1 Weird Seasonal Trend Starting Now

Some things can’t easily be explained in the stock market and seasonal trends rank right up there among the conundrums that puzzle even the smartest investors.

Take for example the case of frozen potato processor Lamb Weston that has a weird seasonal trend starting now. It’s a bit difficult to understand precisely why such a powerful force starts at this time of year for the firm, but history shows it cannot be ignored.

Better still, this was an old Stan Druckenmiller favorite that’s been on a tear in recent months and if the past is any predictor of the future, the best may still be yet to come.

Key Points

• Seasonal trends are sometimes easily explainable and other times inexplicable. For example, the end of year market rally has clear factors that lead to its strength.
• Frozen potato manufacturers’ financial and operational forecasts are significantly shaped in the spring, when the assessment of the previous fall’s harvest yields insights into quality, yield, and cost, influencing investor sentiment through supply chain efficiencies.
• The arrival of spring and early summer boosts consumer spending in the hospitality and food service sectors, driving up demand for frozen potato products and positively affecting manufacturers’ revenue projections and stock performance.

Weird Seasonal Trend

So what is this weird seasonal trend that Lamb Weston displays at this time of year? It turns out that in 6 of the past 7 years, Lamb Weston has risen by an average 9.61% over the next 11 weeks. That corresponds to a bullish accuracy rate of 85.7%, far above the market’s traditional return over the same period of just 3.16%.

When a stock beats the market over a given time period by almost 200%, it’s worth taking notice even if it’s not particularly clear why it’s occurring.

To be clear some seasonal trends are clear while others are foggy. For example, at the end of the year, the number of trading days in November and December are fewer than in any other two month period of the year due to all the holidays. As a result, theta decay has a bigger impact on options premiums and a domino effect continues all the way to market makers who provide more bullish support for the market.

So while the overall seasonal trend can be explained through the options tail wagging the equity dog, alongside holiday sales spikes, it’s less clear why a frozen potato manufacturer kicks off a strong seasonal trend in April and May.

Here are some theories as to why it may rise:

Agricultural Cycle Influence

Frozen potato manufacturers depend heavily on the agricultural cycle of potatoes. Typically, the harvest season for potatoes in major producing countries like the United States, Canada, and several European nations concludes in the late fall.

Post-harvest, the processing and freezing of these potatoes ramp up to meet both immediate and future demands. By the time April and May roll around, manufacturers are often in a position to assess the quality, yield, and cost metrics from the previous harvest.

This period marks a critical juncture where supply chain efficiencies become clear, and companies can better forecast their financial health and operational capacity for the year, positively influencing investor sentiment.

Retail and Food Service Demand Upticks

Spring and early summer herald a period of rejuvenation in consumer spending, particularly in the hospitality and food service industries.

With warmer weather encouraging dining out and increased foot traffic in tourist areas, demand for frozen potato products, such as fries and specialty offerings, sees a significant uptick.

This seasonal demand boost is keenly anticipated by manufacturers and investors alike, as it directly impacts revenue projections and stock performance.

Financial Reporting and Forecasts

Many publicly traded companies, including those in the frozen potato sector, release their first-quarter financial results in April or May.

These reports not only provide a snapshot of the company’s financial health but also offer forecasts for the upcoming quarters. Positive Q1 results, coupled with optimistic projections, can fuel investor confidence and drive up stock prices.

Additionally, any strategic announcements, such as expansion plans or efficiency improvements made in these reports, can further bolster investor sentiment.

Global Market Dynamics

The global nature of the food industry means that trends and events in one region can have ripple effects worldwide. For example, disruptions in potato supply due to poor harvests or geopolitical tensions in key producing regions can lead to increased demand for frozen potato products from stable manufacturers.

Similarly, changes in trade policies or tariffs during this period can affect market dynamics, often favoring well-established, publicly traded companies with robust supply chains and international presence.

Speculative Trading and Seasonal Strategies

In the financial markets, speculative traders often look for patterns and trends to guide their investment strategies. The consistent seasonal bullish trend observed in April and May for frozen potato manufacturers may attract speculative interest, further amplifying the trend.

Investors, both retail and institutional, might see this period as an opportune time to capitalize on anticipated stock price movements, based on historical performance and seasonal market dynamics.