that the January Effect stocks represent the culmination of collective desires. I know that sounds silly on paper. However, as the Covid-19 crisis demonstrated with meme trades, you can never discount the power of the masses. For instance, in the cryptocurrency sphere, the “Uptober” phenomenon has proven incredibly profitable.
And that’s even with everyone knowing about the seasonal trend ahead of time! So, on that note, below are securities that might bounce higher on The January Effect.
I’m going to go with some low heat in the sense that with home improvement retailer Lowe’s (NYSE:LOW), you can depend on it for myriad reasons, not just for The January Effect. However, it’s quite possible that the company could benefit from the winter weather. With the holiday season bringing in the potential for inclement weather conditions, Lowe’s becomes cynically relevant.
Even better, if these inclement conditions materialize after the holidays, consumers will have little choice but to pay up. Prior to the festivities, there just might be an inkling to delay necessary purchases to make the wallet stretch. However, once the gift-giving season has passed, consumers are left with few excuses. So, it may be likely that LOW ranks among the January Effect stocks.
Financially, I appreciate the predictability and consistency of its business model. For example, the company enjoys a three-year revenue growth rate of 18.4%, much better than sector average. It also prints at least 10 years of profitability over the past decade.
Phillips 66 (PSX)
A hydrocarbon energy specialist focusing on the downstream component of the industry’s value chain, Phillips 66 (NYSE:PSX) represents the petrochemical play of the hour. On Thursday, PSX stock gained almost 6% of equity value. In the trailing five sessions, shares swung up more than 9%. As I reported earlier, hedge fund Elliott Management acquired a $1 billion stake in the company.
But the investment firm doesn’t just want to benefit passively from PSX like the rest of us. No, it’s demanding changes, including the appointment of two directors to Phillips 66’s board. The activist investor is pushing for a new directive because it’s frustrated that the downstream giant fell behind the competition. With renewed attention on the security, PSX ranks among the January Effect stocks.
Another factor bolstering my confidence in the hydrocarbon player is the options market. To make a long story short, we’re seeing sold calls that are in the money (ITM) for countervailing call buyers. Since call sellers (writers) must sell the underlying security upon exercise, the pessimists may be forced to buy PSX if the positions are naked.
One of the surprising hits of the second half of this year, Intel (NASDAQ:INTC) has been marching higher throughout this year, albeit via some choppiness. However, INTC has come alive since late October. Even better for optimists, the bullish sentiment continues to hold. In the trailing one-month period, INTC moved up nearly 20%. Thanks to The January Effect, it could swing higher.
Fundamentally, INTC enjoys a few notable catalysts. First, the company delivered a top-and-bottom line beat. Second, it provided fourth-quarter guidance that exceeded analysts’ expectations. Third, analysts at Mizuho have warmed to INTC stock, upgrading their rating to “buy” from “neutral.” In addition, they also upped their price target to $50 per share, an increase of $13. Combined, these factors caught the bears off guard.
Looking at options flow data from Fintel – which exclusively focuses on big block transactions likely made by institutions – pessimists have continued to sell calls, apparently unconvinced that INTC can sustain the rally. However, should INTC rise and the countervailing trades become more ITM, panicky bears might be forced to cover.
On the date of publication, Josh Enomoto 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.