January is historically a strong month for stocks, so if the tactical investor has any hope of beating the market, he’s got to find stocks to buy that will deliver some outsized upside.
Indeed, the S&P 500 is typically awash with stocks to buy in January. Heck, since 1928, the benchmark index for U.S. equities has generated an average price gain of 1.2%, according to Yardeni Research.
To beat the market, a tactical investor must buy stocks that are poised to post better-than-average gains this month, and thanks to price momentum and seasonality, we can identify some of those stocks to buy.
After screening the S&P 500 for stocks with superior technical strength, we uncovered a range of names that look like great stocks to buy, at least for the month of January. Price momentum in the form of encouraging short- and long-term moving averages and a history of outperformance should conspire to drive market-beating gains.
Decent fundamentals are critical too. Add it all up — the technicals and fundamentals — and these names look like short-term winners, at the very least.
From a biotechnology stock to an airline to a used-car dealer, here are five stocks to buy this month.
Stocks to Buy: Celgene Corporation (CELG)
Click to Enlarge Celgene Corporation (CELG) has been in a long-term uptrend for a couple of years now, so it’s not a stretch to say this biotech stock is poised for more upside — and the technicals and fundamentals all but assure it.
Barclays Capital just initiated coverage in CELG, citing the strength of the company’s Revlimid, Pomalyst and Abraxane franchises, although analysts believe the big upside potential is weighted toward next year.
That said, the technicals make a great case for CELG in January, too. The stock sits well above its 50- and 200-day moving averages, making good on a golden cross carved out way back last summer. Furthermore, CELG exhibits strong seasonality, gaining an average of 3.5% this month, according to Thomson Reuters Stock Reports.
Stocks to Buy: Delta Air Lines, Inc. (DAL)
Click to Enlarge Maybe it’s a rebound in business travel following the holiday lull or the stirring of demand for winter getaways, but Delta Air Lines, Inc. (DAL) typically crushes the market in January. Indeed, over the last decade, DAL stock delivered an average price gain of 5.1%.
Longer-term, the fundamentals are promising as well. Heck, analysts at Imperial Capital say DAL is in the midst of turning itself into a high-quality industrial, “focusing on sustainable operating margins, long-term earnings growth, and substantial free cash flow.”
As for January, the technicals say to buy. The 200-day moving average is a picture of health with that long-term uptrend. With the exception of a hiccup in October when everything sold off, DAL always finds support at its 200-day, too.
Stocks to Buy: CarMax, Inc (KMX)
Click to Enlarge At some point, the fountain of pent-up demand for cars and trucks has got to sputter out, but tumbling gas prices sure are helping fuel extended demand. That’s helping CarMax, Inc (KMX) maintain deliver market-beating return, with more to come this month.
The 200-day moving average is in a long-term uptrend — a sign of a healthy stock. KMX blasted up through its 50-day and 200-day moving average once October’s market selloff burned out, and now stands comfortably above both key levels. (KMX’s summer golden cross was proven to be a buy signal.)
Seasonally, KMX is entering a period of accelerating gains. Historically, KMX gains an average of 1.3% in January, 1.7% in February and a whopping 6.3% in March.
Stocks to Buy: Monster Beverage Corp (MNST)
After flirting with falling below its 50-day moving average for the first half of last year, MNST moved convincingly to the upside five months ago and hasn’t tested resistance at that key level ever since. Heck, MNST has been so strong, October’s market-wide selloff barely registered.
You can thank The Coca-Cola Co (KO) for all that. MNST has been a fundamental and technical buy ever since KO took a 17% stake in the company back in August. Seasonality is likewise on the beverage company’s side. Over the last 10 years, MNST delivered an average January price gain of 3.3%.
Stocks to Buy: Sherwin-Williams Co (SHW)
Click to Enlarge The market is typically very kind to this paints and coatings maker in January, giving Sherwin-Williams (SHW) a long-term average monthly gain of 1.7%. But that’s not all SHW has going for it. Indeed, this is a stock with an impeccable (albeit boring) long-term chart.
There are no bells and whistles with SHW, at least not on a technical basis. You won’t find a death cross or golden cross as you peel back the years. All you’ll find is near-rock-solid support at the 50-day moving average, and great reluctance to even test the 200-day moving average.
No wonder SHW has quietly destroyed the market over pretty much any time frame you care to chart.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.