Stock Picks for the Autumn Seasonal Trend

As autumn approaches, some investors hope that lacklustre August performance in the markets means the upward trend towards the end of the year could start early.

Finding the Diamonds in the Rough

September is traditionally a bad month for investing in stocks, so some have used the "September effect" to refer to the usual drop-off as a mirror image of the "December effect". And a lot could go wrong this year as oil prices rise in a high-interest environment, pushing the economy into a stall if not outright recession. But, after the dismal performance in August, some analysts are optimistic that this time, stocks might have a better return than other years and point to a 1980 trend; if the S&P 500 gains more than 6% for the year to August, then every year (except one) has seen the market stay positive, growing an average of 5.4%.

Other analysts, such as Forbes, are pessimistic, expecting September to hew to the traditional trends. They still point to some trends that can be helpful for investors who want to snatch up stocks this month. Value stocks typically outperform during periods of high interest rates, as we are experiencing now. Since Forbes believes that there is still a substantial risk of a recession in the US later this year, they suggest looking at defensive stocks which provide stable earnings through the economic cycle. Those include utilities and healthcare stocks, which could still see relatively stable profits even if the economy slows down.

What Stocks to Keep in Mind

One of the stocks that tend to perform well through the autumn is a relatively dull staple: Campbell's Soup (CPB). It's currently trading at a PE ratio of 14.5 and has only 7.2% of its float shorted. The company has gone beyond soups and also offers beverages and snacks. This latter one saw growth of 12% in its Q4 earnings report when it guided its FY24 results to show steady growth through the coming winter season.

Another stock that could see a boost as we head into autumn is Deere, as farmers look to review their equipment for the upcoming harvest and often need to renew tractors. The company reported solid Q3 earnings but saw share prices fall afterwards as investors had been overly optimistic about its summer performance. The suspension of the grain export deal out of Ukraine has affected the food supply, with rising food prices potentially giving farmers more liquidity to upgrade their equipment. Deere is optimistic about its main equipment segment and raised guidance at the last earnings report. The company trades at a PE ratio of 12.2, with only 0.8% of its float shorted.

Deere in Ascending Triangle

Deere has traded towards record highs for the best part of the summer despite the slump experienced in the year's first half. The consecutive rejections at the top of $450, combined with the higher lows of $345 and $385 in May and August this year, may be part of an ascending triangle pending upward breakouts. If the first through holds, even if we see a short-term drop below 385 to the trendline, one of the targets lies by the 138.2% of the $285-$445 leg shy past the $500 handle. Otherwise, $300 will come into focus.

Source: SpreadEx / Deere & Co

Key Takeaways

As autumn nears, some investors hope for an early year-end rally following a lacklustre August, while others worry about challenges like rising oil prices and high interest rates. Forbes suggests defensive stocks like utilities and healthcare in case of economic uncertainty. Two stocks may be considered for autumn: Campbell's Soup, with steady growth and Deere, benefiting from potential equipment renewals by farmers. Deere also shows an ascending triangle pattern, indicating possible upward movement.