4Q Odds Are Stacked Against Transocean LTD, Freeport-McMoRan Inc

Transocean LTD (RIG) and Freeport-McMoRan Inc (FCX) have historically struggled during the fourth quarter

Sep 30, 2016 at 9:16 AM
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With the fourth quarter just around the corner, we've been looking at a number of seasonal trends. So far, we've covered the best and worst stocks to own in October, as well as historical fourth-quarter outperformers. Today, we'll turn our attention to fourth-quarter underperformers, with a special focus on commodity stocks Transocean LTD (NYSE:RIG) and Freeport-McMoRan Inc (NYSE:FCX).

Below is a list of the 25 worst fourth-quarter stocks on the S&P 500 Index (SPX) during the past 10 years, courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. To qualify, each stock needed at least eight returns in the last decade. RIG and FCX are easy to spot, considering they're the first and last names listed, respectively:

worst 4Q stocks september 30

RIG has been absolutely abysmal in the fourth quarter. The shares have finished lower over that time frame 70% of the time, with an average loss of nearly 11%. Truth be told, the stock hasn't been any more impressive so far in 2016. Year-to-date, RIG has lost over 14% to trade at $10.63 -- despite a huge win yesterday.

Understandably, short sellers have been piling on. By the numbers, roughly 98 million shares are sold short, or 28.4% of the stock's float. At RIG's typical daily volume, it would take nearly seven sessions to cover these bearish bets. Likewise, analysts have taken a glass-half-empty approach. Nineteen of the 21 brokerage firms tracking Transocean LTD have dished out a rating of "hold" or worse.

FCX's fourth-quarter track record is a bit better -- or, perhaps, less bad. Over the last 10 years, the stock has finished that three-month time frame lower half the time, with a typical loss of 3.4%. At this point, though, a drop of that degree would barely put a dent in the shares' year-to-date return of almost 58%, based on Thursday's settlement price at $10.69.

Yet, FCX skeptics aren't hard to find on Wall Street. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 0.82 ranks in the bearishly skewed 62nd annual percentile. Not to mention, 10 of 13 analysts rate FCX a "hold" or a "strong sell." If the shares can buck their normal fourth-quarter trend lower, a capitulation among the doubters could result in tailwinds.

Having said that, there's at least one more thing to consider when it comes to seasonality. Specifically, the upcoming fourth quarter includes a U.S. presidential election. Therefore, White put together another list of the worst fourth-quarter SPX stocks during election years:

worst 4Q stocks election years september 30

As you can see, Freeport-McMoRan Inc tops the list. In fact, the mining stock has never been positive during the fourth quarter in an election year, and has averaged a 16.7% loss across five returns.

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