Seasonality Stocks for the Summer

The dog days of summer are just around the corner, which means it's time for short-shorts, camping, road trips, and ice cream! And if you're like 35 per cent of Americans [1], you'll be gone for a few weeks on a memorable summer vacation. With an economy that is still struggling to find a foothold and news continuing to shake the markets, what can you do this summer to protect your account or even add to your equity while you're gone?

CNBC today discussed seasonal stocks that tend to move higher during the months of summer. Between Memorial Day and Labour Day, airline stocks moved up 8 per cent! Not only that, but from Labour Day to Year-End, it added another 8 per cent. Other notable industries were the travel companies and casino and hotel companies.

Airline companies Delta Airlines [DAL:NYSE], Southwest Airlines [LUV:NYSE], United Airlines [UAL:NYSE], Continental [CAL:NYSE], and AMR Corp. [AMR:NYSE] are the five biggest by market capitalization, all in excess of $2 billion. The move in the industry seems obvious - summer means more passengers. But a sophisticated investor would know that these expectations are already priced into the stocks, and companies don't move on quarterly expectations, but yearly.

The main culprit is in fact falling energy prices in the summer. Many investors often seek safety in energy over the summer with the belief that increased demand from driving and vacations pushes oil up, however this is incorrect. Seasonality for energy is between April to June. This is the time when corporations buy in preparation for summer. Like baking a cake, you buy the flour before you bake, not when you make it.

In the last decade, oil prices have fallen eight times in the summer. Oil prices usually peak in June and collapse until the fall; airline stocks tend to move in the opposite direction of oil.

If you already own airline stocks, you could consider adding positions into casino and hotel stocks. Las Vegas and Macau have seen substantial growth and hotel bookings in the past year, signs people are spending money again. If you want to get involved in these stocks, consider Las Vegas Sands [LVS:NYSE], Wynn Resorts [WYNN:NASD], or MGM Mirage [MGM:NYSE], the three biggest American casino/hotel stocks by market cap. These guys don't pay dividends, so consider writing options for additional income because premiums are extremely good.

Tip for the summer: Sell your energy stocks and buy airline stocks or casino and hotel stocks. Don't forget to enjoy it!

Disclaimer: I currently own Las Vegas Sands and MGM Mirage.