For all the excitement of markets notching or closing in on all-time highs, stocks haven’t really gone anywhere in a couple of months. Volatility doesn’t make it feel this way, but after crawling out of a deep hole early in the year, the S&P 500 has been fairly rangebound. Indeed, as of Wednesday’s open the broad market index was still at a level it first crossed in early March.
Price momentum, a solid relative strength index and promising seasonality are three elements you’ll find in short-term stocks to buy. If they’re well-known large- and mega-caps, so much the better.
It also helps if the stocks to buy in question are outperforming or even crushing the market so far in 2014. No, certain technicals wouldn’t be there if they weren’t, but there’s an added benefit to such gains. Be they individual investors or institutional ones, most people can’t help but chase performance.
In such a flat year for stocks, investors greedy for gains or just trying to protect their careers would be hard-pressed not to pile into technically strong, market-busting stocks.
After scouring key technicals, these are the top five stocks to buy in May:
Stocks to Buy in May: Apple (AAPL)
AAPL is up a respectable 6% for the year-to-date, beating the S&P 500 by more than 4 percentage points. That has Apple shares trading 10% above their 50-day moving average, and 14% above their 200-day MA, according to data from Thomson Reuters.
Furthermore, on a scale of 0 to 100 (with 100 being the best), AAPL stock has a relative strength indicator of 70, by Thomson Reuters’ last count. The industry average stands at 44.
Seasonality is also very much behind AAPL stock as we work through spring. Based on historical performance, Apple has an implied upside of 3.4% in May. Yes, AAPL stock tends to retreat by about 1% in June, but it follows that up with an 8.6% gain in July.
As exciting as products launches and a 7-for-1 stock split might be, technicals alone make AAPL one of May’s stocks to buy.
Stocks to Buy in May: SanDisk (SNDK)
The foray SanDisk (SNDK) is making into speedier solid-state computer memory is paying off. Quarterly earnings and revenue topped Wall Street forecasts, as did its sales forecast. That’s helping fuel price momentum in SNDK stock.
SanDisk is up 22% for the year-to-date, beating the broader market by more than 20 percentage points. At the same time, SNDK shares are trading 8.5% above their 50-day moving and 24.6% above their 200-day moving average, according to data from Thomson Reuters.
From 0 to 100, SNDK stock has an RSI of 66 vs. an industry average of 44, according to Thomson Reuters data, and history is on SanDisk’s side, too. Based on a decade of performance, SNDK stock has an implied upside of 1.4% in May. It pulls back much more than Apple in June (about 6%), but typically rebounds in July with a 6.3% gain.
Business is brisk, the fundamentals look fine and the technicals too say SNDK is among the top stocks to buy this month.
Stocks to Buy in May: Walt Disney (DIS)
Walt Disney (DIS) had a huge hit with its animated feature Frozen last quarter. That helped DIS crush expectations and promises good news ahead, as DIS leverages the new franchise for every earnings per share it can get.
Earnings were just the latest catalyst for a stock that’s having a solid year. DIS is up 7% for the year-to-date, leading the S&P 500 by about 5 percentage points. As such, DIS shares are trading 1.2% above their 50-day moving average, and a whopping 12.5% above their 200-day MA.
As far as RSI goes, Disney sports a 47, just slightly higher than the industry average of 44. Seasonality is also favorable for DIS stock. Historical performance makes the implied upside for May a 2.8% gain. DIS stock shares June woes with the other entries on this list, but then bounces back with another slight gain in July.
DIS is hot, no doubt. It’s hardly a contrarian trade. But the price momentum still makes it one of the top stocks to buy in May.
Stocks to Buy in May: Alcoa (AA)
Ever since Alcoa (AA) got kicked out of the Dow Jones Industrial Average, it seems AA stock can do no wrong. The Street really likes AA’s shift toward more value-added — and higher-margin — products.
The optimism has AA stock up a 25% so far in 2014. AA shares are trading 5.3% above their 50-day moving, and 30.1% above their 200-day moving average, according to Thomson Reuters data.
From 0 to 100, AA stock has a relative strength indicator of 54, which is slightly better than the industry average. That also means it has momentum at its back.
True, based on the last 10 years of data, AA is heading into a flat-to-slightly down period of seasonality. Implied returns have it losing 0.3% in May and 3% in June, but rising 0.2% in July, which doesn’t exactly scream strength.
But AA is a different company today than it was for the last decade. The market is actually excited about it. The technicals break in favor for AA stock, which is why it’s among the top stocks to buy this month.
Stocks to Buy in May: Oracle (ORCL)
Considering that the Nasdaq Composite lost more than 3% so far this year, Oracle (ORCL) has been a technology portfolio lifesaver. Indeed, with so many catalysts, ORCL is close to levels it last saw in 2000.
Momentum suggests it will get there soon. ORCL shares are currently trading 3.7% above their 50-day moving average, and 13.9% above their 200-day MA, according to data from Thomson Reuters. Furthermore, ORCL stock is killing the competition when looking at its relative strength indicator. On a scale of 0 to 100, ORCL has an RSI 59 vs. an industry average of 44.
Seasonality likewise breaks in favor of ORCL stock. Historical data gives ORCL stock an implied loss of 0.3% in May, but gains of nearly 1% and half-a-percent in June and July, respectively.
Like AA stock, ORCL could have stronger seasonality, but then it hasn’t been this hot for much of the past decade either. A look at the total technical picture makes ORCL one of the top stocks to buy in May.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.