about 3 years ago • 3 mins
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December’s typically a quiet month for investors: with many heading off on vacation and locking in their profit for the year beforehand, fewer than normal are willing to take on additional risk. One seasonal strategy I’ve turned up, however, might pique the interest of even the most risk-averse investor: the returns it delivers in December are twice as high as in any other month of the year.
Public companies regularly host “analyst days” in which they lay out the firm’s future direction – while attempting to convince financial analysts and investors both present and prospective that buying their shares is an excellent idea.
And therein lies the opportunity: looking at 8,000 analyst days in the US dating back 18 years, companies’ stock prices rise by an average of 0.6% in the six days surrounding (five before, one after) their events – but in December, that rises to 1.2%. And buying “calls” – that is, options which give an investor the right to buy a company’s shares at a predetermined price at some point in the future, hopefully below the market rate – have historically earned investors an average profit of more than 30% in December.
December’s analyst days may be more interesting – and useful – than ever this year: the pandemic has forced many companies to drop earnings guidance for 2020 from their quarterly updates, let alone grand proclamations about 2021 and beyond. But with a coronavirus vaccine now in sight, the already optimistic nature of analyst days could give way to downright bullishness.
Recent data supports this view. Calls bought five days before the 46 analyst days so far this quarter delivered an average return of 34% six days later. And that’s with December – which, as we know, tends to be even better for this strategy – barely underway.
Consistently buying calls ahead of analyst days yielded a profit in 16 of the 17 years between 2003 and 2019, especially in December. And with 2020 looking likely to end on a more positive note than it began, following such a strategy for the rest of the year could pay off handsomely.
Nevertheless, buying call options – even ahead of December analyst days – is by no means a slam dunk. Any trade needs to be considered in the context of your overall investment strategy, and requires you to be convinced of the rationale for buying into a risky single stock.
To take one example, analysts at investment bank Goldman Sachs reckon Elanco Animal Health – which produces medicines and vaccinations for (you guessed it) animals – might present an attractive opportunity ahead of its December 15th analyst day.
Elanco was a subsidiary of pharma giant Eli Lilly until last year – so this is its first-ever solo analyst day. Goldman thinks a lack of detail on the company’s product pipeline has put off some would-be investors, and any exciting new announcements next week could therefore unleash a wave of pent-up demand. The bank also reckons that Elanco is likely to deliver higher-than-expected earnings growth in any case, potentially adding further support for a higher share price. That’s worth bearing in mind with any such company – analyst days may act as a catalyst for rising share prices, but they’re rarely the only reason investors are sweet on a stock.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.