Contrary to popular belief, August is not a bad month for the stock market — which means it’s OK to keep looking for stocks to buy with any dry powder you might have. Trading volume might be sleepy thanks to vacationing market participants, but that hasn’t prevented stocks from posting gains in the past.
Indeed, since 1928, the S&P 500 has gained an average of 0.7% in August, according to Yardeni Research. Hardly heady returns — August stands as only the sixth-best month for market performance — but it does mean you should be able to find stocks to buy for short-term outperformance.
However, finding stocks to buy for August also means keeping an eye on September — by far the worst month for market performance. During the past 86 years, the S&P 500 has lost an average of 1% in September. That means you’ll want to target equities with the technical strength to maintain price momentum through next month’s expected broader weakness.
Technical analysis comes in handy when looking for stocks to buy. Strong technicals and superior seasonality tilt the odds in your favor for fining winners.
We screened the S&P 500 for stocks showing everything from price momentum to positive historical returns to find stocks with compelling technicals. Based on these strengths, here are five stocks to buy for August:
Stocks to Buy for August – Apple (AAPL)
Click to Enlarge The best reason Apple (AAPL) belongs on many investors’ lists of stocks to buy these days is that it’s being propelled higher by the anticipated launch of iPhone 6. (It’s expected to land in September.)
Happily, AAPL technicals make a good case for the stock too.
Apple stock recently broke above its 50-day moving average, sitting 1.5% above that line. This suggests momentum will deliver more immediate upside in the weeks ahead. AAPL also trades a comfortable 16% above its 200-day moving average.
Seasonality is very much in favor of AAPL, as well. Over the last decade, Apple stock has posted an average gain of 4.3% in August and 5% in September, according to data from Thomson Reuters Stock Reports.
As for relative strength, AAPL has a relative strength index (RSI) reading of 50, making it neither overbought nor oversold. Expect that indicator to inch up as traders pile in ahead of the iPhone launch.
Stock to Buy for August – Dr Pepper Snapple (DPS)
During the past 10 years, DPS has returned 3.4% in August on a price basis, and another 2% the following month.
Meanwhile, the beverage maker just broke above its 50-day moving average by 0.2%. That alone positions DPS for gains on price momentum — after all, it has found support at that level twice in the past few weeks. DPS stock also stands 12% above its 200-day moving average.
Like AAPL stock, DPS is neither overbought nor oversold, with an RSI of 48. However, a little more than a week ago, Dr Pepper shares hit overbought territory and are cooling off from that technical milestone. It looks like buyers should step in fairly soon as DPS stock nears oversold conditions.
Stocks to Buy for August – Lowe’s (LOW)
Shares in the home-improvement retailer deliver solid gains through August and September. Or at least they have in the past. LOW stock rises an average of 3.2% in August and 2.1% in September. Those kind of returns land any equity on a list of stocks to buy.
Like AAPL and DPS, LOW stock recently busted through its 50-day moving average on the way up. It’s trading 0.7% above that key level. Although it’s been coming up against resistance at the 50-day, seasonality suggest LOW should finally be able to use it for support. LOW stock is also fractionally above its 200-day MA.
LOW stock has an RSI of 48, as it has been cooling off from overbought conditions in July. Seasonality suggest LOW stock will soon come close enough to oversold territory to bring traders in.
Stocks to Buy for August – Microsoft (MSFT)
Click to Enlarge Microsoft (MSFT) isn’t really wowing anyone with its seasonality and technical strength, but it has been very reliable for market-beating performance when stocks hit broad turning points.
MSFT stock sits comfortably above above its 50- and 200-day moving averages, by 2% and 10%, respectively. Indeed, the 50-day has been providing support for six straight months. And it hasn’t come close to testing its 200-day moving average all year.
Even better, with an RSI of 36, MSFT stock is getting very close to entering oversold conditions. Although it usually takes a while for that to suck in opportunistic traders, you can bet that they will come soon.
Lastly, MSFT stock has a good track record at this time of the year. It’s gained an average of 1.3% in August and 0.4% in September over the last decade. Those are solid, market-beating returns, landing MSFT on our list of stocks to buy.
Stocks to Buy for August – Under Armour (UA)
Click to Enlarge Under Armour (UA) has been blasting past a key level on the way up (and on the way down) throughout 2014, but for now the technicals say it has enough momentum to post gains for the next couple of months.
UA stock resides 15% above its 50-day moving average. Although it broke below that level for a couple of months in the spring, these days it’s offering support. Meanwhile, UA stock hasn’t come close to testing its 200-day moving average in almost three months, trading a very comfortable 34% above that marker.
UA’s relatively short trading history shows it to be a positive underperformer in August, gaining an average of 0.2%. The seasonality really kicks in next month, when UA typically rises nearly 6%.
If there’s a caveat, it’s that UA’s RSI of 79 puts it well within overbought territory. However, stocks can stay overbought for weeks or months at a time, as UA stock has done repeatedly this year. Shares are coming off Street-beating earnings with a number of fundamental catalysts, as well.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.