Benefits and risks of investing in summer stocks
Here are the biggest benefits of investing in summer stocks:
- These companies normally perform well during the summer months. The stock market has historically performed worse in the summer, so summer stocks can help offset this.
- There's a diverse range of options available. You can find summer stocks in many market sectors and industries, including consumer discretionary, travel, food and beverage, and retail.
- Many summer stocks pay generous dividends. Brookfield Renewable, Home Depot, and Pool Corp. are a few examples.
Summer stocks also carry a few notable risks:
- Many summer stocks are cyclical businesses. They do well when the economy is strong, but their earnings drop significantly during economic downturns.
- Any disruptions during the summer can have an outsize impact. An economic slump, geopolitical issues, or other summertime challenges can disrupt the peak earnings period for these companies.
- Seasonal success may already be priced in. Markets know which companies do better in the summer, so favorable earnings don't always move the needle.
Methodology: How these stocks were chosen
Stocks on this list typically have their busiest season in the summer and often see revenue peak in the second and third quarters. Selections include a diverse range of companies involved in various summer businesses such as pools, travel, and HVAC systems. The selection criteria favored stocks that are at or near the top of their fields with durable competitive advantages.
Although these are summer stocks, they all had to qualify as promising long-term investments to make the list. They may perform best in the summer, but they were chosen based on their strong growth prospects over the next five to 10 years and beyond.
Should you invest in summer stocks?
Investors have historically been cautioned against investing during the summer months. The well-known adage "sell in May and go away" is based on the expectation of muted gains when the weather is nice.
In recent years, the stock market has performed well throughout the summer. The season is a crucial time for many businesses, making it worthwhile to consider adding high-quality summer stocks to your portfolio.