Sell in May and Go Away? or Buy Right Now and I’ll Tell You How

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Midas Letter

The Digital Businesss Channel for Cannabis, Crypto and Technology Stocks.

Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

The calendar ticks into May and we approach ever closer warmer and sunnier times here in the northern hemisphere. Living in Canada and being as far north as we are, we are ever more thankful for this yearly occurrence. The mood and atmosphere seems to brighten – we start to think about cottage weekends, being able to explore outside (remaining 6 feet apart of Coronavirus plagued individuals, obviously), and experiencing longer hours where we enjoy evenings after market closes and some time for a bit of relaxation.

A lot of things change at the beginning of every month in the mindset of traders too. Investors try to interpret all the happenings of the year-to-date and the month before to to gain some insight into the upcoming month. Historically, investors buy stocks on the first day of every month. Pschology plays a big role in this. We, as humans, hold predictable and observable patterns which is fun to dissect (possibly ties into why it is fun for me to analyze the stock market and find ways to profit from other patterns and behavioural phenomena). We like round numbers and fresh beginnings. We will always set an alarm for the nearest hour or half an hour and you will find that the biggest support and resistance levels in technical analysis hold around round integers too. A new month provides new opportunity where we can forget about the losses of that last time period and start making healthy profits again in the next 28-31 days.

This year however may not correlate to the usual patterns as there is nothing normal about what is going on in the world. A worldwide pandemic like something straight from an apocalyptic blockbuster, negative oil prices and the S&P 500 bouncing 10% in a week…

Another phenomena that may be worth looking into this time of year is the old expression: “Sell in May and Go Away”. An investment proverb warning investors to divest their stock holdings in May and wait to reinvest in October/November. Of course, there are profits to be made during this time, and Midas Letter prides itself on finding the value of investments regardless the time of year. It may just be something worth keeping in mind when making investment decisions this spring/summer. For example, instead of ignoring timelines, perhaps its worth considering rotating your investment portfolio into stocks that may be less affected by the seasonal slow growth in the markets during the summer, such as technology or health.

Below is the real-world data over the last decade, of the returns during the “selling” months in the S&P 500.

In the NEWS:

Shell or Royal Dutch Shell plc (NYSE:RDS.A) has cut its dividend for the first time since World War II. The company declared a $0.32/quarterly dividend which is a -66% decrease from prior dividends of $0.94. This surprising news is the latest illustration of the impact COVID-19 is causing the world. Oil demand is undergoing a historic drop and this represents an unprecedented time for Shell and the entire oil sector. The company has provided a reliable income to millions of pension fund investors for an entire generation. People invest into dividend stocks knowing they will always receive passive income. A dividend is often the sign of a financially healthy and stable business that is committed to rewarding shareholders. These are some of the qualities Warren Buffett looks for when he invests. Do people invested into large market-cap companies have to start worrying that their steady income is not going to be as circumvent as usual as times are changing?

American Airlines Group Inc (NASDAQ:AAL) received a massive hit on Friday as Evercore ISI analyst, Duane Pfennigwerth, slashed his price target by 92% from $10 down to a single $1. Airlines, in general, have seen their valuations slashed thanks to the coronavirus as travel has become an impossibility. American Airlines being hit the hardest, falling 65% since the onset of the virus as the company has the weakest balance sheet in their competitor group. The Analyst said the company “may not see meaningful recovery in its share price”. To keep talking about Mr Buffett and his dividend model: Berkshire Hathaway Inc. (NYSE:BRK.A) sold the ‘big 4’ airline stocks in April.

Midas Letter is analyzing and pricing in the ever-lasting impact the coronavirus will have on business. What will become the new normal? The work-from-home model that’s being imposed on businesses may be difficult to manage, but may become ever-more prominent even after the face-masks come off. Is there a need to travel into work and come into contact with people when technology is developed where everyone can be productive from home? How will this effect airlines, travel and oil prices? Oil prices have been climbing slowly since the unprecedented drop to negative territory a couple of weeks ago. But are we going to see another sell-off? Its possible the shorts, betting the price of oil will decrease, have loaded up which may cause a short-term squeeze in the oil price. Either way, we won’t see a return of oil prices to much higher levels in the foreseeable future.

The 5 largest firms in the S&P 500 Index (INDEXSP:.INX) make up ~20% of the index, or the equivalent of the bottom ~350 firms. The effect of this being that although the S&P 500 is only down ~15% from its high, the median constituent firm is down ~28%. The FAAMG tech stocks are also responsible for ~90% of earnings growth cumulatively generated by all companies in the S&P 500. So, it is worth considering a bet on the S&P 500 is more than ever a substantial bet on tech and ads. So its no surprise that the “Big 5” tech companies all reported earnings this week and had the biggest impact on the entire index. Those “FAAMG” stocks are comprised of Amazon.com, Inc. (NASDAQ:AMZN), Apple Inc. (NASDAQ:AAPLFacebook, Inc.(NASDAQ:FB), Google (Alphabet Inc) (NASDAQ:GOOG) (NASDAQ:GOOGL) and Microsoft Corporation (NASDAQ:MSFT).

Amazon hit an all-time high moments before its earnings were announced as one of the “essential” players during the coronavirus shutdown. Shares are up 28.6% year-to-date. Is the Market Still Undervaluing Amazon?

Apple has missed expectations once in the last 5 years and that was back in 2016 and this quarter was no exception. This is the first time in ten years the company didn’t not provide any forecasts however. Shares are down 3.6%.

Facebook has beat 3 quarters in a row now. Shares are down 8.7% year-to-date.

Google has announced hiring freezes and salary cuts as the tech giant as taken a hit from the downturn in digital advertising. Shares are down 5% year-to-date.

Microsoft has just 1 earnings miss in the last 5 years back in 2016. Its shares jumped following revenue and earnings beat for its Q3. The stock is trading at its highest level since late February before coronavirus. Shares are up 10.4% year-to-date and are near their all-time highs.

Q&A

What are your thoughts on the Federal Reserve’s stimulus to try to save the economy?

Back in 2008, I think the Fed’s balance sheet was just under a trillion dollars, something like 800 billion. With all the stimulus that they’re talking about. People are saying by the end of this year, that .8 of a trillion, back 12 years ago, is going to balloon to twelve trillion dollars. So, we’re talking about numbers. These numbers are almost unfathomable and unconscionable. You gotta believe there’s got to be some inflation at some point.

What’s your opinion on Boeing Co (NYSE:BA)?

So, there’s a lot of talk about Boeing, right? They had issues before this. They are saying that they went to the credit markets yesterday. They were actually able to raise 25 billion dollars in the credit markets at I think the rate was 5 – 5.5%. Now, I don’t know about you guys or the people listening but if you’re in Boeing right now, I think it’s a bit of a stretch that we’re at the bottom. I mean it just so much unknown, right?

Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.