5 of the Best Stocks to Reverse the ‘Sell in May’ Trend

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Wall Street’s promising six-month “sell in May and go away” period has come to an end. The adage is based on historical evidence showing that the stock market yields the best returns between Halloween and May Day, while the May-October period witnesses a substantial slump in investments. 

Mostly, lower trading volumes in the summer season and a substantial increase during the winter months are the main factors backing the trend. 

But the stock market hasn’t quite conformed to the pattern so far this year. After all, gains have been muted this year due to the coronavirus pandemic, leading to supply chain disruptions and decline in corporate profits. Global economic growth took a beating, with manufacturing activities mostly bearing the brunt. Major bourses may have seen the best April in years, but have still ended last week in the red, with the Dow and the S&P 500 finishing the week down 0.2%.

So, are summer months following weak winters good for stocks? When the stock market had a bad winter last time, it bounced back during the summer months. From Halloween 2008 to May Day 2009, the Dow was down 12.4%. Over the subsequent six-month period, the blue-chip index jumped 18.9%. 

Regrettably, such an encouraging reversal appears to be rare. This is because since the Dow was created in 1896, the blue-chip index has lost an average 1.6% in summers that followed winters in which the stock market has declined. This is in contrast to an average summer gain of 1.8%. 

But what happens in a presidential election year like 2020? Normally, the Dow produces an average gain of 4.1% during the summer months of presidential election years. But in presidential election years that have losing winters, stocks take a hit in the summers as well, posting an average loss of 0.6%. 

Things aren’t looking up for the stock market as of now. Mounting concerns that businesses would witness lasting damage of the virus outbreak continue to spook investors. Renowned investment guru Warren Buffett’s company Berkshire Hathaway has given up stakes on four of the largest U.S. airliners in the wake of the outbreak. 

Amid these, markets recoiled after President Trump threatened to reignite the U.S.-China trade war over coronavirus. Trump intensified his attack on Beijing by claiming that he has evidence that shows the deadly virus originated in a China laboratory. What’s more, the White House now may renew tariffs on China imports in retaliation, thereby escalating the trade tiff. 

Earlier this year, Washington and Beijing de-escalated trade tensions but the progress has been derailed by the blame game over the outbreak that has infected millions across the globe, with the United States registering the highest official death among all countries so far. 

How to Invest in Such Torrid Times? 5 Choices 

From historical seasonal patterns to Trump’s criticism on Beijing’s handling of the pandemic, the stock market faces acute uncertainty this month.  

Thus, focusing on dividend stocks is the best approach during such times. Top dividend stocks pay out a healthy yield and have encouraging prospects, and are less susceptible to market downturns. Their large customer base, sustainable business model, long track of profitability and strong liquidity allow them to offer sizable yields on a regular basis, regardless of market direction. 

To top it, dividend stocks with low volatility are chosen as they tend to hold up better in tough times. In order to screen for low-volatility stocks or which are inherently less volatile than the markets they trade in, low-beta needs to be considered. In this case, a low beta ranges from 0 to 1. By the way, a beta is a measure of volatility that shows how closely a stock’s price movement correlates with a benchmark. 

Further, we have selected stocks that flaunt a Zacks Rank #1 (Strong Buy).

GAIN Capital Holdings, Inc. (GCAP) is a U.S.-based provider of online trading services. It has a beta of 0.07. GAIN Capital Holdings has a dividend yield of 3.8%, while its five-year average dividend yield is 3.6%. The company’s expected earnings growth rate for the current quarter is 230%. 

National General Holdings Corp (NGHC) is a specialty personal lines insurance holding company. It has a beta of 0.82. National General Holdings has a dividend yield of 1.1%, while its five-year average dividend yield is 0.7%. The company’s expected earnings growth rate for the current quarter is 11.9%. 

The J. M. Smucker Company (SJM) is a leading marketer and manufacturer of consumer food and beverage products and pet food and pet snacks. It has a beta of 0.16. J. M. Smucker has a dividend yield of 3.1%, while its five-year average dividend yield is 2.7%. The company’s expected earnings growth rate for the current quarter is 9.5%. 

B&G Foods, Inc. (BGS) sells and distributes high quality, shelf stable, frozen food and household products. It has a beta of 0.19. B&G Foods has a dividend yield of 9.7%, while its five-year average dividend yield is 6.2%. The company’s expected earnings growth rate for the current year is 1.8%. 

Atmos Energy Corporation (ATO) is engaged in regulated natural gas distribution and storage business. It has a beta of 0.33. Atmos Energy has a dividend yield of 2.3%, while its five-year average dividend yield is also 2.3%. The company’s expected earnings growth rate for the current quarter is 13.2%.

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