One Stock to Own This Summer
- Usually, the market is weak in the summer as traders take summer vacations.
- This year may be different, but we have a way to take advantage of this seasonality regardless.
- Chad Shoop will break down seasonality trends that will stand the test of this volatile market.
This summer, the market may not follow the cliché, “sell in May and go away.”
For one, it’s pretty hard to go away when hot spots like Walt Disney World have yet to open.
My family has canceled all of our travel plans for the summer, because it’s not worth flying to new places for half of the city to still be shut down.
Many people probably feel this way.
That means a lot of traders are going to find themselves still glued to a desk, trading the stock market, skipping the “and go away” part of the saying.
As for the “sell in May” part, which signals seasonal weakness in the stock market until October …
Maybe not so fast this year.
I like to put my own spin on the saying, and it shows us how to invest in only the best stocks during each period.
Today, I’ll share with you the one stock you want to own over these summer months.
Let me explain…
Over the years, I have cautioned that the seasonal weakness we see from May through October is here to stay. But there’s still a better way to trade it than simply going away.
I use multiple approaches in my premium research services, including bearish bets to benefit from any pullbacks. But I also maintain positions set to benefit as the market rises.
And I do that because, even though summer is a weak period for stocks overall, some sectors continue to show strength this season.
To me, the best way to approach the volatile period between May and October is “come May, diversify away.”
Here’s what I mean…
Come May, Diversify Away
We know there is weakness during this period. It’s on all the seasonality charts going back any number of years. May through October is just a rough period. The market is prone to big sell-offs. And it experiences increased volatility.
This year, many think that may be different, and they may be right. But I never like to bet against the trend. After nearly a decade of trading, there’s one thing I’ve learned: Never bet against the trend. Even if it doesn’t seem likely to play out, more times than not, it will.
And the seasonal trend is clearly to expect more volatility in the coming months.
I’ve seen specific sectors that hold up well during this historically weak period in normal environments. And I think they’ll also do well during these unprecedented times. (In fact, we are building positions in those companies as we speak.)
Stocks that are in the telecommunications and health care sectors tend to rise straight through July. Pharmaceutical stocks have a rising seasonal trend from April to July.
Then there are biotech stocks.
These innovative companies have the longest seasonal trend I’ve ever seen.
It actually begins halfway through October, but continues to climb until July 15. Take a look at this composite chart of the seasonal trend for the biotech sector. It’s 10 years of average performance, compiled into one chart showing how the stock usually acts, month by month. I used the iShares Nasdaq Biotechnology ETF (Nasdaq: IBB) to track the sector:
You can see that once we hit May on the chart, there’s still plenty of upside left.
Biotech runs higher into mid-July before it picks up some choppiness for a couple of months. But this rise in May, June and July presents excellent opportunities to add exposure to this group of stocks today.
Buying the IBB exchange-traded fund (ETF) will give you some exposure to the overall trend … But for the best returns, you want to hold individual stocks.
The Stock to Own This Summer
It specializes in editing genomes — modifying DNA sequences or removing specific genes. Genome editing is the future of medicine. And Sangamo has a running start with multiple clinical trials and decades of experience.
Partnering with giants such as Biogen, Pfizer and Kite Pharma, Sangamo is the most promising biotech stock in the sector right now.
Since April 20, the stock has already shot up about 40%, but it still has room to run higher.
As you saw on the seasonal chart, I’m expecting this sector to climb into mid-July, which means this rally is just getting started.
If you are looking to diversify into a strong sector this summer, Sangamo gives you great exposure to the upside.
To get in on our recommendations when these trends are just beginning, check out this transcript of a recent interview I recorded about the strategy to see if it’s right for you.
Chad Shoop, CMT
Editor, Automatic Profits Alert