The Best Stock in the Best Sector for a Summer Rip
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By Lucas Downey, Contributing Editor, TradeSmith Daily
Now that April is in the books, let’s get a game plan going for May…
Seasonal volatility has markets jumping and dumping on a daily basis. But this shouldn’t come as a surprise.
Two weeks ago, I alerted you to a strong seasonal trend that’s playing out today.
Late April through mid-May often brings weak markets. That’s the bad news. But there’s great news, too.
You see, this seasonal dip prefaces a monster rip kicking off later this month.
Our message then was to “embrace the dip, then ride the rip.”
That’s still very much the message today, except we’re going to take it a step further.
We’ll study seasonal weakness by sector… and more importantly, highlight the groups poised to soar in the weeks ahead.
Even better, I’ll alert you to a superstar stock that I know and love, primed to help you navigate the seasonal bumpiness…
Few Were Spared
The “sell in May” adage started early this year. April’s 4.2% slump for the S&P 500 was the largest monthly decline since September:
It’s notable that all sectors were in the red in April except for the defensive Utilities group. High-yielding Real Estate and growth-heavy Technology stocks were battered the worst – the former fell 8.62% and the latter fell 5.46%.
At first glance, this could give you a worry-induced ulcer. But it shouldn’t.
Reverting back to our seasonal study from two weeks ago, history proved that the April 19 to May 19 period produced an overall negative 1.44% return for the S&P 500 (SPY ETF), going back to 2010.
TradeSmith’s Seasonality tool proves it – the April blues are what markets tend to do:
And when you drill down into the sector level, we can see few are spared during this run-of-the-mill seasonal rout.
Using the same time frame as above, check out how every sector produces a negative average return from April 19 to May 19.
Notably, Health Care, Communication Services, and Information Technology tend to show very strong market-beating performance, while Real Estate is bottom of the barrel with a negative 1.77% performance:
If your portfolio recently has a red tint to it, don’t fret. This is the first step before something magical tends to happen.
Here’s where the tearful news shifts abruptly to cheerful news!
Because these dips tend to give way to crowd-pleasing rips…
Get Ready for a Big Summer Rip
As we pointed out in our seasonal study, May 19 kicks off a powerful ripper though the end of July.
Here’s that screengrab showing how the S&P 500 (SPY ETF) averages a sexy 4.57% average return from May 19 to July 28 over the past 14 years:
That’s a lot of green if you ask me. What really gets me excited, though, is the sector returns during this same time frame.
Betting on growth has really paid off. Information Technology cruises with an enviable 6.29% jump. Consumer Discretionary also does well with a 5.76% showing.
I also need to call out how Real Estate puts in a very respectable 4.64% return:
Now it’s starting to really come together…
Embrace the dip. Ride the rip!
It isn’t often that we get a high-probability buy-the-dip situation. And for my money, I’m going to wager that Technology is exactly how you want to tilt your portfolio in the coming days.
One Superstar Technology Stock to Help You “Navigate” the Summer Rip
It’s one thing to make a sector-wide bet. It’s another altogether to laser-focus on a top-quality business within that sector.
GPS giant Garmin Ltd. (GRMN) – with its world-class smartwatches and other navigation products – has the profile worthy of your consideration as we approach the summer months. (Full disclosure: I’ve owned GRMN for many years.)
When it comes to finding winning stocks, focus on leaders. Those tend to be stocks with rosy businesses. One look at the chart of GRMN the past year and you’ll see wicked market-beating performance since the October lows.
Since Oct. 27, Garmin has nearly tripled the S&P 500, leaping 67% vs. a solid market performance of 24%:
But a chart is only one piece of the investing puzzle. We need to size up the fundamental picture as well.
As investors, we should only consider owning healthy, growing enterprises. Garmin fits the bill.
Let’s start with revenue growth.
In 2022, Garmin saw sales of $4.86 billion. In full-year 2023, revenues leapt to $5.22 billion… and are expected to settle in at $5.77 billion. Steady business growth like this is exactly what you want to see.
Next, let’s do a quick test on the bottom line.
Net income (what’s left after doing business and paying taxes) tells us how profitable a business is. In 2022, Garmin saw $973 million of net income. That number jumped to $1.29 billion in 2023. And 2024 is set to hold steady with estimates of $1.22 billion.
Throw in the fact that the firm is light on debt with just $113 million… and is shareholder friendly, with a juicy dividend yield of 1.81%… and my quick napkin math says we have a winner.
But I’d like to take it one critical step further…
The Quantum Score Seals the Deal
By using TradeSmith’s Quantum Score, I can get a real-time, in-depth analysis of any stock.
And if you’re lucky enough to find one scoring well, beaming in the green “sweet spot” between 60 and 85, that’s the final checkpoint.
Garmin has a super-strong 81 Quantum Score, which is made up of a rock-solid 75 fundamental ranking and 85.3 technical ranking.
Few stocks ever get this quality of a score:
This tells us that not only is GRMN a high-quality business and is trading well… but there’s evidence to suggest it’s seeing a flood of capital from the biggest investment houses on Wall Street.
That’s a trifecta of factors that historically makes for great investing… So great, in fact, it’s historically beaten the S&P 500 7-to-1.
So let’s recap today’s message.
History says a fat rip is coming…
Late May to July often kicks off a massive rally for stocks…
Technology and Discretionary names benefit the most…
And Garmin – a technology and discretionary company – shapes up as a leadership-quality stock with the blessing of TradeSmith’s Quantum Score.
Keep this baby on your watchlist in the coming months and years. My bet is it won’t steer you wrong.
And here’s where you can take the next step…
Jason Bodner’s Quantum Edge Pro introduced Garmin to readers many months ago, and they had the opportunity to grab this company at $106.
Garmin is well past his buy-up-to-price now, so it’s not a recommendation to buy… just one to watch.
History says a monster rip is coming. Are you ready to take advantage of it?
Regards,
Lucas Downey
Contributing Editor, TradeSmith Daily