Starting out in the investment business, my mentors told me, nearly every year, that the market during summer would be slow. And, once in a while, it was. But it has been a long, long time since I can actually remember a slow summer in the investment business.
Last year? Don’t even think about it. It seems that 24-hour trading, meme stocks, free commissions, high-frequency trading and other developments may have ruined any thoughts investors ever had of a nice relaxing summer.
But perhaps I can help. In July 2013, I wrote a column on five summer-themed stocks you could buy and then sit back relaxing at the cottage. The stocks were Trex Co. Inc. (decks), Transcontinental Inc.. (magazines), Andrew Peller Ltd. (wine), Polaris Industries Inc. (watercraft) and Cedar Fair LP (amusement parks). I am happy to say that, eight years later, all five stocks are up, and the average gain was an impressive 340 per cent. Sure, that average was largely helped by giant gains by Trex, but, hey, that’s why investors should diversify. Trex rose more than 1,000 per cent, but Andrew Peller and Transcontinental also increased a healthy 144 per cent and 86 per cent, respectively.
In the hopes of enjoying a nice, quiet and profitable summer, I will offer some more summer stock ideas. Personally, I would be fine keeping the original five, but my editor would probably accuse me of rehashing eight-year-old material, so let’s present Five More Completely New Summer Time Stock Ideas (trademark pending).
Flutter Entertainment PLC is best known for its online gambling sites and its acquisition of Canadian poker giant Stars Group Inc. But the summer call is based on its interest in FanDuel Group. With the coming end of the COVID-19 pandemic, sports are back with a vengeance and sports-starved fans are going to go crazy. What better way to welcome their return than with legalized sports gambling, which is where FanDuel comes in. Flutter is so excited about the opportunity that it said earlier this year that it planned to list FanDuel on markets down south. That hasn’t happened yet, but the business opportunity here remains big, and the timing is right.
Given its name, Pool Corp. is an obvious choice. The US$17-billion company distributes swimming pool supplies and construction materials. We can’t remember why we didn’t use it as a stock selection in 2013, but kind of wish we had since its stock is up ninefold since then. It trades at 35x earnings, and has done well as bored stay-at-home consumers look for backyard entertainment. But we do not see its growth as only related to COVID-19. Earnings doubled from 2017 to 2020, and are expected to rise 50 per cent this year.
I chose a wine company in my last summer picks. This time around, I’m thinking about all the parties you are going to go to this summer. Many people might try to make up for 16 lost months and perhaps do a little extra partying. A beer or wine company would be too easy a call, so instead let’s pick Celsius Holdings Inc. , which makes so-called healthier energy drinks. The trend to health has really helped sales, and Celsius is now a US$5-billion company with US$300 million in sales expected next year. Its stock has been on fire, up 600 per cent in a year, but an expensive growth stock has never really scared us off before. Besides, sales rose 77 per cent in the first quarter this year.
One thing I’ve noticed in the pandemic is that after a brief flurry of baking bread, everyone started working on their gardens. Scotts Miracle-Gro Co. , a maker of lawn and garden products such as pest controls, should benefit nicely from this continued trend. Earnings per share are expected to grow more than 25 per cent this year. It’s a US$11-billion company with a dividend yield of 1.2 per cent. Now, I would rather use some stock profits to pay a gardener, but chances are the professionals are using a lot of this company’s products as well, so, win-win.
Finally, Airbnb Inc. had a hot IPO last year that has cooled off a bit. But when you think of summer, you think of travel, and we think business is going to be really good for the next few years as consumers catch up on missed vacations. Worth US$90 billion, it isn’t making any money yet, but profitability should improve once it stops spending so much on marketing. Revenue is expected to rise more than 50 per cent this year. It is an expensive stock and not for the timid, but we expect some good things from the company over the next eight years — to when our next summer stock pick column will appear.
Peter Hodson, CFA, is founder and head of Research at 5i Research Inc., an independent investment research network helping do-it-yourself investors reach their investment goals. He is also associate portfolio manager for the i2i Long/Short U.S. Equity Fund. ( 5i Research staff do not own Canadian stocks. i2i Long/Short Fund may own non-Canadian stocks mentioned).
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