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5 Stocks to Beat "Sell in May and Go Away" Syndrome

Swarup Gupta
Here are five S&P 500 stocks flaunting an impressive performance so far this year.

The S&P 500 ended April on a strong note, registering its third consecutive record high on Apr 30. Further, all major benchmarks registered their highest monthly gains in percentage terms since January. The month was notable for bringing the S&P 500 and Nasdaq close to record high levels. It has also restored investor confidence in the record-busting Bull Run.

However, as we enter May, investors often grow anxious since an old pattern is said to hold true. “Sell in May and go away” is a financial adage which is believed to illustrate the historical underperformance of equity markets in summer. Apparently, equity markets underperform during the May to October period compared with the period from November to April.

However, recent trends show that this may not always be true, especially this time around. Investors have factored in most downside risks and it makes sense to bet on stocks which have posted strong year-to-date gains at this point.

Sell in May Adage Falters in Recent Years

Recent statistics indicate that this piece of seasonal advice may not hold true any longer. According to Dow Jones Market Data, stocks have posted relatively poor performance during May-October only in three of the last five years. In fact, in 2017, stocks gained more than 8% during this period, higher than the 2.8% increase during the November 2017 to April 2018 period.

The period between October 2018 to April 2019 has produced an increase of around 8.6%. This is possibly why a strategist at Société Générale SCGLY, Sophie Huynh thinks staying away from market for the next six months could be a costly mistake for investors. Huynh thinks most of the tailwinds for stocks, such as downward revisions to earnings have already been accounted for by investors.

Record Levels Supportive of Near-Term Gains

Stocks have started the year on a strong note and UBS’ UBS global chief investment officer Mark Haefele thinks such gains do not point toward a weakening trend. In a note released on Apr 29, Haefele said record highs are a strong catalyst for robust near-term returns.

According to him, S&P price data since 1950 reveals that “after stocks set an all-time high, their subsequent six-month price return has been 4.7%.” Major reverses for stocks are also unlikely when indexes have posted fresh records.  Haefele reveals that stocks have declined only 11% of the time by more than 5% following fresh record levels, “compared with 18% of the time otherwise.”

And this time around, several factors could be supportive of market gains over the next six months. Most economic data released recently, including a strong first-quarter GDP readout, indicate that the U.S. economy is in good shape. Further, the ongoing earnings season has been far better than expected. More importantly, U.S.-China trade discussions are inching close to a conclusion.

Our Choices

Equity market performance over the last few years indicates that the Sell in May maxim doesn’t always hold true. Stocks are set to defy this trend this time around for several reasons. First, most headwinds for equities have already been priced in by investors.

Further, markets have recently posted record highs, which are supportive of near-term gains. This is why it makes sense to bet on stocks with strong year-to-date gains. However, picking winning stocks may be difficult.

This is where our VGM Score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score. 

We have narrowed down our search to the following stocks, each of which has a Zacks Rank #1 (Strong Buy) a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.

Sunworks, Inc. SUNW provides solar power solutions. The company focuses on the design, installation and management of solar power systems for commercial, agricultural and residential customers.

Sunworks’ expected earnings growth for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved by more than 100% over the last 60 days. The stock has gained more than 100% year to date.

Limbach Holdings, Inc. LMB is a provider of commercial specialty contract services. 

Limbach Holdings’ projected growth rate for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved by 31.9% over the last 30 days. The stock has gained more than 100% year to date.

Global Brass and Copper Holdings, Inc. BRSS is a provider of cutting, measuring, first aid, and sharpening products for school, office and home use.

Global Brass and Copper Holdings’ Zacks Consensus Estimate for the current year has improved by 7.9% over the last 60 days. The stock has gained 72.5% year to date.

Boot Barn Holdings, Inc. BOOT operates as a lifestyle retail chain devoted to western and work-related footwear, apparel and accessories.

Boot Barn Holdings’ projected growth rate for the current year is 13.9%. The stock has gained 69.1% year to date.

Foundation Building Materials, Inc. FBM is a specialty distributor of wallboard and suspended ceiling systems primarily in the United States and Canada.

Foundation Building Materials’ expected earnings growth for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved by 1.2% over the last 60 days. The stock has gained 63.6% year to date.

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UBS Group AG (UBS) : Free Stock Analysis Report
 
Societe Generale Group (SCGLY) : Free Stock Analysis Report
 
Global Brass and Copper Holdings, Inc. (BRSS) : Free Stock Analysis Report
 
Boot Barn Holdings, Inc. (BOOT) : Free Stock Analysis Report
 
Sunworks, Inc. (SUNW) : Free Stock Analysis Report
 
Foundation Building Materials, Inc. (FBM) : Free Stock Analysis Report
 
Limbach Holdings, Inc. (LMB) : Free Stock Analysis Report
 
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