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4 Top-Ranked Stocks to Ride Out the Weak Trends in May

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After registering the worst month of the year, Wall Street extended its dismal trading to start May. The S&P 500 suffered its fifth straight weekly drop — the longest losing streak since June 2011. The steep sell-off came on the back of the biggest interest-rate increase since 2000. Signals that the Fed will not consider a rate hike by 75 bps at a future meeting were initially welcomed by investors but evaporated later on worries about the impact of the Fed’s moves on the broader economy.

Against such a backdrop, we have highlighted some stocks from the top-ranked cohort that could prove extremely beneficial for investors in the current market environment, reducing the risk of a downside. These include Airbnb (ABNB - Free Report) , Marathon Petroleum Corporation (MPC - Free Report) , United Microelectronics Corporation (UMC - Free Report) and ONEOK Inc (OKE - Free Report) . All these stocks have a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Fed Chair Jerome Powell raised interest rates by 50 bps, pushing the benchmark above 0.75%. With inflation running at a 40-year high of 8.5%, the central bank also signaled that it would keep hiking the rate at the same pace over the next couple of meetings. An increase in interest rates means higher loan rates for consumers and businesses, including mortgages, credit cards and auto loans.

Additionally, COVID-19 variant concerns and the resultant lockdown measures in China have sparked worries over global economic expansion that will continue to weigh on investors’ sentiment. Further, a war in Ukraine worsened disruptions in the flow of goods across borders, resulting in skyrocketing food and energy prices, and threatening corporate profits.

Added to the chaos is the weak seasonal trends. This is especially true given the old adage “Sell in May and Go Away,” which says that the performance of the stock market has been historically weak during the summer months (May to October). However, stocks have posted substantial returns over the past decade during the six months ending October.

Though May through October has been historically weak for stocks, LPL's Ryan Detrick found that the S&P 500 was up 9 out of the last 10 years from May through October, delivering an average return of 5.7%.

Low-Beta Stocks

Low-beta stocks exhibit greater levels of stability and usually lose less when the market is crumbling. Though these have lesser risks and lower returns, the stocks are considered safe and resilient amid market turbulence.

Airbnb is a leading platform for unique stays and experiences. The company provides a marketplace for connecting hosts and guests online or through mobile devices to book spaces and experiences. It has an expected earnings growth of 414% for this year. The stock carries a Zacks Rank #2 and has a VGM Score of B.

Value Stocks

Value stocks have proven to be outperformers over the long term and are less susceptible to trending markets. These stocks have strong fundamentals — earnings, dividends, book value and cash flow — that trade below their intrinsic value and are undervalued. These have the potential to deliver higher returns and exhibit lower volatility compared with their growth and blend counterparts.

Marathon Petroleum is a leading independent refiner, transporter and marketer of petroleum products. It has a Value Score of A and an estimated earnings growth of 299.2% for this year. The stock has a Zacks Rank #2.

Quality Stocks

Quality investing also seeks safety and protection against volatility. Quality stocks tend to outperform as these are rich in value characteristics with healthy balance sheets, high return on capital, low volatility, elevated margins and a track of stable or rising sales and earnings growth.

United Microelectronics operates as a semiconductor wafer foundry in Taiwan, Singapore, China, Hong Kong, Japan, the United States, Europe, and internationally. The company provides circuit design, mask tooling, wafer fabrication, and assembly and testing services. United Microelectronics has a low debt/equity ratio of 0.15, 5-year historical EPS growth of 58.4%, an estimated growth rate of 20.8% for sales and 51.8% for earnings this year, and a dividend yield of 2.68%. The stock further belongs to a top-ranked Zacks industry (top 35%), and has a Zacks Rank #2 and VGM Score of A.

Dividend Stocks

The dividend-paying securities are the major sources of consistent income for investors when returns from the equity market are at risk. This is especially true as these stocks offer the best of both these worlds — safety in the form of payouts and stability in the form of mature companies that are less volatile to the large swings in stock prices. The companies that pay out dividends generally act as a hedge against economic uncertainty and provide downside protection by offering outsized payouts or sizable yields on a regular basis.

While there are several top-ranked options available in the space, Texas-based ONEOK having a strong history of dividend growth, seems to be a good pick. The company is engaged in natural gas and natural gas liquids. The stock has 5-year historical dividend growth of 6.83% and estimated earnings growth of 15.3%. ONEOK has a dividend yield of 5.70% annually and carries a Zacks Rank #2. It sports a VGM Score of B.