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The Best and Worst Stocks for Christmas Season 2016

Written by Jason Stutman
Posted November 26, 2016 at 7:00PM

It’s the weekend after Thanksgiving, and we all know what that means: Christmas fever has officially hit full stride.

For the next four weeks, every store you walk into will be filled with holiday cheer, every television commercial you see will remind you that this is a season of giving, and every speaker in earshot will play "Jingle Bell Rock" so many times it’ll make you wonder if retailers have taken a page out of the CIA’s torture playbook.

For investors, though, Christmas season represents a little more than just holiday tradition and the occasional humbug — it’s also an opportunity to capitalize on one of the most substantial seasonal effects the stock market has to offer.

During the U.S. Christmas season, consumers spend upwards of $830 billion on gifts, retail sales spike to $630 billion, and seasonal employment reaches annual highs. Marketers will be quick to tell you Christmas is the season of giving, but in their eyes, it’s really just the season of spending. In fact, it’s estimated that a quarter of all personal spending (not even gift spending) in the U.S. takes place during the holiday shopping season.

The economics of Christmas is so significant that books have been written about it and economists have dedicated their careers to it. Many make the obvious argument that Christmas is a boon for the economy, while others contend that the holiday is actually a deadweight loss for a range of complicated reasons we’re not going to touch on today.

What is certain, at least, is that the U.S. holiday season has historically coincided with some of the highest monthly returns in the stock market. Specifically, November through January has been the highest-returning three-month season, on average, since the 1920s for the S&P 500. This doesn’t make the holidays an infallible time to invest, of course, but it does give you a small statistical edge if you know where to look.

The reality for investors is there are both winning and losing industries during the holiday season, and, jointly, winning and losing stocks. That being said, here are our picks for the best and worst stocks of the 2017 Christmas season.

The Winners

Alphabet Inc. (NASDAQ: GOOG)

After years of flirting with the consumer electronics market, Google parent company Alphabet Inc. has finally come out with a full line of hardware products worth getting exciting about.

In addition to its Nest security cameras and connected thermostats, Google has extended its smart home offerings this year with Google Home. Google Home is a smart home speaker and digital assistant designed to rival the Amazon Echo, and so far the former is giving the latter a run for its money.

Powered by Google Assistant, the Google Home smart speaker brings cutting-edge artificial intelligence to your living room. Google Home can play music, answer questions, set timers, and even control connected appliances, just to name a few features. All of these features are controlled by voice command, as Google works to make digital assistants increasingly conversational.

On top of its smart home products, Google has also released its first end-to-end phones, the Google Pixel and Pixel XL. The Pixel line has already proven more successful than the Nexus and has received rave reviews from tech enthusiasts. It even pairs with a slick VR headset, the Google Daydream, as an added bonus. The only downside for Google is that the Pixel continues to be understocked, but that’s certainly a good problem to have.

Lastly, Google is sure to see a boon in online advertising, its main source of revenue, during the holiday season as retailers push product sales and consumers search for gift ideas. On top of the added demand, Google allows advertisers to create seasonal campaigns, which is an added bonus as the firm closes out the year.

Amazon (NASDAQ: AMZN)

E-commerce has taken a greater share of Christmas sales in recent years, as brick-and-mortar outlets have suffered at the benefit of companies like Amazon. In 2015, online retail sales increased 20% between Black Friday and Christmas Eve, while conventional retail sales rose just 7.9% during the holiday season.

Year over year, e-commerce has recorded double-digit sales growth for the last six years straight. There are, of course, doubts that this growth can continue, but there’s still plenty of room for Amazon to expand for now. Even with the recent surges in online spending growth, e-commerce still accounts for only about 10% of total retail sales during the holiday period, meaning there’s plenty more market share left to take.

According to eMarketer, online e-commerce sales are expected to grow 13.3% year over year in the 2016 holiday season, while physical retail will only grow 1.8%. All told, digital sales are predicted to hit $94.71 billion this Christmas season, marking the industry’s highest growth rate since 2011.

Last year, Amazon accounted for one-quarter of all online sales in November and December. That number should be even higher this year with Amazon’s revenue growth continuing to outpace e-commerce as a whole. With Amazon’s stock seeing a substantial correction in October, this could represent a good opportunity to buy it on the cheap.

The Losers

Abercrombie & Fitch Co. (NYSE: ANF)

Abercrombie and Fitch is in the midst of a major re-branding effort, and the timing couldn’t be much worse, with Christmas just around the corner. Typically this is a time of the year where clothing retailers pad their balance sheets with loads of cash flow, but the once-popular designer looks like it will miss out big time this year.

Abercrombie posted a dismal third quarter on November 18, missing consensus by a whopping 40% and sending shares down as much as 13% in a single trading day. The company was banking on fresh branding with a new logo and a new marketing angle, but so far to no avail. Abercrombie’s Hollister brand managed to post flat sales year over year, while A&F's namesake stores saw revenue declines of 14%, leading to a 6% overall drop.

In response to this latest earnings call, Abercrombie has received a number of downgrades from institutional players. Royal Bank of Canada now rates the stock at "Underperform," while Telsey Advisory Group has lowered its price target to $16. KeyBanc Capital Markets has downgraded the stock as well.

Once a big trend among shoppers in their teens and 20s, the A&F fashion ship seems to have sailed. Perhaps one day the gaudy logos will see a resurgence in popularity, but we’re not betting on it for this Christmas season.

GoPro Inc. (NASDAQ: GPRO)

GoPro Inc. is banking big on holiday sales this year, and that makes the stock a major risk given recent trends. Having one of the hottest products on the market just a few years ago, GoPro has lost much of its luster as growth in demand for action cameras has continuously waned.

While GoPro does have a new line of products out this year, reception has been underwhelming, and execution arguably disastrous. The firm’s Hero5 cameras continue to see respectable demand but were temporarily halted on Amazon in October as the two companies negotiated over pricing.

Jointly, GoPro’s new and once highly anticipated Karma drone has been forced into recall, as a defect is causing the device to lose power mid-air. Even without the recall, reviews have been lukewarm, while the supply chain is a mess...

Of course, GoPro will inevitably see a bump in sales this holiday quarter nonetheless, but the firm is a far cry from its $600 million mark in last year’s season. If the company posts another year-over-year decline, the market could continue to beat down on the stock.

On top of weak demand and hiccups in the product line, CFO Brian McGee sold over $46,000 in GoPro stock this month, which is close to 10% of his current position. While it’s important to keep in mind executives sell their stock for a number of reasons, it certainly isn’t a sign of confidence for investors heading into the holiday season.

The one plus side for GoPro shareholders is that after months of selling, the stock looks relatively cheap. This alone, however, is not enough to make the company a safe bet. Consider GoPro on Santa’s naughty list this year.

Until next time,

  JS Sig

Jason Stutman

follow basic @JasonStutman on Twitter

Jason Stutman is Wealth Daily's senior technology analyst and editor of investment advisory newsletters Technology and Opportunity and The Cutting Edge. His strategy for building winning portfolios is simple: Buy the disruptor, sell the disrupted.

Covering the broad sector of technology and occasionally dabbling in the political sphere, Jason has written hundreds of articles spanning topics from consumer electronics and development stage biotechnology to political forecasting and social commentary.

Outside the office Jason is a lover of science fiction and the outdoors, and an amateur squash player at best. He writes through the lens of a futurist, free market advocate, and fiscal conservative. Jason currently hails from Baltimore, Maryland, with roots in the great state of New York.

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