“Sell in May and go away” — this phrase is so commonplace that investors usually take it for granted. Ignorance, though, is a recipe for disaster, particularly when it comes to the financial markets. Research doesn’t guarantee profitability, but it absolutely is better than throwing darts in the dark.
Fortunately, this aphorism has real, quantifiable gravitas, and that sets up opportunities for bargain stocks.
According to Forbes, historical data indicates that the “best returns on Wall Street occur during November-April and the worst returns occur during May-October.” University of Miami professor Michael Fuerst concurred, stating that the aphorism’s implications are “persistent and it’s economically just as strong as it was then.”
Of course, the “sell in May” strategy won’t work every single time. However, investors can improve their odds of picking up profitable fall bargains in just a few days’ time.
Multiple theories exist about the strategy’s effectiveness. Compounding matters is that this May effect is witnessed throughout the world, based on professor Fuerst’s analysis. Thus, bargain stocks to buy is not an exclusively American phenomenon.
Admittedly, however, picking up fall bargains on a mystery phenomenon isn’t easy.
One aspect that was clarified through professor Fuerst’s research is that weather patterns are not the answer. A commonly held belief was that traders sell in May before they head off to summer vacation. But that wouldn’t hold in Brazil, where the summer season begins in December.
Regardless of what causes this trend, it does create the incentive to pick up bargain stocks. For this particular list of fall bargains, I’m focusing on names that make sense seasonality wise, and not just on an old, but apparently accurate, aphorism.
So here are five bargain stocks you’ll want to buy after the Sell in May numbers are in.
Fall Bargain Stocks: Wynn Resorts (WYNN)
For some of the best fall bargains, look no further than Sin City! According to U.S. News, one of the most popular times to visit Las Vegas is during the fall season. As the atrociously hot summer heat fades away, tourists can enjoy more than just the technology of air conditioners. Also, that time of the year is loaded with major holidays, representing a big boost for Wynn Resorts, Limited (NASDAQ:WYNN).
Hunters of bargain stocks need to listen up! Wynn Resorts definitely reacts favorably to the May strategy. Since 2003, WYNN stock has produced superior performance during the second half of the year 57% of the time. So picking up WYNN stock while others are selling is a mathematically sound approach.
Even better, investors that have done this very thing have averaged 13% profitability.
To put minds at ease, InvestorPlace’s Navellier Ratings ranks WYNN as a solid “B.” Sales growth and return on equity are cited as standout metrics. On the risk side, investors should be aware that earnings performances have not always kept pace with expectations, beating or meeting them in five of the last eight quarters.
Overall, WYNN is a great pick among fall bargains, as seasonal demand is fairly consistent. This should only improve as the labor market continues its rise.
Fall Bargain Stocks: Vail Resorts (MTN)
Sometimes, the most obvious trends are the best ones, as Vail Resorts, Inc. (NYSE:MTN) demonstrates. Vail is a holding company, specializing in mountain lodging and ski resorts. As such, core demand doesn’t pick up until the late fall to winter season. Also, snow storms typically occur in the middle of spring, making MTN an ideal stock to abandon at this time.
Shrewd investors, though, should use this “sell in May” dynamic to their advantage. Since 1997, 15 years out of the past 20 have resulted in higher returns in the second half. That sharply skewed statistic alone is enough reason to consider MTN as one of the prime bargain stocks to buy. On average, investors have gained nearly 10% by going against the grain.
However, don’t mistake MTN as a mystical contrarian play. Over the trailing five years, shares have consistently registered strong numbers, up over 380% compared to 70% for the S&P 500. To confirm the enthusiasm, the Navellier Rating ranks MTN stock as an “A,” citing solid earnings growth and strong technical momentum.
Another Wall Street aphorism is “the trend is your friend.” For MTN stock, its price chart definitely looks friendly for your wallet.
Fall Bargain Stocks: DeVry Education Group (DV)
Anyone looking to advantage fall bargains must look into publicly traded education stocks. This is a sector where I don’t have to point out the obvious trend. From day one, we learn that fall is the back-to-school season. While that strikes fear in the under-18 crowd, for investors, it can be a goldmine. This is particularly true for DeVry Education Group Inc (NYSE:DV).
For starters, DV is geared towards those who want to learn. Typical students include workers who’ve had a taste of the “real world” and want to get ahead in life. As expected, DV stock noticeably performs better at the end of the year. Since 1992, second-half pricing for DeVry shares exceeded the first half 64% of the time. On average, this has produced average returns of 5%.
Admittedly, that’s not the greatest rate of profitability. However, DV is exceptionally volatile during economic recessions. The aftermath of the Sept. 11, 2001, attack, as well as the 2008 financial crisis, hurt DeVry badly. But during stable periods, returns are typically in double-digit territory.
With the economy steadily gaining traction, DV could be one of the best-looking bargain stocks heading into fall.
Fall Bargain Stocks: Columbia Sportswear (COLM)
For fall bargain stocks, Columbia Sportswear Company (NASDAQ:COLM) is a very logical choice. This piece of advice is not coming from your broker; instead, it comes from the fashion industry.
Obviously, clothing retailers cycle their on-hand inventory based on the season. However, they must acquire their products ahead of time. By investing based on this procurement schedule instead of the consumer schedule, you can secure some easy profits with COLM.
Columbia sells a wide range of clothing and outdoor gear, so technically, they’re an all-season company. At the same time, who are we kidding? COLM is mostly known for their winter-weather clothing and accessories, and it shows in the markets. Going back to 1998, second-half performance figures outgunned the first half 63% of the time. This decade’s fall and winter season has been noticeably favorable to COLM, producing higher profitability five out of seven years.
The main risk factor with COLM is that it trades on the speculative end of the markets. This is mainly due to its recent lack of technical momentum. Navellier Ratings currently rates COLM stock as a “D.” However, it cites positives in earnings growth, operating margins and cash flow. Free cash flow has been positive since 2012, and hit $225 million last year. Given that the job market is improving, I expect more discretionary income to flow into the retail sector overall.
That spells potentially big news for COLM, especially as a fall bargains play.
Fall Bargain Stocks: Silver Wheaton Corp. (USA)
Among bargain stocks, Silver Wheaton Corp. (USA) (NYSE:SLW) is easily one of the most speculative. For starters, SLW is levered towards the silver mining sector, which is fraught with risk. In fact, mining stocks put Tom Cruise’s character Cole Trickle in the predicament he was in at the beginning of the film “Days of Thunder.” So no, mining stocks, especially the silver variants, are not something you want to take lightly.
The other matter is that based on the pure data, SLW doesn’t perform that much better in the second half. Actually, the stats are almost 50/50. And when you look at the underlying silver market, the odds worsen. So why in the heck does SLW belong in the fall bargains list?
Again, it all comes down to speculation. When the markets turn favorable for precious metals, silver inarguably performs better on average during the fall and winter. The overall negative stats result from pronounced volatility. When silver is on, it’s on bigly. When it’s off, it’s off bigly.
That pretty much sums up the story for SLW. However, the precious metals have experienced a string of ugly. Chances are, these commodities will “correct” back to the upside. Also, improving economic conditions are positive for silver, which has substantial industrial and practical properties.
No doubt, SLW is a huge gamble. However, the potential reward could make it the most profitable of fall bargains.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.