Barclays on U.S. Multi-Industry: The Seasonality Trade in Industrials
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Rating Summary:
26 Buy, 8 Hold, 1 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 8 | Down: 6 | New: 26
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Barclays on U.S. Multi-Industry: The Seasonality Trade in Industrials
Barclays analyst, Scott R. Davis, said, "Seasonality Trade - Industrial stocks have historically outperformed from November to April over the last ~25 years. This is partly explained by a Beta > 1.0 overall and possibly because 4Q is seasonally the largest sales/earnings quarter for industrials (capex spent or lost). In more recent years, 4Q is also a period of increased investor communication including detailed forward guidance meetings. To see how these seasonal patterns play out on a stock specific basis, we look back at the monthly performance of each of our companies vs. the S&P 500 since 1985 and find interesting seasonal patterns."
"Broad Industrials tend to outperform the market from November through April, with January being the one exception - typically they are still up in January but the
broader market outperforms. November and April show the highest incidence of
outperformance, measured by the number of years industrials outperformed that
month as a percent of total years. On the other hand, industrials tend to
underperform from May through October, with October and June having highest
incidence of underperformance. 2011 exhibited a roughly similar seasonal pattern in terms of relative performance - Industrials underperformed by ~600bps from May to October, even with an unusually strong October."
"Stocks/subsectors with noticeable trends: On a stock specific basis, GE (NYSE: GE), Emerson (NYSE: EMR), Dover Corp (NYSE: DOV) and SPX Corp (NYSE: SPW) have a tendency to underperform in October (which is itself a bad month) followed by outperformance in November and December. Honeywell (NYSE: HON) generally outperforms in months when they report quarterly earnings - the only company to show such a consistent pattern around earnings. The electricals (Cooper Industries (NYSE: CBE), HUB (NYSE: HUB.B) and Thomas & Betts (NYSE: TNB)) all underperform in the month of June - perhaps having pre-discounted the summer construction season. Lastly, WSO (largest HVAC distributor) displays a noticeable "hope trade" where the stock tends to outperform from January through May in the lead up to the important HVAC summer selling season - WSO is then flat to slightly underperforming from June through October."
Barclays analyst, Scott R. Davis, said, "Seasonality Trade - Industrial stocks have historically outperformed from November to April over the last ~25 years. This is partly explained by a Beta > 1.0 overall and possibly because 4Q is seasonally the largest sales/earnings quarter for industrials (capex spent or lost). In more recent years, 4Q is also a period of increased investor communication including detailed forward guidance meetings. To see how these seasonal patterns play out on a stock specific basis, we look back at the monthly performance of each of our companies vs. the S&P 500 since 1985 and find interesting seasonal patterns."
"Broad Industrials tend to outperform the market from November through April, with January being the one exception - typically they are still up in January but the
broader market outperforms. November and April show the highest incidence of
outperformance, measured by the number of years industrials outperformed that
month as a percent of total years. On the other hand, industrials tend to
underperform from May through October, with October and June having highest
incidence of underperformance. 2011 exhibited a roughly similar seasonal pattern in terms of relative performance - Industrials underperformed by ~600bps from May to October, even with an unusually strong October."
"Stocks/subsectors with noticeable trends: On a stock specific basis, GE (NYSE: GE), Emerson (NYSE: EMR), Dover Corp (NYSE: DOV) and SPX Corp (NYSE: SPW) have a tendency to underperform in October (which is itself a bad month) followed by outperformance in November and December. Honeywell (NYSE: HON) generally outperforms in months when they report quarterly earnings - the only company to show such a consistent pattern around earnings. The electricals (Cooper Industries (NYSE: CBE), HUB (NYSE: HUB.B) and Thomas & Betts (NYSE: TNB)) all underperform in the month of June - perhaps having pre-discounted the summer construction season. Lastly, WSO (largest HVAC distributor) displays a noticeable "hope trade" where the stock tends to outperform from January through May in the lead up to the important HVAC summer selling season - WSO is then flat to slightly underperforming from June through October."
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