This time of year it’s rare to hear anyone talking about stocks to buy in May. Instead the opposite “sell in May and go away” makes its rounds in the media, the latest round of alarm-sounding. It’s not a completely unfounded piece of advice— data does confirm that the market tends to perform better in the first part of the year compared to the second. But dig a little deeper and you’ll see that trying to time the market has been proven to be a poor strategy at any time of the year.
The result of these conflicting theories is simple, and it’s a strategy that investors should use all year round, not just in May. Pick quality stocks, and if you can, get them on sale. While the herd is battening down the hatches for the dreaded May slump, you might be able to pick up a few opportunities that turn into long-term winners.
So how do you find top stocks to buy now? On a macro level, you should be looking for businesses that can weather a storm. Economic uncertainty is rife, so businesses with a strong value proposition, sticky customers, and a solid balance sheet are a good place to start your search. Growth potential is another key factor when it comes to finding undervalued stocks— if they can weather an economic storm, can they come out the other side ready to skyrocket? Sometimes it’s as simple as looking at beaten-down stocks and judging whether the market is overreacting. This can be the case if a company is suffering from repetitional damage, or is part of a sector that’s currently out of favor.
With that in mind, here are three stocks to buy in May if you’re not bothered about taking financial advice from a rhyme.
Stocks to buy in May: Salesforce.com (CRM)
There’s no getting around the fact that Salesforce (NYSE:CRM) has been struggling with decelerating revenue growth. The group’s customer relationship management software has become a staple for big businesses undergoing a digital transformation. Unsurprisingly, budgets are getting stretched and that’s meant that selling productivity software has become much harder. Plus, competition from other big players like Microsoft (NASDAQ:MSFT) and Adobe (NASDAQ:ADBE) is making it harder to bring in new customers.
But the group’s still growing the top line, and now that it’s no longer shooting the lights out, margins are the focus. This is a natural part of a maturing business model— at some point the market is saturated, and you have to find new things to sell to people or make the ones you’re selling cheaper to make. That’s what CRM is focused on now, with cost-cutting initiatives that saw some 10% of its workforce cut. CRM’s also got two activist investors breathing down its neck, so maximizing shareholder value is likely to be a key priority moving forward.
Salesforce believes there are several more opportunities to improve efficiency. It’s expecting margins to expand from 22.5% to 27% in 2024. If it can meet that guidance, investors would benefit.
Wells Fargo (WFC)
Wells Fargo (NYSE:WFC) has had a tough few years, but with the fallout from its fake account scandal nearly in the rearview, the group looks like a good pick among stocks to buy in May. Like most of its peers, Wells Fargo was impacted by the banking crisis as investor sentiment weakened in the financial sector. Shares are down about 13% over the past six months.
But WFC is incredibly well-capitalized. The group more than meets regulatory requirements for the quality of its assets, which offers a layer of insulation even as uncertainty looms. It’s enough that the bank’s been buying back shares and is likely to continue doing so in the year ahead. The Fed’s set to conduct another banking sector stress test, which could mean capital requirements are tightened. But even so, Wells Fargo’s sizeable buffer means management has far more room to maneuver than some of its peers.
Its latest earnings also showed healthy profit growth— so the bank looks to be just about as healthy as you can be in this environment. But the real draw for WFC shares is that their value doesn’t reflect its strong position, making it a worthwhile pick among top stocks to buy now.
Amazon (NASDAQ:AMZN) is a favorite among buy-and-hold investors, but given it’s trading at pre-pandemic levels it makes for a good choice among stocks to buy in May. Notably, Amazon’s share price decline isn’t necessarily unfounded. After all, rising interest rates mean the value of a dollar in 10 years’ time is a lot less than it once was. Mathematically, that means investors are willing to pay less for Amazon’s future profits.
But some of the sell-off is overdone. Amazon’s growth story is still strong. The group’s cloud arm is still a strong selling point— with the overall market expected to continue expanding and Amazon’s AWS planted firmly at the front of it. The group’s also building out its presence in advertising, which should stand it in good stead as budgets dwindle.
Advertisers will be choosier about where they direct their funds, and capturing the attention of consumers already primed and ready to click buy is hard to turn down.
On the date of publication, Marie Brodbeck did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.