Could it be that easy, really??? “Sell in May and Go Away!” We hear it every year now, and I’m sure that there are many investors who think they should just pull the trigger and follow one of the simplest rules on Wall Street.
Well, you know how much we love the data here, so we got to work to look at the stocks, within the S&P 500, where this simple rule may apply.
The results were exactly as we expected. There are stocks within the S&P 500 with past performance that suggests that they are toxic during the early days of summer. Let’s put it into perspective….
The S&P 500 itself has averaged a return of 0.6% for the month of May over the last five years. Believe it or not, that’s only slightly below average. Looking at it on a year-by-year basis, the broad market index has been up four years and down only one during these months of May.
The table below displays 15 companies that our data models identified as “Sell in May” stocks. This was based on the number of years each company has seen selling (consistency) and the degree of decline.
Interestingly, the stocks have a focus on retail and energy/utilities, which has implications for these sectors. We’ll cover that in another piece for you though.
On to the top seven that we would avoid this May due to their terrible seasonality…
Stocks to Sell for Terrible Seasonality: HCP Inc. (HCP)
The REIT markets have been tumultuous, as traders can’t figure out where interest rates are going and whether there are bubbles in the market.
HCP, Inc. (NYSE:HCP) has a fairly clear trajectory for this May, as the stock is breaking through what is critical support at $30 to set the month off on the wrong foot.
$30 represents significant chart support and the stock’s 100-day moving average. The moving average is already in a declining pattern, which is identified by our models as bearish for the outlook. This applies even more pressure to the stock.
On average HCP shares have declined 3.7% over the last five years (down every year), indicating that the “sell in May” rule certainly applies.
Our model targets a move to $28.50 before the buyers step in.
Stocks to Sell for Terrible Seasonality: Southern Company (SO)
Utilities have garnered some attention again as investors are expecting rates to stay lower than initially planned in 2017.
Over the last five years, Southern Co (NYSE:SO) stock has slumped an average of 3.1% as it traded lower every one of these five years. The average return may be lower, but it sure is consistent. That’s what traders love to see.
Technically there’s every reason to think that the stock is set to decline. Southern Company’s stock price is battling with overhead resistance at $50 from the 50- and 200-day moving averages converging at the same level.
Underneath, Southern Company’s 100-day trendline is barely holding shares up as they try so hard to rally. A break below this trendline will get the technical sellers in and set a target for Southerns’ stock to trade to $47.50, about 4% lower from current prices.
Stocks to Sell for Terrible Seasonality: First Solar (FSLR)
First Solar, Inc. (NASDAQ:FSLR) will bug readers’ eyes out because the company is trading 12% higher after their earnings. The truth is that it makes us nervous to cover it as a “sell in May” stock, but there’s a trend to be aware of.
First Solar shares are no stranger to the “sell the news” activity that can happen after a solid earnings report. The stock has overhead resistance in place at $33 and $35, one of which has held the post-earnings rally at bay.
First Solar shares averaged -17% in four of the last five years of trading. We expect the returns from this month to be somewhere near that area, as our models are targeting a $30 price for the stock.
Stocks to Sell for Terrible Seasonality: Murphy Oil (MUR)
Oil and energy stocks are continuing to struggle, and Murphy Oil Corporation (NYSE:MUR) is no exception.
Murphy’s shares are locked in a technical bear market that just won’t let go. Currently the stock is breaking chart resistance at $26 while its 50-day moving average is trending lower overhead. This is not a good combination.
Historically, Murphy Oil averages returns of -10% in the month of May. This year, the losses may be more extreme as the stock is stuck in a bear market trend that is targeting $17.50 before any support comes in.
Stocks to Sell for Terrible Seasonality: Alcoa (AA)
Politics and economic uncertainty are currently Alcoa Corp’s (NYSE:AA) major headwinds, but the calendar doesn’t help either.
Four out of the last five years, Alcoa shares have traded lower in May. The average performance for these months is -9%. Year-to-date, the stock is trading about 13% higher as the “Trump Bump” has helped drive Alcoa’s outlook and prices higher.
Technically, we’re starting to see the stock roll over, indicating that the sellers are taking charge. Alcoa shares just crossed below their 50- and 100-day moving averages within the last week, both of which are trending lower.
For now, the trend is not Alcoa’s friend and neither is the calendar. We’re expecting to see $29 on the stock before buyers get serious again.
Stocks to Sell for Terrible Seasonality: Autodesk (ADSK)
Shares of Autodesk, Inc. (NASDAQ:ADSK) have been a market outperformer, which is why it may be strange to see it on this list.
Year-to-date, Autodesk is up more than 26%, knocking the socks off the S&P 500. That, however, is likely to slow, as the data shows.
Four of the last five years, Autodesk shares have declined an average of 7.4%. And it gets worse. When we looked back 20 years the stock still suffered average losses of 2.7% in May.
With Autodesk firmly in overbought territory, it looks like this May would be a great time to lock in some profits and go away.
Stocks to Sell for Terrible Seasonality: L Brands (LB)
L Brands Inc (NYSE:LB) continues to struggle in the retail sector as store traffic and other indicators point to the decline of brick-and-mortar business. Year-to-date, the stock is trading 20% lower as the charts continue to suggest more trouble for the garment hustler.
A recent rally has poked L Brands stock above its 50-day moving average, but our technical modeling still suggests further downside. Longer-term trendlines such as the 200-day moving average lurk overhead, ready to trigger profit-takers.
L Brands’ earnings have been tepid at best as revenue has been on the decline. The company will report on May 17, which is likely to be a trigger event for sellers.
Look for a target of $42 on L Brands over the next four months.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.