by Dan Burrows | June 4, 2014 2:50 pm
June is one of the better months for market returns, but historically it’s hardly been a blowout, and that can make finding stocks to buy based on strong technicals a bit of a challenge.
Helpfully, the market had a hot head of steam heading into the month. May is supposed to be a down month for stocks, but sell in May was a mistake this year, as the market gained 2% to notch new all-time highs.
June gains tend to be more muted, but still positive. Since 1928, the S&P 500 has advanced an average of 0.7% this month, according to Yardeni Research. Fortunately, the current updraft in equities means that a large number of stocks have solid technicals ahead of the sleepy summer months.
And stocks with the right technicals and a history of positive June performance should do well in a month that generates only mild gains. Those are the stocks to buy. Happily, a number of stocks from a variety of sectors have the technicals necessary to feel confident about their short-term prospects.
Based on solid technicals and past performance, here are five stocks to buy for June:
Click to EnlargeBall Corp. (BLL) is having a terrific year so far, and the technicals suggest more outperformance to come. Shares in the maker of aluminum cans are up nearly 18% for the year-to-date, beating the broader market by about 13 percentage points.
Price momentum is clearly on the side of BLL stock. For one thing, BLL shares are currently trading 6.9% above their 50-day moving average, and 18% above their 200-day moving average.
True, BLL stock is flirting with overbought territory. The relative strength indicator of 71 is well above the industry average of 53, according to data from Thomson Reuters Stock Reports. But it’s important to remember that it’s not bearish for a stock to be overbought. It merely suggests it could be due for a pullback. That’s a boon for opportunistic investors looking for stocks to buy.
History is also on the side of BLL stock. Based on a decade of data, BLL stock has an implied upside of 0.7% this month, according to Thomson Reuters Stock Reports.
Click to EnlargeShares in most energy majors are struggling this year, but that’s not true for ConocoPhillips (COP), which has the technical strength to keep the stock riding its gains. COP shares are currently trading 6.3% above their 50-day moving average, and 12.8% above their 200-day moving average.
As one of the few energy majors having a strong year, COP’s relative strength indicator is 73 vs. an industry average of 53. Like BLL stock, that means COP stock is getting into overbought territory, but that’s not necessarily a bad thing. Sometimes it pays to run with the herd, at least for a little while.
Additionally, COP stock is entering a seasonally strong period with a history of solid returns at this time. Based on years of past trading, COP stock averages a gain of 1.7% over June and July, easily making it one of the better stocks to buy this month.
Click to EnlargeDiversified machinery companies are having a good year, and although a rising tide lifts all boats, Cummins (CMI) stands out among such industrial stocks to buy. CMI stock is beating the broader market by 5 percentage points so far this year and has the technical strength to outperform in June too.
Among the positive, CMI shares are currently trading 3.3% above their 50-day moving average, and 11.1% above their 200-day moving average. Additionally, CMI has strength, but not so much as to put it into overbought territory. The relative strength indicator of 61 tops the industry average of 52.
Most impressively, CMI stock has a great track record of outperforming in the early summer months. Based on 10 years of data, CMI stock has an implied upside of 2.1% in June, accelerating to 9.9% in July.
Click to EnlargeNot too long ago, supermarket operators like Kroger (KR) looked done for, squeezed between cheaper Wal-Mart (WMT) on one side and fancier Whole Foods (WFM) on the other. But times have changed. Industry consolidation, better pricing and more organic products have Kroger and KR stock back in the game.
KR stock is up more than 21% this year, putting shares 4.9% above their 50-day moving average, and 15.2% above their 200-day moving average. That momentum should help KR stock maintain its record for high June returns. Over the last decade, KR stock has put up an average gain of 2.7% for the month.
The wide outperformance of KR stock has made it very popular, but it’s not quite hitting overbought territory yet, with a relative strength indicator of 66 vs. an industry average of 49. With more upside to come, KR stock deserves a place among this month’s stocks to buy.
Click to EnlargeBlue-chip telecommunications giant Verizon (VZ) isn’t doing much this year, but the technicals indicate that will all change over the next couple of months.
Shares are essentially flat YTD, but with price momentum building since late April, VZ stock should at least market perform this month on a price basis. VZ stock has an implied upside of 0.7% for June based on a decade of trading. Add in the generous 4.2% yield on the dividend and VZ stock should generate a market-beating total return this month.
That price momentum in VZ stock is supported by shares trading 2.6% above their 50-day moving average, and 2.5% above their 200-day moving average. Furthermore, VZ stock is neither overbought nor oversold. VZ stock has a relative strength indicator of 57, while the industry average is 54.
With price momentum, history and a fat dividend on its side, VZ looks like one of the better stocks to buy for June.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
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