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For long, the month of September has earned an uncanny reputation of providing low returns, with the S&P 500 and the Dow usually ending in the red.
Possibility of an imminent rate hike has further irked investors, while gyrations in oil price rattled the stock market in August. Add to this the overvaluation of stocks, and we can very well expect a correction in the near term. Hence, it will be judicious to invest in stocks that boast strong fundamentals and growth potentials.
Historically the Worst Month
September is an appalling month for the U.S. stocks, as far as historical data is considered. Since 1928, the S&P 500 has tanked almost 56% of the times in September, as per Bank of America Merrill Lynch data. Similarly, the month has also been dismal for the Dow Jones Industrial Average. Since the blue-chip index was created, it has shown an average loss of 1.1% in September; while in all the other 11 months the index posted an average gain of 0.8%.
Furthermore, this terrible September record is not just because of two or three horrible years. On the contrary, stocks have been persistently posting unimpressive performance in September, with the month’s average turning out to be discouraging in all but one of the dozen decades since the late 1800s.
Add to this, the current limited daily movements and low volumes in the broader markets and we all know that there is a correction in the cards. The S&P 500 is already trading in a narrow range and its volume is plummeting to multi-month lows (read more: 10 charts show why market may be ripe for a correction).
Meantime, the CBOE Market Volatility Index (VIX) is trading below 20, suggesting that there is subdued fear in the market. Such a scenario implies that the market is headed for a rough patch since low volatility often precedes a sell-off.
August an Example of Slow Summer Market
Talking about the past, the S&P 500 snapped a five-month rally to end in the red in August, while the Dow’s six-month winning streak also came to an end. Investors continued to gauge the timing of a rate hike, with Fed Chairwoman Janet Yellen saying that the case for hiking federal funds rate has gained in strength in “recent months”, mostly due to a job market rebound following a slump in hiring in spring (read more: 5 Stocks to Buy on Encouraging Employment Data).
A potential interest rate hike this year dragged the broader markets down in August since such low rates had boosted the markets for a considerable period of time. Separately, Utilities Select Sector SPDR (XLU - Free Report) dropped 5.5% in August, the steepest among the S&P 500 sectors. This is because a rate hike will increase cost of capital and eventually dent profits (read more: 5 High Dividend Stocks to Bet Against a Rate Hike).
Expectations that the Fed will move closer to a rate hike helped the dollar hit multi-week highs. However, a strong dollar erodes the earnings of U.S. firms that sell their goods overseas. The dollar’s strength along with crude oversupply also weighed on oil prices. The U.S. Energy Information Administration said that domestic crude supplies rose by 2.3 million barrels in the week ended Aug 26. Slump in oil prices had a negative impact on energy shares yesterday. The Energy Select Sector SPDR (XLE - Free Report) dropped 1.6%, its steepest one-day decline since Aug 1.
The oil market has had a topsy-turvy ride in August. While the crude oil entered bear market territory during the beginning of August on subdued demand, it stampeded into a bull market territory during the third week of last month, thanks to increase in expectations that top oil producing countries like Russia and Saudi Arabia will cap output (read more: The Top Oil Stocks to Buy Now).
Heading for a Bad Month? 5 Solid Picks
Apart from weak oil and concerns about an imminent rate hike, investors are taking some money off the table heading into September, thanks to its reputation of being the worst month for the U.S. stock market. To top it, as stocks are striving to reach new highs they are also running the risk of getting overvalued. Sinceestimates for this year and next continue to fall, the market is trading at 17.5x the 2017 consensus projection of $125 EPS (read more: How Overvalued Are Stocks?).
Given such a gloomy scenario, investing in fundamentally sound stocks won’t be a bad proposition. But, there are some positive traits, which these stocks will surely cash in on. Personal consumption that measures almost anything from hotel stays to hamburgers did rise for the fourth straight month in July, while consumer confidence surged to its highest level in 11 months in August (read more: 5 Stocks to Buy on Record Consumer Confidence).
We have zeroed in on five sturdy stocks that boast a Zacks Rank #1 (Strong Buy). The search was also narrowed down with a VGM score of ‘A’. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.
Trinseo SA (TSE - Free Report) manufactures and markets synthetic rubber, latex, and plastic products internationally including the U.S. The company’s current year estimated earnings growth rate is pegged at 54.3%. The forward price-to-earnings ratio for the current financial year is 8.19, lower than the industry average of 13.40.
Aegean Marine Petroleum Network Inc. operates as a marine fuel logistics company worldwide, including the U.S. The company’s current year estimated earnings growth rate stands at 39.3%. The forward price-to-earnings ratio for the current financial year is 8.06, lower than the industry average of 15.40.
Enviva Partners, LP (EVA - Free Report) produces and supplies utility-grade wood pellets to power generators. The company’s current year estimated earnings growth rate is pegged at 104.4%. The forward price-to-earnings ratio for the current financial year is 15.67, lower than the industry average of 26.50.
Cooper-Standard Holdings Inc. (CPS - Free Report) designs, manufactures and sells sealing, fuel and brake delivery, fluid transfer, and anti-vibration systems. The company’s current year estimated earnings growth rate stands at 10.6%. The forward price-to-earnings ratio for the current financial year is 9.77, lower than the industry average of 13.90.
Staffing 360 Solutions, Inc. (STAF - Free Report) engages in the acquisition and integration of staffing agencies in the U.S. The company’s current year estimated earnings growth rate is pegged at 61.6%. It’s forward price-to-earnings ratio for the current financial year is also lower than the industry average.
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5 Best Stocks to Buy for a Dreadful September
For long, the month of September has earned an uncanny reputation of providing low returns, with the S&P 500 and the Dow usually ending in the red.
