Some months are trickier than others when it comes to our regular search for stocks to buy. August looks like it’s one of those tricky ones.
The dog days of summer are a traditionally quiet period for market performance. The S&P 500 historically generates a pedestrian price gain of 0.7% for the month — nothing particularly exciting.
But muted upside also lowers the bar for tactical outperformance. To beat the market, a tactical investor needs to identify stocks that are poised to post better-than-average gains this month (and ideally beyond).
Thanks to price momentum and seasonality, among other indicators, we can identify some of these stocks to buy.
Seasonal outperformance and superior technical strength are the way to go for the month ahead. Price momentum in the form of encouraging short- and long-term moving averages also increases the odds of market-beating returns. So, in our screen for stocks, we made sure to limit ourselves to stocks carving out golden crosses. With that buy signal at their backs, it’s easier to have confidence that these companies are the right stocks to buy for August.
From a biotechnology stock to a luxury jeweler, here are the five stocks on our radar:
Stocks to Buy for August: Alexion Pharmaceuticals (ALXN)
Click to Enlarge Alexion Pharmaceuticals (ALXN) was sitting at new 52-week highs late last month before some other big biotechs released disappointing quarterly reports. But now that the sector-wide selling has cooled, ALXN looks set for some strong seasonal gains.
On a fundamental basis, ALXN looks plenty promising. Earnings beat Wall Street estimates by a wide margin despite an increase in costs. Even better, ALXN is expecting seven product approvals through 2018.
But it’s the technical signals and seasonality that make ALXN stock a buy for August. After numerous attempts, Alexion broke through its 200-day moving average and stayed there last month. A sustained run then put ALXN shares through a golden cross last week.
In addition to that buy signal, the market really likes ALXN this time of the year. Over the past decade, ALXN gained an average of 1.6% in August, followed by upside of 2.2% and 4.2%, respectively, in August and September, according to Thomson Reuters Stock Reports.
Stocks to Buy for August: Brinker International (EAT)
Click to Enlarge Brinker International (EAT) has been in an uptrend since the middle of spring. And now that shares are in the midst of making a golden cross, Brinker is poised for a market-beating month.
EAT — best-known for operating the Chili’s restaurant chain — is zigging when much of the rest of the industry is zagging. Whereas some of the biggest chains are selling off their company-owned restaurants, EAT is buying up franchised locations.
If the numbers are right, that strategy will boost earnings and cash flow, and for now, at least, the market approves. It also doesn’t hurt that EAT beat Street profit estimates by a wide margin last time around and is poised to extend its streak when it reports earnings Thursday morning.
In addition to a golden cross, impressive seasonality should add to price momentum in the weeks ahead. EAT rose an average of 2% in August over the past decade, and added another 2.5% in September.
Stocks to Buy for August: Encore Capital Group (ECPG)
Click to Enlarge After finding resistance at its 200-day moving average all year, Encore Capital Group (ECPG) finally broke through a couple of months ago and can now count on it for support. As a result, shares pulled off a golden cross last week and have the price momentum to carry them farther.
ECPG has some macroeconomic factors helping shares too. As a debt collector, ECPG benefits from growth in consumer loans. After pulling back in the Great Recession, credit-card debt is once again on the rise.
Encore Capital is slated to report quarterly results on Aug. 10, and analysts are expecting some solid profit and revenue gains. Indeed, earnings per share are forecast to rise to $1.26 from $1.10 on a 7% top-line increase.
As long as Encore’s earnings don’t disappoint, ECPG stock should be able to maintain its long-term seasonal track record for gains of 2.2% in August.
Stocks to Buy for August: PVH Corp (PVH)
Click to Enlarge PVH Corp (PVH) owns Calvin Klein and Tommy Hilfiger, among other big-name fashion brands, and it kicked off the summer season in style. The company crushed analysts’ profit and sales estimates at the beginning of June, and shares have been grinding higher every since.
It’s not unusual for apparel manufacturers to experience strong seasonality as summer turns into fall, and PVH is among the better performers this time of year. On average, the stock gains 3.3% in August and 2.5% in September. Thanks to its price momentum, PVH should perform to its own high standards this year too.
PVH described a golden cross at the end of July after successfully testing support at its 200-day moving average since mid-June. It broke through briefly last week, but immediately followed that up with a golden cross.
As a result, PVH is poised to cross levels not seen since January. If August plays out like it usually does, PVH stock will maintain momentum as we head to the holiday selling season.
Stocks to Buy for August: Tiffany & Co. (TIF)
Click to Enlarge All multinationals are exposed to the amazing rising dollar, but Tiffany & Co. (TIF) is more sensitive than most. A much weaker yen — and a doubling of the consumption tax — have caused sales in Japan to nosedive. China’s economic slowdown and tumbling stock market are likewise pressuring TIF’s top line.
But after a rocky 2014, Tiffany is expected to start growing again in the quarters ahead, and that’s helping to give shares technical strength. TIF has enjoyed support at its 50-day moving average all summer and finally broke through resistance at its 200-day MA this week.
That has TIF stock in the midst of carving out a golden cross as it hits prices last seen in early January.
This recent price momentum should help Tiffany shares maintain a track record of remarkable August performance. TIF has gained an average of 6.2% August over the past 10 years, 0.5% in September and another 3.9% in October.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.