We’ve heard it a thousand times before and, almost surely, we’ll hear it a thousand times more: Sell in May and go away. This adage is among the oldest sayings in the markets, and there’s some truth to it. Around this time of the year, historical data indicate a slowdown in major indices. Taking this advice at face value, however, prevents investors from buying stocks on the cheap.
Before we get into why I think May presents a viable long-side opportunity, let’s briefly discuss the reasons investors traditionally sell in May. The adage comes from the “golden era” of trading when computerized charts and graphs were only available to the ultra-wealthy. Back then, Wall Street had a mostly “good ole boys” culture. In other words, stocks largely fed off the emotions of a singular demographic.
Today, the markets are much more egalitarian. Technology and the internet have brought investing opportunities to a wider demographic. While the Street still has a rich, white male bias, modern investors are much more diverse. Thus, when it comes time to figure out which cheap stocks are the best equities for a certain time of the year, simple adages just don’t cut it.
At the same time, many companies still exhibit volatility in May. Plus, this spring season will likely be an eventful one. Geopolitical tensions are on the rise, with the Trump administration forced to make critical, economic decisions. And discord is increasing at home, putting more pressure on the White House. This equates to great companies that are suddenly on discount.
My take? Go against the grain. Here are 10 cheap stocks to buy in May:
Cheap Stocks to Buy in May: Alphabet (GOOG, GOOGL)
Although internet giant Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) delivered an earnings beat for its first quarter of 2019, that wasn’t the focus. No, the elephant in the room was the $36.34 billion revenue haul, which slipped against expectations calling for $37.33 billion. The 2.7% sales miss was a rarity, sending GOOG and GOOGL tumbling.
Still, I have no problems leading my list of cheap stocks to buy with Alphabet. The same reason why analysts are panicking on GOOG – a rare miss – is also the reason why I’m bullish. We’re nowhere near a crisis. Prior to the earnings disclosure, shares were absolutely flying. I view this as a bump on the road.
Moving forward, investors can expect management to synergize its deep learning and artificial-intelligence platforms with the digital advertisement space. That would give GOOGL a competitive edge, helping to ensure that this miss stays in the rear-view mirror.
Dave & Buster’s Entertainment (PLAY)
As our own James Brumley reported early last month, the rally in Dave & Buster’s Entertainment (NASDAQ:PLAY) is for “real.” Brumley was speaking in the context of a surprisingly good fiscal Q4 earnings report. PLAY stock exceeded targets for both earnings and revenue, driving shares higher.
However, many investors have a dim view on Dave & Buster’s, and for understandable reasons. The company competes in a world that’s increasingly digitalized. Nowadays, people can just order up whatever they want, right in the comfort of their own home. Indeed, PLAY almost seems archaic.
But I believe the key word here is “almost.” While the organization does have fundamental challenges ahead, it offers a social experience that cannot be duplicated with in-home entertainment. More importantly, that experience comes at a much cheaper price tag than going out to an NFL game, for instance.
Therefore, I’d look at PLAY’s recent takedown as an opportunity to buy one of the most underappreciated cheap stocks.
AMC Entertainment (AMC)
In the same vein as Dave & Buster’s, I’d look at AMC Entertainment (NYSE:AMC) as one of the top cheap stocks to buy. As with PLAY, AMC stock represents an investment into an irreplaceable social experience. The box office is a piece of Americana, and it will stay with us forever.
Of course, naysayers will point to streaming as the platform that will send AMC stock to the Stone Ages. To that, I call BS. Don’t believe me? Just look at the record-shattering haul that Avengers: Endgame brought to the house: $1.2 billion in its global debut. That’s bonkers, especially for a film released in the spring season.
Again, the naysayers will point out that the box-office record hasn’t translated into a higher prices for AMC stock. They’re right. But it also proves that the cineplex industry itself is a tremendously viable opportunity. It’s the reason why I personally put shares into my portfolio of cheap stocks.
Consumer-electronics firm Sony (NYSE:SNE) had a strong April, gaining 18% last month. Therefore, it’s not what you would call a candidate among cheap stocks to buy. However, SNE stock is up only 6% for the year, and is down considerably from last October’s highs.
I’m biased because I own shares, and I have many friends during the time I worked there. Aside from my personal ties to SNE stock, though, I see a realistic path toward previous highs. First, we’ve got to talk about video games and Sony’s PlayStation console. While disruptive companies like Alphabet are encroaching with streaming alternatives, only the power inherent in a physical console will satisfy hardcore gamers.
Second, I’m really digging Sony’s optics division; specifically, their Alpha E-mount cameras featuring interchangeable lenses. I recently had an opportunity to work with a professional photographer using a camera from this line-up.
The results? Simply phenomenal! With the E-mount technology, you get extraordinary quality photos and video in a remarkably compact package. I believe it’s a gamechanger, and the optics technology provides synergistic opportunities.
WellCare Health Plans (WCG)
When it comes to healthcare, I only know two things: it’s extremely complicated, and it’s extremely expensive. Although it should be the most important sector of my life because it deals with my family, my eyes roll back into my head when this topic comes up.
