Weighing the Risks and Opportunities of Winter: Where Should Investors Look for Profit?

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By Chicago 9 Min Read

As the nights draw in and temperatures begin to fall, it’s once again time for investors to explore fresh opportunities to prepare their portfolios for the winter months. But which industries are ripe for exploration? And just how valuable are winter stocks? 

Wall Street can be particularly susceptible to different seasons and price fluctuations that occur at various points in the year. 

These changes can be down to a number of factors, such as changing market sentiment, shifting consumer needs, different volumes of active traders throughout the market, or changing weather conditions. 

In fact, statistics suggest that the winter months can actually be relatively lucrative for investors, with data pointing to a 7% average return during winter, as opposed to just 2% over the summer. 

What’s driving such a seismic change in stock performance? “As investors return from their summer holidays, new strategies are deployed, business tax years conclude, and the market is flooded with capital, there is simply more money in the market,” explains Investment Week analyst Giles Coghlan

Does this mean that investors should ramp up their efforts to embrace a market that’s ripe with opportunity? Evidence suggests that confidence should be tempered with caution. 

The Fallacy of the January Effect

The January Effect is a long-standing hypothesis that suggests stocks, particularly small-cap companies, are prone to seasonal increases in value during the month of January, owing to an increase in buying following December losses that are attributed to investors engaging in tax-loss harvesting in a bid to offset their realized capital gains

Theoretically, this effect would mean that investors can find recurring positive returns from assets picked up amidst December sell-offs as more liquidity enters the market in the new year. 

“Another possible explanation is that investors use year-end cash bonuses to buy investments the following month,” explains Maxim Manturov, head of investment research at Freedom Finance Europe.

However, Manturov goes on to highlight that there’s very little evidence to suggest that the January Effect is as relevant today as it may have been in the past. 

“Statistics are not on the side of this effect,” Manturov warns, “with the January Effect occurring 17 times in the last 30 years (57%), and January’s losing months were 13 (43%).”

One explanation for the weakening influence of the January Effect is that the market has simply factored in this trend which heavily negates its impact on stocks. 

Although this means that investors may need to work harder to generate profit over the winter months, there are plenty of seasonal opportunities that can be found throughout the performance of various industries. 

Identifying Winter Opportunities on Wall Street

There are plenty of industries that enjoy positive price movements over the winter months for a variety of reasons. These stocks may be positively affected by different weather conditions or consumer needs, hence presenting a great opportunity to invest in.

With this in mind, let’s take a look at the sectors and specific stocks that could hold the best potential for investors seeking to rejig their portfolios for the winter: 

Finding Value in Healthcare

As the colder months arrive, our healthcare needs intensify, and this sees health-focused companies like BioNTech (BNTX) emerge as an excellent stock to add when temperatures drop and our health concerns grow. 

Although declining sales of the COVID-19 vaccine have seen BioNTech’s stock fall significantly since its mid-2021 peak, the stock has experienced consecutive strong Q4 performances over the past three years, and with the dangers of COVID continuing to lurk, we may see the company’s stock pick up in the winter months. 

While COVID has been an underlying factor in BioNTech’s market performance in recent years, there’s plenty to be excited about for the company’s pipeline. At present BioNTech is evaluating BNT316 in a late-stage study focusing on non-small cell lung cancer and has developed a seasonal flu vaccine with Pfizer. 

With this in mind, BioNTech can be a great buy ahead of a winter where more medical precautions are taken as the weather changes. 

Utilities are a Low-Risk Play

Given that economic headwinds and high interest rates are set to linger this winter, essential stocks like utilities stand as a relatively safe option for investors. 

Even in more optimistic market conditions utility stocks can offer fair dividends to investors, which makes adding more energy-based firms in winter a rewarding endeavor. 

One leading option for investors this coming winter will be Oneok (OKE). This Oklahoma-based natural gas supplier utilizes 40,000 miles of pipelines that stretch from the Gulf of Mexico to North Dakota. 

Crucially, Oneok recently announced a deal to acquire Magellan Midstream Partners in an $18.8 billion deal, helping to generate a fresh revenue stream for the firm in time for the winter months as more customers seek to use energy to keep warm as temperatures begin to fall. 

In addition to this, Oneok is a strong player in the volume of dividends it pays out to investors, offering a yield of nearly 6%. 

Entertainment can Take Off in Cold Weather

The winter months can form a perfect storm in the entertainment industry due to plunging temperatures and the arrival of the holiday season, which can often see the giving of video games as gifts. 

Although Electronic Arts (EA) isn’t a traditional winter stock, the video game manufacturer strategically positions many of its major releases in late Q3 and Q4 of each year to help leverage sales during the holiday season. 

Recent weeks have seen the launch of EA’s flagship product, EAFC 24, formerly known as FIFA but rebranded due to a licensing spat with FIFA, the international football association that became the game’s title for the past 30 years. 

While the rebranding has seen UK physical sales of the game fall some 30%, EAFC 24 has already become the United Kingdom’s second biggest launch of the year, and sales figures for some consoles such as the Nintendo Switch have increased over the year before which offers a cause for optimism. 

At the core of EA’s revenue drivers is EAFC 24’s Ultimate Team game mode, which now accumulates more than $1 billion in revenue alone each year, up significantly from the $26 million it brought in back in 2010. 

With an annual growth of 11% and 13% sales growth over the past year, EA’s stock can certainly be a strong pick-up for investors, and the coming winter months will be a busy period for the renowned games manufacturer. 

Building a Durable Portfolio

One of the largest challenges investors face in the coming winter months is the lingering high interest rates imposed by the Federal Reserve in a bid to keep inflation under control. 

This means that investors should dedicate more time to exploring opportunities and only add stocks that they fully trust to their portfolios. 

While the winter months can see festive spending increase, higher interest rates could cause a cost of living squeeze that sees revenue margins shrink for many otherwise strong stocks.

With this in mind, the potential for more market turbulence should be factored into all purchasing decisions. Despite this, following a challenging two years on Wall Street, this winter may be a watershed moment for a recovering market. Although there may not be a January Effect to rely on, the winter months could prove to be a prosperous time for diligent investors. 

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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