Possibility of an imminent rate hike has further irked investors, while gyrations in oil price rattled the stock market in August. Add to this the overvaluation of stocks, and we can very well expect a correction in the near term. Hence, it will be judicious to invest in stocks that boast strong fundamentals and growth potentials.
Historically the Worst Month
September is an appalling month for the U.S. stocks, as far as historical data is considered. Since 1928, the S&P 500 has tanked almost 56% of the times in September, as per Bank of America Merrill Lynch data. Similarly, the month has also been dismal for the Dow Jones Industrial Average. Since the blue-chip index was created, it has shown an average loss of 1.1% in September; while in all the other 11 months the index posted an average gain of 0.8%.
Furthermore, this terrible September record is not just because of two or three horrible years. On the contrary, stocks have been persistently posting unimpressive performance in September, with the month’s average turning out to be discouraging in all but one of the dozen decades since the late 1800s.
Add to this, the current limited daily movements and low volumes in the broader markets and we all know that there is a correction in the cards. The S&P 500 is already trading in a narrow range and its volume is plummeting to multi-month lows (read more: 10 charts show why market may be ripe for a correction).
Meantime, the CBOE Market Volatility Index (VIX) is trading below 20, suggesting that there is subdued fear in the market. Such a scenario implies that the market is headed for a rough patch since low volatility often precedes a sell-off.
August an Example of Slow Summer Market
Talking about the past, the S&P 500 snapped a five-month rally to end in the red in August, while the Dow’s six-month winning streak also came to an end. Investors continued to gauge the timing of a rate hike, with Fed Chairwoman Janet Yellen saying that the case for hiking federal funds rate has gained in strength in “recent months”, mostly due to a job market rebound following a slump in hiring in spring (read more: 5 Stocks to Buy on Encouraging Employment Data).
A potential interest rate hike this year dragged the broader markets down in August since such low rates had boosted the markets for a considerable period of time. Separately, Utilities Select Sector SPDR (XLU - Free Report) dropped 5.5% in August, the steepest among the S&P 500 sectors. This is because a rate hike will increase cost of capital and eventually dent profits (read more: 5 High Dividend Stocks to Bet Against a Rate Hike).
Expectations that the Fed will move closer to a rate hike helped the dollar hit multi-week highs. However, a strong dollar erodes the earnings of U.S. firms that sell their goods overseas. The dollar’s strength along with crude oversupply also weighed on oil prices. The U.S. Energy Information Administration said that domestic crude supplies rose by 2.3 million barrels in the week ended Aug 26. Slump in oil prices had a negative impact on energy shares yesterday. The Energy Select Sector SPDR (XLE - Free Report) dropped 1.6%, its steepest one-day decline since Aug 1.
The oil market has had a topsy-turvy ride in August. While the crude oil entered bear market territory during the beginning of August on subdued demand, it stampeded into a bull market territory during the third week of last month, thanks to increase in expectations that top oil producing countries like Russia and Saudi Arabia will cap output (read more: The Top Oil Stocks to Buy Now).
Heading for a Bad Month? 5 Solid Picks
Apart from weak oil and concerns about an imminent rate hike, investors are taking some money off the table heading into September, thanks to its reputation of being the worst month for the U.S. stock market. To top it, as stocks are striving to reach new highs they are also running the risk of getting overvalued. Sinceestimates for this year and next continue to fall, the market is trading at 17.5x the 2017 consensus projection of $125 EPS (read more: How Overvalued Are Stocks?).
Given such a gloomy scenario, investing in fundamentally sound stocks won’t be a bad proposition. But, there are some positive traits, which these stocks will surely cash in on. Personal consumption that measures almost anything from hotel stays to hamburgers did rise for the fourth straight month in July, while consumer confidence surged to its highest level in 11 months in August (read more: 5 Stocks to Buy on Record Consumer Confidence).
We have zeroed in on five sturdy stocks that boast a Zacks Rank #1 (Strong Buy). The search was also narrowed down with a VGM score of ‘A’. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.
Trinseo SA (TSE - Free Report) manufactures and markets synthetic rubber, latex, and plastic products internationally including the U.S. The company’s current year estimated earnings growth rate is pegged at 54.3%. The forward price-to-earnings ratio for the current financial year is 8.19, lower than the industry average of 13.40.
Aegean Marine Petroleum Network Inc. operates as a marine fuel logistics company worldwide, including the U.S. The company’s current year estimated earnings growth rate stands at 39.3%. The forward price-to-earnings ratio for the current financial year is 8.06, lower than the industry average of 15.40.
Enviva Partners, LP (EVA - Free Report) produces and supplies utility-grade wood pellets to power generators. The company’s current year estimated earnings growth rate is pegged at 104.4%. The forward price-to-earnings ratio for the current financial year is 15.67, lower than the industry average of 26.50.
Cooper-Standard Holdings Inc. (CPS - Free Report) designs, manufactures and sells sealing, fuel and brake delivery, fluid transfer, and anti-vibration systems. The company’s current year estimated earnings growth rate stands at 10.6%. The forward price-to-earnings ratio for the current financial year is 9.77, lower than the industry average of 13.90.
Staffing 360 Solutions, Inc. (STAF - Free Report) engages in the acquisition and integration of staffing agencies in the U.S. The company’s current year estimated earnings growth rate is pegged at 61.6%. It’s forward price-to-earnings ratio for the current financial year is also lower than the industry average.
Where Do Zacks' Investment Ideas Come From?
You are welcome to download the full, up-to-the-minute list of 220 Zacks Rank #1 ""Strong Buy"" stocks free of charge. There is no better place to start your own stock search. Plus you can access the full list of must-avoid Zacks Rank #5 ""Strong Sells"" and other private research. See the stocks free >>