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Business Insider
11-05-2025
- Business
- Business Insider
Sell in May and Go Away? 9 Reasons to Ignore This Terrible Advice
Tom Yeung here with your Sunday Digest. Ever wonder why the stock market seems to hibernate during summer? The most likely explanation comes from 18th-century England. At the time, wealthy British investors often sold their stocks before moving to their country homes for the summer. The seasonal fire sales supposedly caused markets to slump. Fast forward to today, and much like afternoon tea and handlebar mustaches, this centuries-old habit seems to live on. According to a study by LPL Financial, the May to October stretch has been a financial dead zone, delivering just 1.8% annual returns since 1950. Trading volumes typically dry up as traders go on vacation, and there's simply not enough buying demand to power stocks higher. Meanwhile, the November to April months have rewarded investors with a much stronger 7% return, as shown in the graph below. The effect is also noticeable across other countries. A 2002 study by LPL found that 36 of the 37 markets they studied showed lower returns in May to October. The one outlier was Australia, which experiences seasons opposite to those in the Northern Hemisphere. Still, selling your entire investment portfolio in May isn't just terrible from a tax perspective. It also causes people to miss out on potential recoveries. For example, the S&P 500 rose 12% in the summer of 2024 after the Federal Reserve cut interest rates. An investor too distracted by the 'sell in May' mantra would have missed out on those gains. The 2008 financial crisis and 2020 COVID-19 pandemic also saw incredible resurgences the following summers. In today's Digest, we'd like to give nine other reasons (i.e., stocks primed for success) to stay invested in the summer. Well… I'll give you two here… And InvestorPlace Senior Analyst Luke Lango will reveal another seven in a special portfolio he built using his new powerful stock algorithm. It's designed to do one thing… help you beat the markets and volatility, month after month, by helping him find the best stocks at the best time. You can learn more about how that tool works – and that special seven-stock portfolio – in Luke's new free broadcast here. Now, let's get to the two stocks I'm looking at this summer – and take a quick peek at Luke's special portfolio and how these seven stocks all represent even more reasons to stay invested this summer… 1. Seasonal Effects Can Dominate Some companies naturally do well during the warmer months. Outdoor sportswear makers… ice cream parlors… summer camps… Then there's my favorite example, Intuit Inc. (INTU). (You can tell I'm popular at parties). Sunday Digest readers will recognize this tax and accounting firm as one of my top growth picks for 2025. America's current tax laws expire at the end of this year, and the Trump administration and Congress are lining up a new 'big, beautiful bill' that will change everything from the state-and-local tax (SALT) deduction to the way tips are taxed. Intuit stands to do well because it serves the individuals and small businesses affected by these changes. Do-it-yourself filers are far more likely to use Intuit's TurboTax software on a major tax overhaul, and INTU's shares surged 80% during the last major change in 2017. The software firm also benefits from a significant summer effect. Most of Intuit's profits happen during the tax filing season that ends on April 15, and markets seem consistently surprised by the 10X jump in operating profits once they're reported in late May. 'Seasonal' investing software from our corporate partners, TradeSmith, finds that shares of the TurboTax owner typically rise 10% between May 13 and August 11 as these financial figures are announced and digested. The green line in the graph below shows the typical path INTU shares have taken over the past 20 years. We're within 48 hours of the best day of the year to buy. source In addition, TurboTax has several secular tailwinds in its sails. The company will benefit from the end of the IRS Direct File program, which previously offered free tax filing software. And the firm is also a leader in AI-powered accounting, which is helping sales of its popular QuickBooks product. Though the average firm typically does poorly during summer months, tax firms like Intuit and H&R Block Inc. (HRB) prove that there are some notable exceptions to this rule. 2. Last November-April Returns Were Poor Last year's November to April returns were mediocre at best. The S&P 500 dropped 2.8% over this period, compared to its