How Many Days Till Christmas?

Jon is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

You may not be thinking about Christmas yet.  But retailers are.  Actually, it's probably better to say that some retailers never stop thinking about Christmas.  For some, the Christmas season is their business.  Oh, they may be open the rest of the year, but their bread is won from Black Friday to Christmas Eve.  (or until Boxing Day for my friends north of the border.)  With retailers already scheming and plotting on how to make money off of you, should you be plotting and scheming how to make money off of them?

Fox Business ran an article on how several business are on a seasonal hiring spree.  It only makes sense that if you expect more business, then you will need more people to run that business.  These hirings happen every year, and for some the hiring is quite impressive.  Wal-Mart (NYSE: WMT) is hiring 50,000.  Kohls (NYSE: KSS) is hiring 52,700.  And seasonal heavyweight Macys (NYSE: M) is hiring a hefty 80,000.

Perhaps if you're new to stocks, or just always the optimist, you might be thinking now would be a great time to buy into one of these Christmas stocks for the short-term.  Buy in before Christmas, watch the stock price go up because of all the Christmas business, and then get out before normal business resumes.  If you think that would be a good plan, then keep reading; investing doesn't work like that. 

Christmas Revenue

There's no doubt or disputing the fact that many retail businesses get a pretty substantial increase in revenue at Christmas time.  The quarterly results for these already mentioned retailers always spikes. 

<img src="http://media.ycharts.com/charts/9f6431575863d2e8e8853fb62d54feb8.png" />

M Revenue Quarterly data by YCharts

Revenue never tells the whole story though.  We can look at net income to help expand our insight.  As you can see on the chart below, (with the exception of a one year Macy's anomaly) the net income for these companies also spikes at Christmas time, though less profoundly.

<img src="http://media.ycharts.com/charts/104516ced644013efa9cd5459a6066b9.png" />

M Net Income Quarterly data by YCharts

To some therefore it may seem logical to buy into these companies for the short-term.  Since we know these businesses are going to have a profit surge, can we expect a temporary spike in stock price?

<img src="http://media.ycharts.com/charts/7c8c985aa0f280a07b5d3be5f89f2b31.png" />

M data by YCharts

As the chart above shows, stock prices don't spike like the net income and revenue.  In fact, it's pretty hard to find a pattern.  Shares rise and fall in December as they do in any month, although we know for a fact that revenue always spikes.

Bubble Popping

While many people already knew this, I can't take for granted that everyone understands that you shouldn't expect a stock market surge just because people are spending a lot of money at Christmas time.  I'm sorry if I've just burst your bubble, but investing doesn't work like that.

Really, trying to time the market for short term spikes and crashes shouldn't be your investment strategy anytime of year.  Unless you know how to tell the future, timing the market can quickly burn you.  A better strategy that I learned early on from the Motley Fool is: buy into solid companies that are trading at reasonable prices and then hold them for the long term.  

When it comes to finding a deal in the market, Wal-Mart may deserve a closer look.  Wal-Mart has been profitable for years.  When everyone else was struggling during the recession, Wal-Mart's profits soared as people turned to the chain in an attempt to save money.  You may think that Wal-Mart's best days are behind them, but some pretty cool things are on the horizon.  Recently, Wal-Mart partnered with American Express to offer costumers a new kind of debit card.  While this could generate new revenue, it could potentially save Wal-Mart a boatload of cash in credit cards fees.  Not having to pay these fees could boost Wal-Mart's bottom line pretty soon.  Trading at around 16 P/E, it might be a good company to hold on to for the long-term.


thequast has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Wal-Mart Stores. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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