May isn’t the cruelest month for the market — that would be September — but historically it’s been tough for investors to find quality stocks to buy.
Over the long run, the S&P 500 has booked an average price loss of 0.2% this month, according to the estimable Dr. Edward Yardeni.
If tactical investors want to swim against the tide, they need to find stocks to buy that are poised not just for outperformance, but for actual gains — because in May, you could historically beat the market by treading water!
Helpfully, we can use price momentum and seasonality to identify stocks with better-than-average outlooks this month. Shares that are making golden crosses, setting new 52-week highs or overcoming key technical levels are more likely to maintain their upside price momentum. Stocks with a history of strong seasonal returns are also worth checking out as potential short-term market-beaters.
And, of course, it’s always good to have a fundamental catalyst or two.
After screening the S&P 500 for stocks with technical strength and strong seasonality, these five names that look like some of the best stocks to buy this month:
Stocks to Buy for May: Amazon.com (AMZN)
As a result, the technicals are following suit.
Fresh off the buy signal of a golden cross, AMZN stock thought about testing support at its 50-day moving average — and then didn’t even get all that close. The stock bounced out of the near-test to put a new 52-week high in sight. The 200-day moving average is also making new highs.
In addition to the upside momentum, AMZN enjoys life as the summer months start to roll in. The stock has gained a modest average of 0.6% in May over the last decade, according to Thomson Reuters Stock Reports.
However, June and July are good for average gains of 1.6% and 3.6%, respectively.
Stocks to Buy for May: Bristol-Myers Squibb (BMY)
This biopharma firm is another company whose stock boasts a history of seasonal strength about this time of the year. Over the past 10 years, shares have gained 2.4% in May and 0.9% in June before cooling off in July.
BMY should average in further gains this time around thanks to technical strength. Shares went ballistic after finding support at the 50-day moving average in March, breaking through the 200-day MA and making a golden cross along the way.
Bristol-Myers Squibb is setting new 52-week highs. True, you’re supposed to buy low … but when a stock hits a new high it tends to keep rising, at least in the shorter-term.
A beat-and-raise quarter adds another tailwind.
Stocks to Buy for May: Cintas (CTAS)
Click to Enlarge Cintas Corporation (CTAS) typically isn’t a killer stocks around this time of year, but it does have a long history of being a May market beater. Over the last decade, it has delivered a price gain of 0.2% — even as stocks in general are down.
CTAS is set to add to that historical performance.
The business services company upped its outlook back in March after beating Wall Street’s profit estimates on solid organic growth.
Earnings of $1.05 per share were a vast improvement over the year-ago quarter’s 85 cents, and they were a dime better than Zacks expectations. Revenues and gross margins also headed higher, thanks to strength in Uniform Rental and Facility Services, as well as First Aid and Safety Services. And for fiscal 2016, the company now says it will see earnings growth of 18.8% to 20.3% on revenue growth of 8.6% to 9.2%.
Beyond the positive seasonality and good fundamental feelings, CTAS is exhibiting technical strength. The stock recently found support at its 50-day moving average after carving out a golden cross about a week ago.
Stocks to Buy for May: Newell Brands (NWL)
Click to Enlarge Shares in Newell Brands Inc (NWL) had a lackluster April but they sure have picked up the pace in May. The stock made a golden cross late last month and have been putting up gains ever since.
Newell beat Street estimates after seeing sales growth in every core business. Adjusted earnings of 40 cents per share topped expectations of 36 cents, and revenues of $1.31 billion topped estimates for $1.28 billion.
Even better, the company issued guidance well ahead of analysts’ expectations, thanks to contributions from the recently acquired Jarden Corp (JAH).
On a seasonal basis, NWL traditionally puts up an average gain of 2.5% in May. With shares close to a 52-week high — and the 50-day moving average making new highs — expect more price momentum ahead.
Stocks to Buy for May: Yum! Brands (YUM)
The operator of Pizza Hut, Taco Bell and KFC clobbered estimates this earnings season thanks to strength in its resurgent China business — the same business it plans to spin off later this year. Namely, the company achieved “better-than-expected core operating profit growth of 21%, driven by 42% growth in our China business,” according to CEO Greg Creed.
YUM has a lot to prove technically, but so far the momentum is to the upside. Shares were corralled by the 50-day moving average for about eight months before finally breaking out in February.
True, April was an uninspiring range-bound affair but two recent developments should give tacticians some optimism. YUM made a golden cross a couple of weeks ago and just completed a successful test of its 50-DMA.
YUM is historically a market beater in May with a 10-year average gain of 0.9%. Perhaps this year it can generate even more. The operator of Pizza Hut, Taco Bell and KFC clobbered estimates this earnings season thanks to strength in its resurgent China business.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.