long-term average gain of 7%. That means markets are unusually cheap for this time of year. The median S&P 500 company now trades at 17.9X forward earnings – 5% lower than last November, and 7% below the 19.2X level seen in the past five Mays. That's made several high-quality firms incredibly attractive long-term buys. And one that stands out is Corning Inc. (GLW). Corning is an upstate New York firm that's developed high-end glassware since 1851. It invented Pyrex in 1915, the low-loss fiber optic cable in 1970, and the iPhone's 'Gorilla Glass' in 2007. Today, the firm is a leader in liquid-crystal display (LCD) panels, smartphone screens, and the fiber optic cable used in broadband connections. It's an up-market manufacturer that's survived outsourcing and offshoring thanks to decades of innovation. Perhaps most excitingly, Corning also manufactures the high-end fiber optics used in data centers to link servers. This essential technology allows AI-focused data centers to send more data across tighter spaces. It's become one of Corning's greatest growth drivers. 'Our growth is primarily driven by powerful secular trends and more Corning content in our customers' offerings,' CEO Wendell Weeks said in prepared first-quarter earnings call remarks. 'We continue to see and hear reconfirming evidence that our secular trends are intact and remain relevant. We see it in our results and we see it in our order books, and we hear it in our detailed dialogues with our customers.' Meanwhile, the firm's profitability is excellent. Corning has earned positive operating earnings for the past two decades (even through two recessions), and analysts expect return on equity to surge to 17% this year – roughly twice as high as market averages. Shares additionally trade at just 19X forward earnings given the November-April selloff. Now, you might be thinking there must be something wrong. How can a firm have it all? And you'd be right to worry. Corning supplies many of the world's top TV makers, which are now facing enormous tariffs on exports to the United States. Public funding for broadband expansion may also get cut in the upcoming federal budget. Both factors have contributed to a 15% selloff since February. However, it's becoming increasingly clear that the market's 'sell first, ask questions later' approach has turned Corning into an irresistible 'Buy.' Shares still trade 20% below their February peaks, and we believe this firm is an opportunity too good to pass up this summer. 3. The 7 Short-Term Trades Finally, Luke Lango has long maintained that there's always a bull market somewhere. Last year, 60 of the S&P 500 companies saw shares rise more than 30%, and this group included names like Iron Mountain Inc. (IRM) (up 58%) and Nvidia Corp. (NVDA) (up 60%). At first glance, Iron Mountain and Nvidia seem to have little in common. The former is a blue-chip warehousing firm known for safekeeping corporate documents and Prince's unpublished music. The latter is a hypergrowth chipmaker at the bleeding edge of artificial intelligence. Nevertheless, the two do have some commonalities. On the fundamental side, both firms saw accelerating growth in the fiscal year leading up to 2024. Iron Mountain came from a relatively low base to notch 24% growth in earnings before interest and taxes from the previous year, while Nvidia's earnings quadrupled to $37 billion. Meanwhile, the technical factors were also on their side. Iron Mountain's shares had risen 40% the previous year, while Nvidia's had surged 240%. History tells us that rising stocks tend to keep going up. The two companies also saw significant analyst upgrades, another sign of gains to come. Luke and his team have spent over a year assembling these insights into a single system called Auspex. This monthly process now screens over 8,000 stocks on the last day of each month and helps them identify 'perfect' stocks with strong growth momentum for shorter holding periods. In a new presentation, Luke reveals the secrets behind this system and shows how it has now selected seven elite stocks that look set to buck the summer doldrums. But don't wait long. The Trouble With Selling in May Studies have found it's hard to outperform the stock market by selling in May and rebuying in October. Transaction costs and taxes tend to erase any potential gains even if you put the money into yield-returning T-bills. In addition, this year has seen some incredible first-quarter results. According to FactSet, the average S&P 500 firm reported a 12.8% increase in earnings per share. We're seeing firms like The Walt Disney Co. (DIS) surge 16% on strong earnings figures. Selling now would leave people missing out on the typical post-earnings bump. That's why we've been broadly recommending investors stay in the market. There's a great deal of opportunity for those who know where to look, and that's why I urge you to watch Luke's free Auspex presentation to learn more. Until next week, Tom Yeung
