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Defy Sell in May and Go Away! Instead Buy These 5 Stocks

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Market pundits, now, are perhaps widely discussing the popular adage “sell in May and go away”. It is a common agenda followed by stock traders as the equity market generally advances during the October to April period, and then starts to retrace in May. But, this time around, May will not be a particularly bad month for the stock market. 
 
After all, Wall Street continues to make gains, with the S&P 500 achieving the third consecutive record close. At the same time, the U.S. economy is standing tall amid a synchronized global economic slowdown. Thanks to these bullish trends, investors should focus on fundamentally sound companies that can make the most of the current scenario.
 
A Widely Followed Axiom
 
Sell in May and go away encourages investors to sell stock holdings in the month to avoid getting affected by the seasonal decline in equity markets. The strategy also involves getting back into the equity markets in November, thereby evading the typical volatile May-October period. Historically, stocks have underperformed in the six-month period commencing May and ending in October, compared to the six-month period from November to April.
 
Have a look at the returns – 
 
 
 
Mostly lower trading volumes in the summer season and substantial increase in investment during the winter months are cited to be the main reasons behind this discrepancy in returns.
 
Here is Why You Shouldn’t Sell in May
 
May is upon us and even though the popular adage advises us to stay away from stocks, we should not be doing so from an investment standpoint. This is because major stock indexes including the S&P 500 and the Nasdaq returned to record territory in April, a sharp rebound from the late 2018 selloff. 
 
And data shows us that large pullbacks are unlikely once markets have hit record territory. Mark Haefele, the global chief investment officer at UBS noted that “the market has just 11% of the time declined by more than 5% over the six months
following an all-time high, compared with 18% of the time otherwise.”
 
This time around the markets will surely do well banking on solid domestic economic growth. While things are rather gloomy around the globe, U.S. economic growth was stronger than expected in the first quarter. 
 
South Korea’s economy has shrunk and Japan’s economy is not showing promising growth. Further, Germany is barely expanding, affecting an already ailing Eurozone. Amid all this, the U.S. economy expanded at a 3.2% annual pace in the January-March period, the best first-quarter growth since 2015. The gain was well above analysts’ expectations of a 2.3% increase in gross domestic product (GDP).
 
To top it, Americans are now feeling more optimistic about their present and future conditions. The key economic indicator that measures attitudes on future economic prospects came in at 129.2 in April and exceeded analysts’ expectations of a 126.9 reading. At the same time, both the future expectations and present situations index remain near their highest levels in a decade. 
 
Some other recent reports also point to signs of strength. March retail sales’ surprise jump of 1.6% does indicate that consumer spending will eventually improve and that a proxy for business investment has risen sharply. Headline durable goods orders expanded at 2.7% last month, easily surpassing estimates. In fact, durable goods orders grew at the fastest pace in seven months.
 
5 Top Stocks to Buy in May
 
With the U.S. economy showing enough signs of strength and poised to gain further, investing in fundamentally-sound companies at this moment seems judicious. These companies are financially stable enough to gain from a healthy economy. We have zeroed in on companies that sport a Zacks Rank #1 (Strong Buy) and have 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.
 
Abercrombie & Fitch Co. (ANF - Free Report) operates as a specialty retailer. In the last 60 days, nine earnings estimates moved up, while none moved lower for the current year. The Zacks Consensus Estimate for current-year earnings has moved 34.9% up in the same time frame. The stock’s expected earnings growth rate for the current year is 20.9% against the Retail - Apparel and Shoes industry’s projected rally of 3.5%.
 
Clean Harbors, Inc. (CLH - Free Report) provides environmental, energy, and industrial services. In the last 60 days, one earnings estimate moved up, while none moved lower for the current year. The Zacks Consensus Estimate for current-year earnings has moved 3.6% up in the same time frame. The stock’s expected earnings growth rate for the current year is 37.3% against the Waste Removal Services industry’s projected rally of 11.5%.
 
Lithia Motors, Inc. (LAD - Free Report) operates as an automotive retailer. In the last 60 days, five earnings estimates moved up, while none moved lower for the current year. The Zacks Consensus Estimate for current-year earnings has moved 7% up in the same time frame. The stock’s expected earnings growth rate for the current year is 9.8% compared with the Automotive - Retail and Whole Sales industry’s projected rally of 7.5%.
 
SkyWest, Inc. (SKYW - Free Report) operates a regional airline in the United States. In the last 60 days, three earnings estimates moved up, while none moved lower for the current year. The Zacks Consensus Estimate for current-year earnings has moved 4.3% up in the same time frame. The stock’s expected earnings growth rate for the current year is 13.7% against the Transportation - Airline industry’s projected rally of 13.3%.
 
Tech Data Corporation (TECD - Free Report) operates as an IT distribution and solutions company. In the last 60 days, three earnings estimates moved up, while none moved lower for the current year. The Zacks Consensus Estimate for current-year earnings has moved 2.3% up in the same time frame. The stock’s expected earnings growth rate for the current quarter is 122.8% compared withthe Retail - Computer Hardware industry’s projected rally of 77.7%.
 
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