Sell in May and Go Away: A Strategy or a Myth?
April 26, 2023
Attempting to time the market is a daunting task that even seasoned investors often find difficult. However, analyzing the historical performance of stocks and indices to identify seasonal patterns and take advantage of the markets’ seasonality has given birth to the popular investing adage “sell in May and go away.”
The belief that May is the ideal time to sell stocks and stay out of the market until October is based on a seasonal performance trend that highlights the market’s weakest months during the summer, characterized by low trading volumes. Conversely, the winter months typically experience an uptick in trade volume, leading to a phenomenon known as the Santa Claus rally. Some investors question the validity of this strategy, arguing that it lacks statistical evidence.
Regardless of your stance on this matter, it is worth noting that the ongoing COVID-19 pandemic and the Russia-Ukraine War have significantly impacted companies’ year-over-year growth figures. As highlighted during a recent Wall Street Breakfast podcast, earnings weakness is still expected in many industries. Therefore, investors must use all available tools to determine which companies are profitable and have proven to be winners.
With market volatility and the fear of a “mild recession” looming, many investors are on edge and resorting to cash. It is critical to comprehensively analyze a stock’s fundamentals before making any investment decisions. This should include reviewing negative analyst ratings, poor fundamentals, and performance lag within the sector. When considering Strong Buy versus Strong Sell stocks, prioritizing strong factor grades over poor ones is advisable.
3 Stocks to Steer Clear of This Summer
For over a decade, Seeking Alpha’s Sell Recommendations have trailed the S&P 500 by using quantitative data to select stocks with weak performance while flagging the best performers. To avoid pitfalls, investors should steer clear of stocks with poor fundamentals that have received Sell-Ratings.
The year-to-date performance of SA Quant Sell and Strong Sell-rated stocks has declined by 4.24%, underscoring the importance of avoiding stocks with questionable performance and severe declines. With the economic outlook remaining challenging, it is crucial to compare a stock’s factor grades with its sector peers and heed warning banners to avoid underperformance.
Investors should exercise caution and diligence to safeguard their portfolio’s upside potential by steering clear of stocks with a history of underperforming the market. Investors can mitigate downside risk by considering stocks that exhibit strong fundamentals and position themselves for long-term success.
Why Semtech Corporation (NASDAQ: SMTC) is a Strong Sell Stock to Avoid in 2023
Semtech Corporation (NASDAQ: SMTC) is a high-performing semiconductor company facing multiple headwinds, making it a strong sell stock to avoid. Despite being undervalued with a C+ valuation grade, the stock’s poor momentum and underlying metrics are outperformed by its sector peers. Furthermore, with a one-year price performance of -65% and a year-to-date performance of -27%, investing in this semiconductor stock may leave investors with a chip on their shoulders.
The analysts’ downward earnings estimate revisions for Semtech are at 9, and its EPS Diluted Growth (fwd) of -19.28% compared to the IT sector median of 10.21% shows its abysmal growth. While the acquisition of leading IoT provider Sierra Wireless may offer some upside, potential export control headwinds and demand weakness could limit future growth.
National Vision Holdings (NASDAQ:EYE) Struggles with Digital Transition, Analysts Downgrade to Strong Sell
National Vision Holdings, an optical retailer providing eyewear and exams through well-known brands such as America’s Best and Eyeglass World, has seen a sharp decline in its stock price, currently down 46.45% year-to-date. Despite the Consumer Discretionary sector’s strong performance, National Vision has struggled with inefficiencies during its digital transition, resulting in wider-than-expected Q4 losses. The company’s CEO, Reade Fahs, has attributed this to the pandemic’s impact on the historically consistent purchase cycle and optometrist availability, which has significantly impacted the industry’s eye exam capacity.
National Vision’s overall valuation grade is D+, with a forward P/E of 59.32x, a 317.92% overvaluation compared to the sector median of 14.19x. Additionally, the stock’s forward PEG ratio grade is an “F,” reflecting a 311% difference to the sector. The company ranks 508 out of 538 in its sector and 32 out of 33 in its industry, indicating a strong signal to avoid investing.
Ten Wall Street analysts have revised their earnings estimates downward, and negative EPS revisions and decelerating momentum are key indicators of underperformance. Although the company’s profitability grade offers some redeeming qualities, its recent quarterly performance has missed expectations, with an EPS of -$0.08 missed by $0.06 and revenue of $468.93M missing by $2.84M.
DISH Network’s Struggle in the Age of Streaming Services: An Analysis of Poor Fundamentals and Market Decline
Sell-rated DISH Network Corporation (NASDAQ:DISH), a prominent satellite communications provider, is facing significant challenges in the evolving landscape of streaming services. With a market capitalization of $4.03B, DISH is ranked 227 out of 250 in the Quant Sector Ranking as of 4/25, with an even lower rank of 11 out of 12 in the Quant Industry Ranking.
Despite trading at a discounted valuation compared to the sector, DISH’s other factor grades are subpar, lacking growth and profitability. Its momentum is also on a longer-term bearish trend, with six analysts revising their earnings estimates downward over the last 90 days.
In addition to its poor fundamentals, DISH has suffered system outages and data breaches, leading to fines from the FCC and subscriber losses, further contributing to the UBS downgrade. With its customer base declining every quarter since 2013, DISH’s price performance has plummeted by -81% over the last 10 years, and by -76% and -46% YTD.
To capture market share, DISH invested nearly $30B to acquire a wireless spectrum that has yet to come to fruition, leaving the company struggling to build a superior wireless network against competitors with a competitive edge.
- The adage “sell in May and go away” is based on seasonal trends in the stock market but some investors question its validity.
- It is important to comprehensively analyze a stock’s fundamentals before investing in it, especially in the current economic climate.
- Investors should avoid stocks with poor fundamentals and a history of underperforming the market, and instead consider stocks with strong fundamentals for long-term success.
- Semtech Corporation is a strong sell stock to avoid due to poor momentum and underlying metrics, and National Vision Holdings has struggled with inefficiencies during its digital transition, resulting in wider-than-expected Q4 losses.
- DISH Network Corporation is facing significant challenges in the evolving landscape of streaming services and has subpar factor grades, lacking growth and profitability.