February isn’t typically a good month for equities, and this year is shaping up to be even worse. Indeed, the S&P 500 loses an average of 0.1% in the second month of the year, according to Yardeni Research. With 2016 off to a terrible start — the broader market is off 7% for the year-to-date — February is shaping up to be a particularly tough month.
If tactical investors have any hope of eking out gains this month, they need to find some market-beating stocks to buy. A good way to raise the odds of finding winners is to look for stocks with some basic technical strength and a history of market-beating seasonality.
With so much of the market in the dumps, it’s hard to find buy signals. But they do exist, which is all the more impressive given market currents.
As for seasonality, despite the market’s historical dislike of February, a wide swath of equities bounce back this month after suffering a post-holidays hangover.
The bottom line is that there are stocks to buy with upside price momentum even in a down market. After screening the market for favorable technicals and seasonality, these five stocks stood out:
Stocks to Buy: Coach Inc (COH)
Shares popped on the earnings news, sending them through the buy signal of a golden cross. It’s also reassuring that technical strength has been building for some time.
COH stock broke resistance at its 50-day moving average about three years ago and has since found it to be a reliable level of support.
Seasonality is favorable too. COH has gained an average of 2.3% in February over the past decade, according to Thomson Reuters Stock Reports. Typical gains for March and April are 2.7% and 8.1%, respectively.
Stocks to Buy: Computer Programs & Systems, Inc. (CPSI)
CPSI is up more than 15% for the year to date and is generating ever more technical support. Shares recently went through a golden cross after finding long-lost support at the 200-DMA.
A solid earnings report helped spark the recent rally, but technicals suggest upside momentum is still building. CPSI is only a couple of percentage point off from its 52-week high.
The 0.2% average gain for February isn’t all that impressive, but that still outperforms the S&P 500. Happily, CSPI typically follows that up with an increase of 4.3% in March.
Stocks to Buy: Dollar Tree, Inc. (DLTR)
Indeed, DLTR’s Thomson Reuters price momentum rating is at a three-year high now that it can rely on support from both its 50- and 200-DMA.
A strong quarterly showing helped get this run going, as did the completion of a tricky merger with Family Dollar, but that’s not all DLTR has going for it.
Shares historically love this time of year, rising an average of 5.7% in February and 5.9% in March.
Stocks to Buy: Domino’s Pizza, Inc. (DPZ)
Click to Enlarge Investors must be looking ahead to March Madness, judging by the price momentum in Domino’s Pizza, Inc. (DPZ) stock. Heck, DPZ’s momentum rating is at a three-year high after gaining 4.5% over the last month.
The upcoming pizza season partly explains DPZ’s impressive track record around this time of year — a phenomenon we also see with other purveyors of pizza and wings.
Shares have gained an average of 5.4% in February over the last 10 years. DPZ has followed that up with increases of 2.8% in March and 6.2% in April.
This year’s February shouldn’t disappoint. DPZ just carved out a golden cross to put it just 5% below its 52-week high.
Stocks to Buy: Rovi Corporation (ROVI)
In fact, ROVI hasn’t look this good in nearly a year. ROVI stock at long last broke through resistance at its 50- and 200-DMAs at the end of last year and hasn’t looked back.
ROVI made a golden cross toward the end of January and is now sitting on a year-to-date gain of more than 12%. That beats the broader market by more than 20 percentage points.
Shares should enjoy even more outperformance in February. On a seasonal basis, ROVI gains an average of 6.3% in the second month of the year.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.