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5 Stocks to Bank on May's Strong Market Rally

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Major U.S. indexes rose in May, largely propelled by the optimism over businesses and stores reopening around the country, the government’s many stimulus packages and the prospect of a vaccine hitting the shelves later this year. The rally through May came after stocks hit their bottom in on Mar 23. Let us therefore take a look at which sectors rose over the past month and consequently find the right stocks to buy.

Strong Market Performance in May

May was an eventful month for the major U.S. indexes. The three U.S. indexes — the Dow Jones Industrial Average, the broader S&P 500 and the tech-laden Nasdaq Composite — gained in the month.

First, Dow Jones Industrial Average managed to cross the impressive 25,000-point mark last week for the first time in more than two months. The index had touched its all-time high of 29,568.57 on Feb 12 before stepping into the virus-induced bear-market on Mar 11. In May, the index rose 4.3%, marking a 36.5% rise from its lowest closing figure of Mar 23.

Second, the broader S&P 500 witnessed 10 out of its 11 sectors rise in the last month. Sectors such as communication services, technology, healthcare, consumer discretionary, industrials and materials helped the index move higher. Technology Select Sector SPDR Fund (XLK), Communication Services Select Sector SPDR Fund (XLC) and Consumer Discretionary Select Sector SPDR Fund (XLY) were among the top gaining sectors of the index.

The S&P 500 index was propped up by L Brands, Inc. , Fortinet, Inc. (FTNT - Free Report) , DISH Network Corporation and Fortune Brands Home & Security, Inc. , whose stocks gained 36.2%, 29.2%, 26.5% and 26.5%, respectively, in May.

Finally, Nasdaq Composite rose 6.8% last month. The index is now up 38.3% since Mar 23 and has gained 5.8% for the year. Stocks such as MercadoLibre, Inc. (MELI - Free Report) , Lululemon Athletica Inc. (LULU - Free Report) , Splunk Inc. and JD.com, Inc. (JD - Free Report) led the index higher in May with gains of 46%, 34.3%, 32.4% and 26.1%, respectively.

Reopening Economy, Government’s Stimulus Measures are a Tailwind

As all 50 states slowly reopen with people being able to visit restaurants, places of worship, business centers and offices, signs of normalcy have started to return. Consumers are gradually moving back to their routines after one of the major economic downturns in history. Places such as gyms, athletic centers or salons have also become operational, though with certain rules and regulations in place. Investors were highly impacted by this as they expect more economic activity ahead.

Another factor that is instrumental in propping investors’ sentiment is the government’s stimulus measures over the past two months.

The government has taken several initiatives to fight the economic turmoil caused by the pandemic. While the Congress passed trillions of dollars in fiscal programs, Federal Reserve added trillions of dollars in monetary stimulus. The Fed cut its benchmark interest rate twice during March, once by 0.50% and a second time by 1%. The current benchmark rates range between 0% and 0.25%.

Coming to monetary stimulus, the U.S. House passed a $3 trillion coronavirus relief package in mid-May that would dispatch another round of aid to state and local governments and a second round of $1,200 payments to American taxpayers. The legislation has been dubbed as the Heroes Act.

Key Industry Players Induce Optimism Over Vaccine

Last month, development on the front of vaccines was fast with a couple of major companies announcing their vaccine candidates and the progress these drugs made. Biotechnology companies such as Moderna, Inc. (MRNA), Novavax, Inc. (NVAX)and Merck & Co., Inc. (MRK) are on the top of their game, each developing their own drug to combat the virus.

Moderna is developing a vaccine with the National Institute of Allergy and Infectious Diseases. Dr. Anthony Fauci, the country’s leading infectious disease expert, even mentioned that the results from the phase one trial of the vaccine were “really quite promising,” after he studied the data. In addition, the company announced in May that the vaccine appeared to be safe and was able to stimulate an immune response against coronavirus.

Novavax began human trials of its vaccine candidate last month in Australia. The first phase of the placebo-controlled trials is expected to have 135 healthy adults enrolled and the preliminary round of data from that study could be released in July.

Finally, Merck also said that it was working on two potential vaccines and an experimental drug against the deadly virus. The healthcare solutions provider said last week that it was acquiring an experimental vaccine as part of the purchase of its Austrian maker, while partnering in the development of a second vaccine candidate and the possible drug.

5 Stocks to Buy

We have, therefore, rounded up five stocks that gained in May and could gain further because of the aforementioned factors. All of these stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Chegg, Inc. (CHGG - Free Report) is a direct-to-student learning platform. The Zacks Consensus Estimate for the company’s current-year earnings has moved 13.1% north in the past 60 days. Chegg’s expected earnings growth rate for the current year is 33%. Chegg belongs to the Zacks Internet - Software industry and carries a Zacks Rank #1. Shares of the company rose 42.9% over the past month.

Co-Diagnostics, Inc. (CODX - Free Report) is a molecular diagnostics company. The Zacks Consensus Estimate for the company’s current-year earnings has moved more than 100% north in the past 60 days. Co-Diagnostics’ expected earnings growth rate for the next quarter is more than 100%. Co-Diagnostics belongs to the Zacks Medical Services industry and carries a Zacks Rank #1. Shares of the company rose 54.1% over the past month.

BJ's Wholesale Club Holdings, Inc. (BJ - Free Report) operates as a warehouse club. The Zacks Consensus Estimate for the company’s current-year earnings has moved 37.2% north in the past 60 days. BJ's Wholesale Club’s expected earnings growth rate for the current year is 54.1%. BJ's Wholesale Club belongs to the Zacks Consumer Services - Miscellaneous industry and carries a Zacks Rank #1. Shares of the company rose 35.4% over the past month.

Fortinet, Inc. (FTNT - Free Report) is a provider of integrated and automated cybersecurity solutions. The Zacks Consensus Estimate for the company’s current-year earnings has moved 3.8% north in the past 60 days. Fortinet’s expected earnings growth rate for the current year is 11.3%. Fortinet belongs to the Zacks Security industry and carries a Zacks Rank #2. Shares of the company rose 25% over the past month.

Glu Mobile Inc. is a developer, publisher and marketer of free-to-play mobile games. The Zacks Consensus Estimate for the company’s current-year earnings has moved 2.4% north in the past 60 days. Glu Mobile’s expected earnings growth rate for the current year is 82.4%. Glu Mobile belongs to the Zacks Toys - Games - Hobbies industry and carries a Zacks Rank #2. Shares of the company rose 11.3% over the past month.

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