Business Insider
04-05-2025
- Business
- Business Insider
4 Stocks to Buy for a Potential 'Summer Panic'
InvestorPlace - Stock Market News, Stock Advice & Trading Tips Tom Yeung here with your Sunday Digest. Last month, I wrote about five stocks to 'buy the dip.' Our quantitative systems signaled April's selloff had gone too far and that low prices would be enough to trigger a market rally. Since then, these five firms have performed splendidly, largely outperforming the S&P 500's 8% rise. InvestorPlace Senior Analyst Luke Lango believes this is just the start. He predicts a major event on May 7 will trigger a flood of cash – as much as $7 trillion – to rush back into U.S. stocks. It's a catalyst that could change the entire market dynamic and create a new summer 'panic' of the sort not seen since 1997. This is why he held a special 2025 Summer Panic Summit on Thursday. At this event, Luke explained why he believes this catalyst on May 7 will be a game-changer. Plus, he revealed a new set of stocks that he believes are primed to lead the next wave of growth. (You can watch a replay of the event here.) Now, I can't tell you what this catalyst is. You'll have to see it for yourself in Luke's special presentation. But if this panic buying he describes does take off, several of my top long-term picks are certain to benefit. Let's revisit two of them today – and a new one as well… The Leveraged Play The first is Sabre Corp. (SABR), one of the three firms that run the world's Global Distribution System (GDS) for hotels and flights. Virtually all travel agents and online booking systems use GDS to book flights since it's the only platform with real-time data on available seats, rooms, and prices. That means industry profits are generally stable and very high. (Even Alphabet Inc. [GOOGL] failed to create a rival system and now uses Sabre to power Google Flights.) That's why private equity decided to take Sabre off the public markets in 2007. They saw a cash cow that could be loaded with debt to make large profits even bigger. And it worked, at least in the short run. Sabre returned to public markets in 2014 with 50% higher net income, and the stock surged another 70% the following year as profits continued to climb. Then, two things happened. Covid-19. The once-in-a-century pandemic brought air travel to a near standstill, slashing Sabre's revenues and making debts impossible to service. Rising rates. The following year, the U.S. Federal Reserve began hiking interest rates to stave off inflation, making it harder for Sabre to pay off existing debts and roll them into new deals. That crushed Sabre's share price, which has fallen 90% since early 2020. Its debts are now worth almost six times more than its equity… a situation usually associated with near-bankrupt companies. But if Luke's calculations are right, things could soon turn around for this equity 'stub.' In fact, since the company is so financially leveraged, a 10% increase in enterprise value will translate into a 58% increase in share price. That makes Sabre an incredible 'option-like' play. In the worst case, the stock goes to zero… but in the best case, SABR shares could rise 2X… 5X… or even 10X. The Real Estate Kings The May 7 catalyst will also be felt among real estate companies that rely on more traditional debt financing. My two favorites are on opposite ends of the risk spectrum. I would recommend both as complements. Realty Income Corp. (O). This real estate investment trust (REIT) is arguably the most conservative of its kind. Leases are made on a 'triple net' basis, meaning tenants are responsible for almost all costs, and the company attracts blue-chip tenants by offering minimal rent increases. Its dividend is paid monthly and sits at a stunningly high 5.6%. Digital Realty Trust Inc. (DLR). Meanwhile, DLR is one of the most aggressive REITs thanks to its single-minded pursuit of growth in AI data centers. Gross income more than doubled to $2.9 billion in 2024, and analysts expect another 50% surge to $4.5 billion by 2027. Cloud computing firms like Microsoft Corp. (MSFT) are still starved for computing power, and Digital Realty has grown as quickly as possible to service that need. Dividends are lower at 3% to reflect this potential. These two firms are well run. Realty Income has played the long game by focusing on grocery