Major Indexes Defying "Sell in May" Adage: 5 Growth Picks

Wall Street's impressive turnaround on Monday (May 18), after a disappointing week, has placed all the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — in positive territory month to date. Half of this month is already over, and Wall Street is still in green defying the well-known financial-world adage "Sell in May and go away".

This is important because several economists and financial experts quoted this adage after a record-breaking stock market performance last month (best monthly gain in more than five decades) amid coronavirus-induced economic disaster and lack of any vaccine.

Notably, the Dow, the S&P 500 and the Nasdaq Composite have rallied 1.5%, 3.2% and 6.8%, respectively, so far in May. Moreover, the Nasdaq is in green zone year to date. Aside from these large-cap centric indexes, the small-cap centric Russell 2000 Index has gained 1.8% month to date, indicating that the rally is broad-based.

Powell's Speech and Reopening of the Economy

On May 17, Fed Chair Jerome Powell said that the path to U.S. economic recovery post pandemic may be slow but one shouldn’t doubt the economy’s capabilities. Per Powell, the central bank has enough ammunition to help the economy sail through these trying times.

Powell also expressed optimism and believes that the economy will start recovering in the second half of this year, provided there isn’t a second wave of coronavirus. However, he admitted that a full recovery is possible only after the arrival of a vaccine. (Read More: Wall Street to Rally as Powell Talks Recovery: 5 Big Winners)

Meanwhile, 43 states have decided to ease lockdown restrictions and open up their economies in some form by month-end, including portions of hard-hit New York. States like Alaska, Georgia, South Carolina, Tennessee and Texas have already started allowing restaurants, salons, spas and barbershops to serve customers. Mike DeWine, governor of Ohio, has decided to reopen retail stores and other service industries.

Development on COVID-19 Treatment

On May 18, Moderna Inc. MRNA announced that all 45 patients administered with its coronavirus vaccine candidate in a Phase 1 clinical trial developed neutralizing antibodies. The company has received the FDA's permission to conduct a more in-depth phase 2 clinical trial.

According to the World Health Organization (WHO), there are 1,114 clinical studies ongoing for the treatment of COVID-19. So far, 21 of the trials have reported interim results, with 16 showing positive early results.

Market's Momentum Likely to Continue

Market's worst is behind us as negative estimates are already factored in market valuation. Moreover, a gradual decline in new COVID-19 cases and the possibility of U.S. and global economies opening phase by phase after 2-3 months of lockdown will instill confidence in market participants.

An unprecedented $8 trillion fiscal and monetary stimulus injected by the U.S. government and the Fed has enhanced investor confidence. Furthermore, on May 15, the Democratic-run House of Representatives approved a $3 trillion coronavirus relief bill to strengthen the economy.

The Trump administration has expressed its desire to consider and discuss the new stimulus package. These should encourage spending and help the economy gain from consumers’ pent-up demand.

Our Top Picks

At this stage, it would be prudent to invest in stocks with a favorable Zacks Rank and strong growth potential. We have narrowed down our search to five stocks with a Growth Score of A or B. Each of our picks  carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows the price performance of our five picks in the past month.

 

Chegg Inc. CHGG operates a direct-to-student learning platform from high school to college with tools designed to help them pass their class and save money on required material. The company has an expected earnings growth rate of 33% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 15.2% over the last 30 days.

Quidel Corp. QDEL develops, manufactures and markets diagnostic testing solutions for applications primarily in infectious diseases, cardiology and gastrointestinal diseases worldwide. The company has an expected earnings growth rate of 131% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 18.1% over the last 7 days.

MarketAxess Holdings Inc. MKTX is a leading multi-dealer trading platform that offers institutional investors access to global liquidity in several fixed-income securities and credit derivatives. The company has an expected earnings growth rate of 29.8% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 0.7% over the last 7 days.

Dropbox Inc. DBX provides a collaboration platform worldwide. Its platform allows individuals, teams, and organizations to collaborate and sign up for free through its website or app, as well as upgrade to a paid subscription plan for premium features. It has an expected earnings growth rate of 48% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 5.7% over the last 30 days.

Vertex Pharmaceuticals Inc. VRTX is focused on the discovery, development and commercialization of small molecule drugs targeting serious diseases. Its main area of focus is cystic fibrosis. Vertex Pharmaceuticals has an expected earnings growth rate of 65.1% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 15.8% over the last 30 days.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>

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Moderna, Inc. (MRNA) : Free Stock Analysis Report
 
Vertex Pharmaceuticals Incorporated (VRTX) : Free Stock Analysis Report
 
Quidel Corporation (QDEL) : Free Stock Analysis Report
 
MarketAxess Holdings Inc. (MKTX) : Free Stock Analysis Report
 
Chegg, Inc. (CHGG) : Free Stock Analysis Report
 
Dropbox, Inc. (DBX) : Free Stock Analysis Report
 
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