With the current headlines, you might wonder what would even be on a list of the best May stocks. But, believe it or not, despite rising geopolitical and inflationary risks, the market is on track to have its best May in several years.
Month-to-date, the S&P 500 is up 3%. A gain of that magnitude would mark the S&P 500’s best monthly gain in May since 2009.
Why did stocks do so well in May? The strong performance was mostly a result of a shift in investor sentiment and attention. Stocks started out the year as hot as possible as investors focused on super-charged earnings growth and healthy fundamentals. But then geopolitical and inflationary risks showed up to the party, and stocks got hit hard as investors shifted their focused from earnings growth to rising inflation.
Now, investors are once again shifting their attention back to earnings growth. In May, there were a ton of positive earnings reports from some of the market’s biggest players, and the sum of those positive reports was hard to ignore. Meanwhile, inflation seems checked, and U.S.-China trade war fears are also gradually fading. Thus, investors bought the dip, and stocks rallied in May.
So what were the best May stocks? It might be better to ask what types of stocks led the May rally. After all, it would be extremely difficult for a handful of individual companies to drive this type of growth.
Here’s a deeper look:
Best May Stocks: FAANNG Led The Way
For the most part, the big-tech stocks in FAANNG led the way in May.
Amazon.com, Inc. (NASDAQ:AMZN) had a relatively weak month, rising less than 2%. Most of the weakness is attributable to regulatory concerns. Meanwhile, Alphabet Inc (NASDAQ:GOOG) also didn’t have a mind-blowing month, rising only 2% in May. Most of that relative weakness is due to over-arching margin concerns.
But outside of that, the other names in FAANNG did very well in May.
Netflix, Inc. (NASDAQ:NFLX) led the charge with a 13% gain. Streaming enthusiasm continues to build among investors globally, and with good reason as streaming is marching towards global domination. Apple Inc. (NASDAQ:AAPL) wasn’t too far behind with an 11% gain in May as investors are warming up to the company’s shift to higher-margin software sales.
Meanwhile, chip-maker NVIDIA Corporation (NASDAQ:NVDA) rose 9% in May. The company’s demand catalysts in the next-gen markets of AI, automation, and data-centers just aren’t weakening at all. If anything, they are actually getting stronger, and whole NVDA growth narrative is improving.
The last of the FAANNG names, social media giant Facebook, Inc. (NASDAQ:FB), rose 7% in May. The company continues to shake off the rust from its Cambridge Analytica scandal, and is doing so while showcasing impressive resilience. User growth remains healthy. Engagement is healthy. Revenue growth is getting bigger. Margins are exploding higher.
All together, big tech has been at the forefront of the market’s big rally in May.
Best May Stocks: Chinese Internet Stocks Got Their Groove Back
For a while, margin concerns were hanging over formerly red-hot Chinese internet stocks. All these giant companies were investing big to grow market share and expand into tangential markets, which subsequently caused margins to compress. As a result, Chinese internet stocks dropped in early 2018.
Most of them, however, got their groove back in May.
Alibaba Group Holding Ltd (NYSE:BABA) roared 11% higher in May. The e-commerce giant reported really good first quarter numbers that proved that present margin compression is resulting in huge revenue growth. As such, investors started to look at the big picture, and bought the stock in bulk.
Meanwhile, lesser known Chinese internet stocks Momo Inc (ADR) (NASDAQ:MOMO) and Baozun Inc (ADR) (NASDAQ:BZUN) are both up more than 25% so far in May. Both companies reported strong quarterly numbers that re-affirmed each stocks’ respective bull thesis.
Fellow Chinese internet stocks TENCENT HOLDING/ADR (OTCMKTS:TCEHY), JD.Com Inc(ADR) (NASDAQ:JD), and Baidu Inc (ADR) (NASDAQ:BIDU) didn’t have great months. TCEHY was up 4%. JD and BIDU were both down about 3%.
But the weakness in these names is mostly due to one-offs. In the big picture, TCEHY, JD, and BIDU have the same growth trajectory as BABA, MOMO, and BZUN. The long-term outlook on all these names looks good, and it looks like the market is starting to focus on that positive long-term outlook.
Best May Stocks: Retail Is Killing It
Retail stocks continued their big bounceback in May.
After being left for dead in most of 2016 and 2017, retail stocks started to show signs of life in late 2017. Amazon wasn’t going to eat their entire lunch. Instead, retailers adapted to fight against e-commerce threats, and retail stocks started bouncing in late 2017.
That bounce continued in May, where the SPDR S&P Retail (ETF) (NYSEARCA:XRT) rose more than 3% month-to-date.
Within that broad retail group, there were some out-sized winners like Macy’s Inc (NYSE:M), Kohl’s Corporation (NYSE:KSS), and TJX Companies Inc (NYSE:TJX), all of whom reported strong quarterly numbers which affirmed the trend of improving comparable sales, rebounding margins, and restored profit growth. Each of those stocks rose more than 6% in May.
There were also some big-time winners, like Foot Locker, Inc. (NYSE:FL) and Tiffany & Co. (NYSE:TIF), both of whom rallied more than 25% in May thanks to quarterly numbers which confirmed the turnaround narratives at each company.
Elsewhere in retail, teen retailers American Eagle Outfitters (NYSE:AEO), Urban Outfitters, Inc. (NASDAQ:URBN), Zumiez Inc. (NASDAQ:ZUMZ) and Tilly’s Inc (NYSE:TLYS) are all up between 5% and 12% so far in May.
As of this writing, Luke Lango was long AMZN, GOOG, AAPL, FB, BABA, MOMO, TCEHY, JD, BIDU, M, FL, AEO, and TLYS.