Finding stocks to buy for short-term outperformance is just a little bit harder in May. “Sell in May and go away” is a myth, but the month of May does have a habit of generating disappointing returns. With an average pullback of 0.2% since 1928, May is the second-worst month for stock market performance, according to Yardeni Research.
Furthermore, it comes against the backdrop of a weak year for equities as it is. The market is up just 1% year-to-date and has been stuck in a very tight range for since early 2015.
With corporate earnings and outlooks doing stocks no favors, uncertainty over a Federal Reserve rate hike, and an economic soft patch, it’s hard to see what could get the market moving any time soon.
But that doesn’t mean there aren’t any stocks to buy for May, even if you’re just looking for some short-term outperformance. Indeed, thanks to some favorable fundamentals, technical green flags and encouraging seasonality, some of the biggest, hottest names in the S&P 500 look like stocks to buy for this month.
From golden crosses to new 52-week highs, these stocks are running on upside price momentum:
Stocks to Buy: Capital One Financial Corp. (COF)
COF reported strong results in its domestic card segment when it released first-quarter earnings at the end of April. Auto loans also contributed to growth. Furthermore, cheap gas is pressuring volumes at card issuers, but COF has held up well.
On a technical basis, COF just made a golden cross — a strong buy signal — and appears to have definitively found support at its 200-day moving average. And for all the ups and downs COF has had this year, it remains within striking distance of a 52-week high.
Seasonality is also in COF’s favor. Over the last 10 years, COF has averaged a gain of 3.8% in May, according to data from Thomson Reuters Stock Reports.
Stocks to Buy: Dow Chemical Co (DOW)
The market is applauding DOW’s move to slash 3% of its global workforce ahead of its impending spinoff of the chlorine business. (As painful as they are, the market loves job cuts.)
Seasonally, DOW has averaged a May loss of 0.5% over the last decade, but shares are set up to buck the trend this time around.
DOW is in the midst of cutting a golden cross. It’s also closing in on a new 52-week high. And with a 12% gain for the year-to-date — versus 1% for the S&P 500 — sentiment is clearly favorable on this name.
Stocks to Buy: Google Inc (GOOG, GOOGL)
Click to Enlarge Google Inc (NASDAQ:GOOG, NASDAQ:GOOGL) has been falling in price ever since first-quarter earnings missed Wall Street estimates on both the bottom and top lines, but that selloff looks to have run its course.
GOOGL carved out a golden cross just sessions ago, suggesting the loss of 7.5% since earnings is bottoming out. On the downside, GOOGL hasn’t found support at its 50- or 200-day moving average for more than a year, but then its 50-day hasn’t crossed above its 200-day during that time either.
Concerns remain about declining cost-per-click rates, and it has missed Street earnings estimates in seven of the last nine quarters, but growth is still plenty strong. Revenue rose 11% last quarter and would have grown 17% were it not for the effects of a stronger dollar.
On a seasonal basis, GOOGL averages a gain of 3.1% in May.
Stocks to Buy: Apple Inc. (AAPL)
AAPL is off nearly 7% since the end of April, and that provides investors an opportunity to buy the dip. Hey, it’s always worked before, and the launch of the Apple Watch has the market very excited.
Apple fell through its 50-day moving average on the latest selloff, but it never violates that key level for very long. Indeed, rather than offer resistance, AAPL uses a drop below the 50-day as a springboard for a strong move to the upside. Besides, there’s nothing suspicious about AAPL cooling off after notching a record intraday high a week-and-a-half ago.
As for seasonality, AAPL historically gains an average of 3.6% in May.
Stocks to Buy: Netflix, Inc. (NFLX)
Click to Enlarge It would have been better to buy Netflix, Inc. (NASDAQ:NFLX) before it vaulted to a new record high about a month ago, but the technicals suggest that its current momentum will carry it in May too.
Netflix stock made a golden cross in mid-March and hasn’t looked back since. Heck, NFLX is up more than 25% since flashing that buy signal. Shares also are within close range of their 52-week high, which tends to propel stocks to further gains.
Upside momentum can also be seen in NFLX trading trading 19% above its 50-day moving average and 33% above its 200-day moving average. And as for the 200-day, it’s been in an uptrend since late January, which is a sign of a healthy stock.
This is also a good time of year for Netflix stock. Historically, it puts up an average gain of 3.8% in May. With subscriber growth going bonkers, the market can’t get enough of this name.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.