Don’t spy for stocks to buy — sell in May and go away! This mantra has been chanted by investors and media alike for weeks — especially this week, as the S&P 500, Dow Jones Industrial Average and other major indices have suffered from selling pressure.
But is it really that easy? Can you beat the market simply by putting your investments into cash for the summer?
Believe it or not, the answer is yes. For the past 25 years, the S&P 500 has struggled through the summer months. The average monthly return for the months of June through September is -0.2% — far less than the average for any month of the year, which is historically about +1% per month.
However, while the market is difficult to navigate over the summer, it doesn’t mean you should give up on finding any stocks to buy for upside. There are always opportunities out there — you just have to know where to look.
We scanned our database models to find stocks that usually bulk up during the summer months, and we found 10 from the S&P 500 that have moved higher in each of the past five years. In fact, the average return from this group from the period of May through the end of August is 10% — not bad for the summer doldrums.
We’ve culled the list of a couple stocks that don’t look particularly appealing right now, giving us eight great stocks to buy now if you’re looking to clobber the market this summer:
Summer Stocks to Buy: Amazon (AMZN)
Amazon.com, Inc. (AMZN) just pushed out a fantastic earnings report, and now it’s ready to take its place among the best stocks to buy now for a summer trip higher.
From a technical perspective, this has become one of the stronger stocks in the S&P 500 as we head into the summer. Amazon stock has been up all of the last five summers for an average of 12%, with its best of those five years being 2015 when it rallied 21%.
AMZN shares screamed higher after a fantastic earnings release last week. We’re watching the consolidation around the $660 level, because if Amazon holds this mark, we’ll likely see the stock continue its strength right through summer.
Summer Stocks to Buy: Alphabet (GOOG, GOOGL)
Maybe it’s because we’re all searching for something to do on vacation, but Alphabet Inc (GOOG, GOOGL) is a perennial performer over the summer months. Five of the past five years have seen average gains of 9% over the summer — much better than the market’s average returns.
Recently, after earnings, Alphabet stock pulled back to the $700 level, which is also just under its 200-day moving average.
Still, GOOGL stock should receive some support from the technical buyers at this point, as it is one of a declining number of technology stocks that remain in a bull market trend.
Summer Stocks to Buy: Visa (V)
OK, let’s continue with the vacation theme as we talk about Visa Inc (V).
Visa stock has an average return of 6% over the summer months. Looking at the breakdown of Visa’s summer returns, it sticks out that there is very little deviation in the return numbers.
In other words, V stock is a steady Eddie.
The chart for Visa is pretty nice, too, as the stock has been a strong relative strength performer against the broader market. We’ve seen a pullback from Visa’s new highs over the past two weeks after the payment solutions company’s earnings report, but shares now are in position to benefit at the $75 level.
Summer Stocks to Buy: Dollar General (DG)
Discount retailer Dollar General Corp. (DG) is another of the summer performers from our model’s scan.
Maybe the cheap sunglasses, snacks and sunscreen help — who knows? — but Dollar General stock averages a return of 6% over the past five summers, finishing positive in each, and easily making this one of the best stocks to buy for the coming months.
Shares of Dollar General surged higher in March on a positive earnings report and in-line guidance. Since then, shares have been consolidating in the mid-$80s. The consolidation may be setting up a rally point for DG, as technical trendlines are now in place to help push it higher.
We expect shares to target another positive summer of returns — likely near 10%.
Summer Stocks to Buy: Reynolds American (RAI)
Getting away from the summer theme, we focus on a company that offers three advantages.
- First, Reynolds American, Inc. (RAI) shares are part of the consumer staples sector which has grown more attractive as a defensive play against market uncertainty.
- Second, RAI shares pay a nice 3.4% dividend yield, which makes it attractive for income investors while rates remain low.
- Finally, Reynolds American shares have finished all of the last years of summer months positive with average gains of 6%.
RAI currently is trading about 6% from its recent all-time highs and is preparing to move back above the key 50-day moving average.
The recent pullback may have been some profit-taking, and there’s nothing wrong with that. In fact, it’s giving investors who aren’t already long Reynolds American a cheaper entry price.
Summer Stocks to Buy: Under Armour (UA)
Under Armour Inc (UA) had been relatively weak over the past three months as the stock’s performance left the S&P 500 in the dust. Admittedly, shares have recently pulled back a thick 17% as corporate changes caused investors to re-think holding the stock.
However, we’re seeing things differently.
Over the past five years, UA stock has finished the summer months with an average return of 23%. What’s more: The returns have been relatively consistent, with the worst performing summer period netting 18%.
Under Armour shares are sitting on long-term technical support as it trades around $40. We see a successful test of this support as a sign that summer’s ready to take Under Armour higher.
Summer Stocks to Buy: TJX Companies (TJX)
Another retailer that appears to benefit from the summer months is TJX Companies Inc (TJX), owner of the familiar TJ Maxx stores. TJX has ended all recent summers positively with an average return of 6% (Note: There’s a clear trend with 6%) with relative consistency.
The current chart for TJX Companies is attractive for a pair of reasons.
- First, the stock has been a relative strength leader against the broader market and its industry peers.
- Second, the shares trade with less volatility that the broader market, which is valuable in this environment.
Currently, TJX Companies is hovering around the $76 level. The company is set to announce its latest earnings results on May 17, and the past few quarters have shown both revenue growth and EPS upside surprises at a time when the rest of the market is struggling to do that.
Expect a positive earnings result on May 17 to spark the summer rally.
Summer Stocks to Buy: Regeneron Pharmaceuticals (REGN)
In general, we’ve been avoiding the pharmaceutical sector because both the political and fundamental environments have conspired against pharma and biotech stocks alike.
Regeneron Pharmaceutical Inc’s (REGN), however, belongs on our list of stocks to buy now because of some seasonality that should finally give the stock some relief: That is, for the past five summers, Regeneron has averaged a return of 10%.
There’s a little more to the trade, though.
Regeneron Pharmaceuticals just announced earnings results that beat analyst expectations and showed year-over-year revenue growth of 38%. This positive fundamental news should give way to a summer-months rally.
The chart shows a long-term bottom for REGN at $360 per share — the level that shares just bounced from. We think an opportunity is upon us right now.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.