However, recent political movements have forced this sector into the limelight. Key Democrats’ support for the “Medicare for All Act” suggests that change is coming. With the embattled Trump administration struggling to keep its voting base intact, it’s not inconceivable that the Democrats will win the White House. If so, I like WellCare Health Plans (NYSE:WCG) to work its way out of its current funk.
WCG specializes in government-sponsored managed care services. If the Democrats have their way, we’ll likely see a surge in Medicaid and Medicare funding. That will then increase the patient pool for WCG, making it one of the longer-term cheap stocks to buy now.
Tandem Diabetes (TNDM)
Despite my disinterest toward the healthcare system, I do have an eye on healthcare technologies. One of the biggest trends that we currently see is a dramatic rise in accessibility. Both medicinal delivery and surgical systems are moving toward minimally-invasive procedures. This increases the pool of patients, as well as the tech providers’ bottom line.
Because of this dynamic, I’m very interested in Tandem Diabetes (NASDAQ:TNDM). First, the company offers patients with diabetes an easy, convenient way to control blood-sugar levels. Second, TNDM stock is on discount. Since mid-March of this year, shares are down 16%.
But I don’t think Tandem Diabetes’ inclusion among the current cheap stocks to buy will last forever. As InvestorPlace contributor Chris Lau mentioned, TNDM has tremendous growth opportunities. This includes both new products and international expansion plans. Therefore, take advantage of this lull in pricing while you still can.
Embattled Boeing (NYSE:BA) presents an interesting case for market observers. On one hand, the bear case against BA stock is patently obvious. Last month, Boeing CEO Dennis Muilenburg admitted that faulty sensors installed in their 737 Max jets caused two high-profile crashes. Because Muilenburg is assuming responsibility, BA faces a mountain of litigation.
Despite this ominous cloud, look at what’s happening on the other end of the scale: nothing. Sure, BA stock fell sharply from its March highs this year. But since then, shares have been relatively quiet. If the headwinds are truly ugly – and they certainly seem that way – why aren’t most stakeholders panicking?
I don’t mean to be cynical but litigation, even painful ones, don’t necessarily spell doom. Plus, Boeing is sure to never repeat this horrible mistake again. With a repentant attitude, what we have remaining is a world-class airliner manufacturer. It’s a risky play, but it’s also among the contrarian’s pick for cheap stocks to buy.
As I’ve mentioned many times before, marijuana is immediately a compelling opportunity because of its legal legacy. Just a few years ago, the idea of buying weed without the fear of flashing headlights was a pipedream. Now, it’s an everyday reality, which bolsters the case for sector players like Tilray (NASDAQ:TLRY).
Indeed, TLRY stock has something many other competitors don’t: credibility. Last year, Tilray won a federal exemption for marijuana exports when the Drug Enforcement Agency cleared its medical-research partnership with the University of California San Diego. Unfortunately, that hasn’t translated to upside momentum for TLRY. In fact, it’s turning out to be the worst of the bunch.
A recent analyst downgrade doesn’t help matters. Although incredibly risky, I believe it’s time to include TLRY among the cheap stocks to buy this month. Admittedly, Canadian sales are slowing down, but over the long run, the U.S. market will grow increasingly tolerant.
Even if the Trump administration holds to its “law and order” stance, Democrats surely smell blood in the water. It may take some time, but the potential for TLRY is “yuge.”
MGM Resorts International (MGM)
For quite some time, casinos like MGM Resorts International (NYSE:MGM) weren’t cheap stocks to buy; they were just cheap. This year got off to a promising start for MGM stock, but recent headlines introduced volatility to its share price. Turns out, the underlying company is going to lay off nearly a thousand workers by this June.
Logically, I can understand why so many stakeholders abandoned ship. MGM was always a contrarian pick. Because the headlines contrasted sharply with this contrarian perspective, investors wanted to mitigate risk. Plus, with U.S.-China relations appearing icy again, this geopolitical situation doesn’t bode well for MGM.
That said, the company’s core Las Vegas market is improving. Last year, Clark County gaming revenue hit the $10 billion mark for the first time since the sub-prime lending crisis. It’s still a wildly-speculative opportunity, but some justification for the gamble exists.
Speaking of U.S.-China relations, let’s talk about Alcoa (NYSE:AA). Believe me, I know what you’re thinking. A major catalyst for souring relations is President Trump’s harsh stance on Chinese business practices, particularly with aluminum-dumping. Trump imposed harsh penalties for selling commodities at less than fair market value. After some tit-for-tat policies, we’re essentially back to square one.
Except, of course, for AA stock. Alcoa is well below square one, giving up most of the gains it enjoyed under the conservative Trump administration. A disappointing earnings report for the company’s Q1 further crystallizes the bearish argument. Alcoa is levered toward commodity prices, and this segment just isn’t doing well.
But if you’re a risk-tolerant contrarian, you’ve probably noticed that Alcoa generated surprisingly strong free cash flow. Ordinarily, I wouldn’t look at this metric as the go-to reason to buy shares. However, management clearly reorganized its business to remain cash-flow rich under duress. Imagine what it could do without the pressure?
As of this writing, Josh Enomoto is long AMC and SNE.