September isn't typically kind to investors.
Over the past 10 years, the S&P 500 index ETF (SPY) has generated an average return of -1.72%, making September the second worst month for average returns behind June. But, thanks to data from the Seasonal Investor, I was able to identify three large cap stocks with abnormally strong September seasonality.
Each has finished the month higher than it starts in 9 of the past 10 years, suggesting these names may insulate investors from some risk during the final month of the quarter.
These three large caps have abnormally strong September seasonality:
General Mills (GIS) is the well known maker of cereals such as Cheerios. For FY13, analysts expect the company to earn $2.67 per share, up 4% from FY12. EPS is also expected to grow another 8% to $2.89 in FY14, up 8% from FY13. FY14 estimates give the General a forward P/E of 13.61, toward the low end of its 5 year P/E range of 11-18. If we apply the stocks current P/E of 15 to FY14, we get a target price of $43.35, up 10% from current prices. And, if we apply its five-year P/E range to the FY14 estimates, we get a target price range of $31.79 to $52.02. Shares currently yield 3.4%.
In the midst of back-to-school season, Nike (NKE) also offers robust September seasonality. Over the past 10 years, shares have produced an average return of 7.15% during September, including three years of double-digit returns. Analysts expect NIke's FY13 earnings per share to clock in at $5.13, up 8% from FY12. In FY14, analysts are looking for $5.87 per share, up 14% from FY13. This gives shares a forward P/E of 16.5, roughly in the middle of its five-year PE range of 10-24. If we apply the stocks current P/E of 21 to FY14, we get a target price of $123.27. And, if we apply its five-year P/E range to the FY14 estimates, we get a target price range of $58.70 to $140.88. Shares currently yield 1.5%.
Finally, Amazon (AMZN) is the last of the large caps to finish the month higher in 9 of the past 10 years. Shares have generated an average 7.65% return in September, including three double-digit return years. The Street estimates FY13 earnings of $2.38 per share, up significantly from FY12's $0.77 estimate. Analysts anticipate investments in Kindle will pay off with margin expansion as the installed base reaches critical mass, allowing the company to sell more high margin e-books.
No one will confuse Amazon with a value stock. Of these three, it's the most pure growth oriented play, but it does offer a solid balance sheet with no debt and just about $11 per share in cash and equivalents. Most important for growth investors, the company has proven itself to be a gorilla in online sales - the fastest growing retail industry. In July, industry wide non-store retail sales rose 11.8% from last year, well ahead of the 4.3% growth for retail overall.
For those considering new positions in these names, history suggests you'll be rewarded.