3 Stocks Soared After This Tool Flagged Them — and Here Are 2 More

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Seasonal effects are stronger than many realize

3 Stocks Soared After This Tool Flagged Them — and Here Are 2 More VIEW IN BROWSER Tom Yeung here with your Sunday Digest. In January, I introduced TradeSmith’s latest trading strategy, a tool that CEO Keith Kaplan called their biggest breakthrough since creating TradeStops 20 years ago. They named this tool Trade Cycles. After analyzing more than 70 years of market data, Keith’s team built a system that pinpoints when seasonal forces are strongest — so you know not just what, but also when to buy. The Trade Cycles software has since become a vital piece of our quantitative toolkit. Most companies follow a natural “seasonal” cycle, and Trade Cycles identifies these trends with astonishing accuracy. The graph below shows the performance of the three recommendations I made in January (“Portfolio” in the chart) using the tool. You will notice these firms saw a strong initial boost from seasonal effects before a longer-term trend took over. Most importantly, Trade Cycles seeks to generate attractive returns without taking outsized risks. Here are the three companies the system suggested earlier this year: Cloudflare Inc. (NET) DraftKings Inc. (DKNG) Cheniere Energy Inc. (LNG) Now that we’re in the middle of summer, I’m excited to share that Keith Kaplan has a new announcement about his system. That’s because, on July 22, he believes we’re going to enter some of the best investing conditions he’s ever seen in his career. In a free, special broadcast on that Tuesday at 10 a.m. Eastern, Keith and InvestorPlace Senior Analyst Louis Navellier will outline why July 22 is so notable, and how you can use Trade Cycles to pick the best opportunities down to the day. All you have to do is click here to save your spot for Keith’s presentation. And to give you a preview of what the TradeSmith team is seeing, let’s take a look at two seasonal recommendations from their system as we pivot into the third quarter. Recommended Link From Consumers Back to Producers America went from 97% domestic car content in 1985 to just 25% today. Louis Navellier says Trump’s reshoring initiative will reverse this devastating trend and create massive investment opportunities. He’s pinpointed the companies that could benefit most. Click here to see his complete “Great Outsourcing” reversal analysis. Back to School The back-to-school selling season is often a bonanza for retailers. Kid-focused retailers like Carter’s Inc. (CRI) can see sales jump 30% or more, and even big box stores like Target Corp. (TGT) can see a 5% revenue boost. Tariff threats, of course, have made these companies less attractive than usual. Carter’s trades at just 9X forward earnings because analysts forecast a 45% decline in profits this year and a 29% reduction in the next. Shares have lost 43% this year. Sentiment surrounding Target is equally negative because it is more exposed than peers to import taxes. Neither Trade Cycles nor I am recommending a purchase in either, despite their typical summertime pop. Instead, I’d prefer to recommend Hanesbrands Inc. (HBI) in this update. The underwear seller is a typical back-to-school winner. Shares have risen 5% on average during the summer months, and gains can be even greater in years when cotton prices are stable (as they are this year). In 2024, HBI shares surged 60% between July and November. It’s not the first time I’ve recommended the stock in the Sunday Digest. I showed you this on-again/off-again company twice in 2023 when shares dipped into the $4 range – a price that proved too cheap to ignore. Shares rose above $5 again by August 2023 and went into the $8 range in 2024. Put another way, HBI is a perfect “hokey-pokey” stock to put your foot in during the summer dips and take it out when prices have recovered. The Winston-Salem, North Carolina-based underwear manufacturer has a strong competitive position thanks to vertical integration, and low prices today make it an attractive buy-the-dip opportunity. In addition, Hanesbrands remains well-insulated from American tariffs. Its largest production hub is a 1.1-million-square-foot site in El Salvador, while its second largest is a 600,000-square-foot hub in the Dominican Republic. Both countries are part of the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR), which eliminates base import taxes on apparel. Hanes must only pay a temporary 10% “ad valorem supplemental duty” that’s been imposed on virtually every country. Competitors importing from East Asia face taxes of 25% or more. That’s why Trade Cycles makes an interesting