Finding stocks to buy for February generally requires that a tactical investor zig when the market zags. That’s because the current month is among one of the worst for historical market performance. Since 1928, the S&P 500 lost an average of 0.1% in February, according to Yardeni Research.
Finding stocks to buy now becomes even more challenging given the soft start to 2015. Growth worries and a less-than-spectacular earnings season sure aren’t helping stocks. The remarkably strong greenback is pinching corporate revenue on a grand scale, while the collapse in oil prices is destroying the energy sector.
This confluence of headwinds makes finding stocks to buy for short-term outperformance particularly challenging. With so much working against the market these days, it wouldn’t be surprising if February fulfills its traditional role as a down one for stock performance.
That means the path of least resistance for most names is down, but there are stocks with the right technicals and seasonality to go against the flow this month. These are the stocks to buy.
We screened the S&P 500 for stocks with strong technicals and price momentum, paying particular attention to names with striking distance or setting new 52-week highs — always good candidates for stocks to buy.
Just as importantly, we zeroed in on stocks that are entering a period of strong seasonality for both February and beyond. Taken all together, technicals and trading history suggest these five names are stocks to buy for February.
Stocks to Buy — Apple Inc (AAPL)
Click to EnlargeApple Inc (NASDAQ:AAPL) pretty much always looks like a stock to buy these days on fundamentals alone. AAPL just reported record results for the fourth quarter on the runaway success of iPhone 6 and iPhone 6 Plus. The stock is a market darling again, and the current iPhone cycle should keep it that way for a while.
Happily, the technicals are behind AAPL stock too. Momentum abounds, for one thing. AAPL is on the cusp of a 52-week high. New highs usually build on themselves to generate more new highs, so AAPL’s proximity to the high should be a powerful technical catalyst for more to come.
It’s also bullish that AAPL is entering a an extended period of historically strong performance. Over the long term, AAPL generates an average gain of 2.6% in February, according to data from Thomson Reuters. March and April are good for upside of 5.3% and 6.5%, respectively.
Stocks to Buy — Aetna Inc (AET)
Click to EnlargeInsurance sure is boring, but there’s nothing dull about market-beating performance, and Aetna Inc (NYSE:AET) is primed to outperform over the weeks ahead. Seasonally, AET is entering a two-month period of historical outperformance, gaining an average of 2.2% in February and 1.9% in March.
True, past performance is not indicative of future returns, but AET is kicking off the month with a head of steam. Indeed, AET sits just 2% below its 52-week high. As noted above, new highs tend to lead to more new highs.
AET is also trading comfortably above both its 50-day and 200-day moving averages. Even better, the 200-day is in a long, unbroken uptrend — a sign of a healthy stock. AET hasn’t violated its 200-day moving average definitively for more than a year. At the same time, AET hasn’t even tested support at its 50-day moving average for more than three months.
Stocks to Buy — Clorox Co (CLX)
Click to EnlargeClorox Co (NYSE:CLX) posted surprisingly strong quarterly results Wednesday and — even better — lifted its outlook. That’s all the more remarkable given what the strong dollar is doing to multinationals. Moreover, CLX has significant exposure to the rapidly deteriorating situation in Venezuela.
If Clorox’s fundamentals look better, so too do its technicals and seasonal history. CLX set a new 52-week high in early Wednesday trading, and that means all the momentum is to the upside. There’s also something comforting about the fact that ever since CLX made a golden cross in September, shares are trading solidly above their 50-day moving average.
Historically, CLX is entering a three-month period of market-beating performance, according to data from Thomson Reuters. Over the last 10 years, CLX generated an average gain of 1.4% in February, 2.1% in March and 1.7% in April.
Stocks to Buy — Walt Disney Co. (DIS)
Click to EnlargeWalt Disney Co. (NYSE:DIS) to enjoy a better-than-expected quarter, thanks to theme parks and the year-old movie Frozen, and now DIS stock is hitting all-time highs. Given that momentum and strong seasonality, DIS looks good for more gains this month and beyond.
With the exception of the broader market selloff in October, DIS hasn’t come anywhere near testing support at its 200-day moving average in more than a year. And as for the 50-day moving average, DIS has tested support at that key levels plenty of times over the last 52 weeks, but it’s never decisively broken through.
In addition to those key technical levels supporting more upside in DIS stock, this name has a history of strong returns from February though April, rising an average of 3.2%, 2.3% and 3.2%, respectively over the last decade.
Stocks to Buy — Nordstrom, Inc. (JWN)
Click to EnlargeUpscale retailer Nordstrom, Inc. (NYSE:JWN) is in the midst of a pretty long winning streak. Shares have been in an uptrend for five years, a period in which JWN stock more than doubled. Where middle- and mass-market department stores have struggled — in some cases for survival — JWN just keeps building on success.
Most recently, JWN enjoyed a strong holiday selling season, but the market is even more enthused about the expansion of its Nordstrom Rack retail concept. (Luxe outlet stores are the new big thing.)
As a result, JWN is ready to take out its 52-week high during a period of very favorable seasonality. JWN adds an average of 2.3% in February, 3.2%in March and 4.6% in April. Key technical levels are also behind shares. JWN hasn’t come close to testing its 200-day moving average in about four years as it always finds rock-solid support at its 50-day moving average.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
