One Sector Set to Surge This Quarter

Consumer staples have traditionally been strong in the fourth quarter, with none stronger than Monster Beverage Corporation (MNST)

by Alex Eppstein

Published on Oct 1, 2015 at 2:55 PM

Today represents not only the start of October, but the kickoff of the fourth quarter. As Schaeffer's Senior Quantitative Analyst Rocky White has recently highlighted, the market's fourth-quarter performance tends to be strong. However, as a follow-up, I asked White to break down the top-performing sectors, historically speaking. He provided the chart below, which outlines all of the sectors we cover, from top to bottom.

As you can see, airline stocks have performed well in the fourth quarter, looking back 10 years. However, since I covered this group recently, I decided to take a gander at another outperformer -- consumer staples. Specifically, the Consumer Staples Select Sector SPDR ETF (NYSEARCA:XLP) has been positive in eight of the past 10 fourth quarters, with an average return of 2.4%.

151001topsector1

But what about specific stocks? A second chart -- which also comes courtesy of White -- outlines the returns of XLP components over the last decade.

151001topsector2

Monster Beverage Corporation (NASDAQ:MNST) has been especially impressive, advancing 80% of the time in the fourth quarter -- with an average jump of 12.8%. And the stock's strength isn't limited to the end of the year. In 2015, the shares have surged a market-beating 23% to trade at $133.19.

Traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have been slow to recognize this technical tenacity. MNST's 50-day put/call volume ratio across these exchanges is 1.13 -- in the bearishly skewed 81st percentile of its annual range. Future gains could send these skeptics running for the hills, which could create tailwinds.

Spirits specialist Constellation Brands, Inc. (NYSE:STZ) has likewise been a late-year outperformer, averaging a fourth-quarter pop of 6.3%. What's more, the stock has been positive in eight of the past 10 years. A repeat performance could send the shares past their record high of $132.20 from mid-September. At last check, STZ was up 1.3% at $126.80.

Bullish bettors have keyed in on the equity. In fact, STZ's 50-day ISE/CBOE/PHLX call/put volume ratio rests at a 52-week peak of 3.61. Likewise, the security's Schaeffer's put/call open interest ratio (SOIR) of 0.61 ranks near the top one-third of all comparable readings taken in the last year.

One final fourth-quarter stalwart is meat magnate Hormel Foods Corp (NYSE:HRL), which is already staring at a nearly 21% year-to-date gain at $63.04. Looking back 10 years, the stock has advanced eight times, for an average fourth-quarter pop of 4.9%.

Should history repeat itself, short sellers may be forced to the exits. HRL's short interest ratio of 7.30 indicates there's over seven sessions of pent-up buying demand on the sidelines, given average volumes. In other words, a short-covering rally could be just around the corner, and could send the equity past its late-August record high of $64.13.

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