buy even more compelling. Not only is HBI back in the sub-$4 range… it’s doing so right at a time when it historically bounces back. The Sun Also Rises The wonderful thing about Trade Cycles is that it can remove certain years from its calculations. For example, back-to-school effects diminished during the Covid-19 pandemic. We can ask the system to ignore 2020 if we believe it’s too much of an outlier. The same is true for entire presidential administrations. If one president treated an industry differently from another, it’s possible to ask Trade Cycles to single out that particular administration. And here’s the fascinating thing about solar firm Enphase Energy Inc. (ENPH). During President Donald Trump’s first term, ENPH stock surged 42% during the summer months. Electricity prices typically spike during the summer when air conditioning use is high, making solar power an attractive solution. Roughly a third of new generating capacity during President Trump’s first term was from solar, compared to 20% under President Barack Obama. The seasonal pattern went into reverse during President Joe Biden’s term. Enphase shares rose 29% between May and July as investors eagerly awaited demand from the hot summer months… Only to fall 11% on average through October after results failed to meet inflated investor expectations. ENPH lost two-thirds of its market capitalization in the four years when Biden was president. We’re now back to a “Trump 1.0” situation. Shares of Enphase trade at just 16X forward earnings (compared to its Biden-era average of 45X), and revenue growth expectations are in the single digits, as they were when Trump first became president in 2017. In other words, expectations for this summer’s boom are near rock-bottom. Yet, look closer and you’ll quickly realize that solar demand is booming under a second Trump administration. According to the Solar Energy Industry Association, 69% of new electric generating capacity in 2025 has so far been solar. Electricity prices are hitting record highs across the nation, and utilities have rushed to install panels as fast as they can. Homeowners are also scrambling to finish installations before a 30% federal tax credit expires at the end of 2025. Enphase will benefit. The firm produces micro-inverters that convert DC power from solar panels into usable AC power and generates 75% of its revenues from the residential sector. It’s an oligopolistic business, because home installations have strict safety requirements that lower-cost string inverters cannot meet. Solar installation companies are also typically brand loyal and have historically paid a slight premium for Enphase’s products. It’s simply not worth risking a lower-quality inverter on a $50,000 solar installation. That’s allowed Enphase to maintain net margins in the 20% range – a figure that puts it in the same ballpark as Apple Inc. (AAPL). Enphase is projected to maintain this profitability in 2025 (and exceed it in 2026), and Trade Cycles sees this as a perfect time to jump back in. The Usefulness of a Quantitative Tool Seasonal effects are not always obvious. Consider Vail Resorts Inc. (MTN), the owner and operator of more than three dozen ski resorts across the globe. The obvious time to buy Vail’s stock is in March, right before winter-month results are announced. Ski revenues surge when there’s snow on the ground, so the best earnings surprises will happen when results are announced between March and May. Indeed, the Trade Cycles tool shows that MTN shares have risen 7.4% on average during this period. The best time to buy Vail, however, is in September. It’s during this period when Vail sells its most popular season passes at peak prices. Shares have jumped 10.5% on average between September and November. The Trade Cycles tool helps detect these patterns. You don’t have to be an avid skier to know that Vail sells season passes for $1,000. Instead, the system can alert you that something interesting always seems to happen… and exactly which day in September you should open a position. So, I highly recommend you sign up for Keith and Louis’ special broadcast on Tuesday, July 22, at 10 a.m. Eastern, During that free event, he will outline what’s coming next… and how you can use this system to come out ahead. And when you sign up for the event, you will also receive access to a free version of TradeSmith’s seasonality tool. With it, you can pull up charts for your stocks and try it out for yourself – all free of charge. Click here now to get access to that tool... and to reserve your spot for Keith’s event. Until next week, Thomas Yeung, CFA Market Analyst, InvestorPlace

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