For many investors, stocks are usually seen as long-term investments that appreciate gradually while offering some dividends from time to time. However, some stocks offer mainly short-term opportunities for different reasons. It could be that they are currently undervalued or that they show some seasonal patterns and tend to appreciate only at a particular time of the year. Some are stuck in a range where profit-taking sets in once the resistance level is reached. Whatever the case, short-term stocks present opportunities to make quick profits.
In this guide, we’ll explain short-term stocks and provide a list of the best short-term stocks to buy in 2022.
Where Can I Trade Short-Term Stocks?
Short-term stocks are publicly traded on different exchanges around the world, so they are accessible to all traders and investors. However, to trade them, you will need to go through stockbrokers or other online trading platforms. So, you will need to have a standard stockbroker share-dealing account or, if you’re in the UK, any of the tax-efficient trading accounts such as a Stock & Shares ISA or Self-Invested Pension Plan (SIPP).
What Are Short-Term Stocks?
Short-term stocks refer to stocks that are more suitable for short-term trading than long-term investing based on the nature of their price movements. Short-term trading refers to buying a stock and selling it within a short period, which can range from some minutes to a few weeks.
Because of the short holding period, stocks that qualify for short-term trading tend to have certain characteristics, and investors are mostly concerned about the price action rather than the long-term fundamentals. Many short-term stocks are either undervalued or have a range-bound price action. Also, some short-term stocks show seasonal patterns, which means that they tend to go up during specific seasons in the year. For example, retail stocks tend to rise during the holiday seasons, and natural gas stocks during winter.
Additionally, short-term stocks should have enough liquidity so that the investors can easily purchase and sell the stocks whenever they want. Those stocks must also have good volatility to be able to offer investors quick profits, which is why investors aim to make their trades around periods of key economic data releases, company earnings, and political events when there is usually increased volatility.
How to Trade and Invest in Short-Term Stocks?
Open a Trading Account
First, you need to open a share dealing account with an online stockbroker. This relatively simple process takes only a few minutes to select a username and password, provide a contact email or telephone number, and send in some ID if required. Once your trading account is fully activated, you can fund it using a debit or credit card or through a wire transfer.
Choose your preferred short-term stocks
Your broker’s online platform has a list of all the stocks available for trading. After funding your account, you can navigate to the stocks trading page and select the short-term stocks you want to buy. If you have any confusion, consult the live help chat or FAQs of the platform.
Place Your Trade
When you’ve found the short-term stocks you want to buy, you can place your trade using a market order or limit order. Beginner traders might make use of the broker’s demo account (if available) before committing to trades in a live account.
Top 10 Short-Term Stocks to Trade
Here is our list of the top 5 short-term stocks for 2021:
- Simply Good Foods (NASDAQ: SMPL)
- Accel Entertainment (NYSE: ACEL)
- Walgreens Boots Alliance (NYSE: WBA)
- Constellation Brands (NYSE: STZ)
- Dollar General (NYSE: DG)
1. Simply Good Foods (NASDAQ: SMPL)
The Simply Good Foods Company is a food and beverage company located in Colorado with a $2.9bn market value at the time of writing. The company had an impressive 4th quarter in 2020, posting earnings of $0.29 per share, beating the analysts’ estimate of $0.20 per share. This strong growth is driven by the company’s acquisition of Quest Nutrition. In the last three months to February 2021, shares of SMPL returned 43%, and the stock still looks fairly priced, making it a good purchase for bargain hunters.
2. Accel Entertainment (NYSE: ACEL)
Accel Entertainment, Inc. installs, maintains, and operates video game terminals in authorized non-casino locations, such as restaurants, convenience stores, bars, or truck stops. The company suffered during the pandemic but looks set to gain from the reopening of the economy as people begin to engage in outdoor activities. In Q1 2020, hedge funds and institutional investors with bullish positions on ACEL increased by about 20% from the previous quarter.
3. Walgreens Boots Alliance (NYSE: WBA)
Walgreens Boots Alliance, Inc. is a health and beauty retail company, with a $43.4bn market capitalization at the time of writing. This stock has a record of underperforming the S&P 500, though it's clawing back up at the moment. Revenue grew 6% on an annualized basis in 2020, driven by the increase in health consciousness among the general population, which saw the demand for drugs and medications surge. Shares of Walgreens returned 34% in the three months to February 2021.
4. Constellation Brands (NYSE: STZ)
Constellation Brands is a producer and distributor of premium beer, wine, and spirits. The company had an impressive 2020 due to the increase of liquor during the pandemic. It posted revenue growth of 12% in Q3 2020 despite the closure of bars and restaurants. Constellation Brands also has an ownership stake in Canopy Growth, as it looks to benefit from the anticipated legalization of Marijuana. Between November 2020 and February 2021, shares of Constellation have returned 17% in the last three months.
5. Dollar General (NYSE: DG)
Dollar General Corporation is a discount retailer operating in the south and the midwestern United States. The company took the visionary approach of expanding its retail footprint, which paid off during the pandemic. The stock received an upgrade from Loop Capital due to its strategic initiatives, which would drive improved financial performance in 2021 and beyond. Shares of Dollar General have slid by 9.48% in the last three months to February 2021.
Expert Tip on Investing in Short-Term Stocks“ When trading short-term stocks, pay close attention to your charts and general technical analysis. In addition to this, you should also watch out for news releases or other fundamental economic factors that could impact the share's price action in the short term. One way experienced professional traders make short-term plays in the market is by going short on a stock that has poor fundamentals, especially after a bubble. ”- Emmanuel Ekwomadu
Why Invest in Short-Term Stocks?
There are many reasons to trade short-term stocks. One of the main reasons is that short-term stocks provide opportunities to make quick profits if the market moves favorably. Professional traders also use them to make diversified portfolios with a mix of long-term and short-term stocks. Finally, short-term stocks provide a way of generating cash flow in the short term.
Frequently Asked Questions
Unlike long-term stocks, which tend to grow gradually over time and yield enormous gains over the long term, short-term stocks are stocks whose price actions tend to move maximally in the short-term and then stagnate. You don’t gain much holding a short-term stock longer than necessary. Short-term stocks are mostly traded with technical analysis, while long-term stocks often require fundamental analysis.
Once the stocks qualify for a short-term play and there are valid trade setups, no time is a bad time for short-term plays. However, the current state of the world means that there is a lot of uncertainty, especially in the short term. So while this could mean investing in short-term stocks could be profitable, the risks associated with investing will be particularly high.
There isn’t one particular type of investor or trader who prefers this type of stock. Anyone can invest in short-term stocks, but it may not be advisable to have only short-term stocks in your Stock & Shares ISA or Self-Invested Pension Plan (SIPP) account.
They can be; however, short-term trading requires a good understanding of technical and fundamental analysis, which beginners may not have. Make sure you understand how short-term trading works before you attempt to trade short-term stocks.
Generally, these stocks are popular because of quick returns within a short time. But if you don’t know how to trade them, they can be a quick way to lose your investing capital.
No, they are traded on weekdays between 9:30 am and 4:00 pm New York Time when the US stock market is open for trading. For the UK market, the stocks are traded between 8:00 am and 4:30 pm when the London Stock Exchange is open.