stores (10% of its portfolio), convenience stores (9%), non-retail stores (i.e., industrial and services) (21%), and other businesses resistant to e-commerce competition. On its part, Digital Realty realized early on that cloud computing customers would need dense colocation data centers (where powered, connected warehouse space is rented out to firms that bring their own servers) and quickly moved to offer that service. That means both firms should see a surge in buying interest on a May 7 catalyst. Despite their differences, these REITs are economically sensitive firms. And if Luke is right, a summer panic could send these types of companies soaring. The Healthcare Acquirer Finally, I'm adding a new pick to my top list: Biogen Inc. (BIIB). This high-quality biotech firm was created in 2003 in a mega-merger of Biogen and automation company Idec. Shares rose as much as 1,200% through the biotech boom of the mid-2010s as blockbusters like cancer drug Rituxan and MS therapy Avonex came onto the market. Biogen also proved reasonably adept at acquiring and partnering with other biotech firms, though a 2019 acquisition of Nightstar did end with two clinical failures. Challenges began to mount after 2023 on rising research costs and high interest rates. Suddenly, new therapies became far more expensive to finance. A lackluster launch of Alzheimer's drug Leqembi also spooked investors. So did recent staffing cuts at the U.S. Food and Drug Administration (FDA), which will increase the time and barriers for new drug approvals. Biogen's stock has dropped 60% over the past two years and trades at 8X forward earnings, compared to a long-term average of 13.3X. The May 7 catalyst could change part of that equation. This summer, we could see investors return to this beat-up stock whose forward price-earnings ratio now looks more like an automaker's than a top-tier biotech's. Biogen's pipeline and several new launches look reasonably strong. Recently approved drugs like Skyclarys, used in neurology, and Zurzuvae, for postpartum depression, should reduce the impact of expiring drugs and Leqembi's slower-than-expected success. It's also worth noting that large biotechs like Biogen have significant marketing and production scale that make them attractive partners, allowing them to snap up promising smaller firms at a discount. Of course, many of Biogen's challenges will remain. Biotech is an industry that generates enormous paydays and equally significant flops. I'm also not expecting a quick return to 'normal' at the FDA. Still, if you had told me two years ago that Biogen would be on sale at 8X forward earnings, I wouldn't have believed you. And now, it's something worth taking advantage of. The Summer Panic of 1997 In May 1997, the Asian Financial Crisis was getting started. Currency speculators were dumping the Thai baht, forcing that country's central bank to defend their currency exchange rate with a dwindling supply of foreign reserves. By July, these reserves had run out, triggering a devaluation and market mayhem. It only took several months for the crisis to spread to South Korea, Hong Kong, and beyond. Asian stock markets collapsed. Yet, none of this affected the dot-com boom. Over the same period, the tech-heavy Nasdaq Composite surged 20% to a new record as American investors began recognizing the promises of the internet. Retail investors were more panicked about missing out than with some faraway financial crisis. Luke Lango believes we're approaching a new version of this two-sided 'panic.' Today, bearish institutional investors are dumping tariff-impacted companies as global macro fears kick in. Shares of Norwegian Cruise Line Holdings Ltd. (NCLH) have dropped 38%, while those of shoe retailer Deckers Outdoor Corp. (DECK) have sunk 45%. Meanwhile, retail investors are aggressively buying the dip every chance they get. On April 3, individual investors bought $4.7 billion of equities following President Donald Trump's 'Liberation Day' selloff. And on Wednesday, a negative U.S. GDP report was quickly buried as these same mom-and-pop investors snapped up shares. That's because there's a lot of money sitting on the sidelines. And there are a lot of bullish investors waiting to buy up stock. This could come to a head on May 7, when Luke predicts an event will trigger a new cascade of retail buying. Understandably, everyone is focused on short-term moves in the midst of a fast-paced market. But there's something bigger happening behind the scenes… For the full breakdown of this catalyst – and Luke's blueprint for the summer – click here to check out his 2025 Summer Panic Summit. Until next week, Tom Yeung
