May's reputation is one of staying away. But after the S&P 500's record-breaking April, investors will want to take a closer look at top stocks now.
XIt turns out 10 S&P 500 stocks, game stocks Take-Two Interactive (TTWO) and Electronic Arts (EA), and health care stock Incyte (INCY) turn it on during the hated market month of May.
Each of these S&P 500 stocks beat the S&P 500 during May the past five years. And they also posted average gains of 5% or more during May since 2015. Many also sport high IBD Composite Ratings. That's according to an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.
It's understandable that investors might be cautious. "Stocks are up more than 30% from the March lows, suggesting a well-deserved pullback during these troublesome months is quite possible," said LPL Financial Senior Market Strategist Ryan Detrick.
And yet, data shows why stocks are still worth watching.
Sizing Up May For The S&P 500
May somewhat deserves its lukewarm reception with investors. The S&P 500 during May rose an average annual 0.2% during the month going back to 1950, says Stock Trader's Almanac. That ranks the month as the eighth worst of the year.
Last May proved why investors are cautious this time of year. The S&P 500 dropped 6.6% in May 2019, marking its worst showing for the month in five years. And in May 1962, the S&P 500 put up its biggest loss ever: 8.6%, says Stock Trader's Almanac.
And the S&P 500 only rose 1.5% in the six months starting in May since 1950, says LPL Financial. That's the lowest six-month return of the year.
But avoiding stocks starting in May backfired in the past four years and in seven of the past 10 years, LPL says. Investors enjoyed gains in the six months following May during those years. And that's in large part due to May's top stocks.
Looking At S&P 500 Sectors In May
Technology stocks, which are driving markets this year, are the leaders in May. The Technology Select Sector SPDR ETF (XLK) posted an average gain of 1.8% in May the last five years. That's higher than all 11 S&P 500 sectors' May gains.
Video game maker Take-Two, now in the communications services sector, exemplifies what kind of gains are possible in May. The company, which makes "Red Dead Redemption" and other high-quality games, rose an average of 15.1% the past five years. Even last May, the stock fell just 1.1%.
And this May looks promising, too, as more people stay home and play games. The company's profit is seen jumping 85% in the June 2020 quarter from the same period in 2019. Such strong fundamentals on top of a stock that's only down 1% this year explains the strong 94 IBD Composite Rating.
S&P Health Care Also Strong In May
Health care is the next best sector in May. The Health Care Select Sector SPDR (XLV) gained an average of 1.1% in May the past five years.
Consider Incyte, which is working on a variety of biotech treatments, including some for cancer. The stock delivered an average 9.4% gain the past five Mays. Even during the challenging May 2018, Incyte rose 11.8%.
The company is expected to lose 10 cents a share in the first quarter, but then spring to a profit of 52 cents in the second. The company is seen making money in the third and fourth quarters, too.
Investors are racing to get in ahead of those profits. The company's stock is up nearly 12% this year. And it sports a 98 Composite Rating.
But there may be more like that coming, if this May is anything like past ones.
S&P 500 Stocks That Beat The Market Every May
For the past five years
| Company | Ticker | Average stock % ch. last five Mays | Sector | Composite Rating |
|---|---|---|---|---|
| Take-Two Interactive Software | (TTWO) | 15.1% | Communications services | 94 |
| Electronic Arts | (EA) | 12.2% | Communications services | 97 |
| Incyte | (INCY) | 9.4% | Health care | 98 |
| Gartner | (IT) | 6.3% | Information technology | 66 |
| Vulcan Materials | (VMC) | 6.0% | Materials | 72 |
| Extra Space Storage | (EXR) | 5.8% | Real estate | 69 |
| Intuit | (INTU) | 5.7% | Information technology | 97 |
| Martin Marietta Materials | (MLM) | 5.4% | Materials | 64 |
| Cintas | (CTAS) | 5.0% | Industrials | 80 |
| NiSource | NI | 5.0% | Utilities | 68 |
Source: IBD, S&P Global Market Intelligence
Follow Matt Krantz on Twitter @mattkrantz
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