A look at the best stocks and ETFs to own in May, historically
The shares of Regeneron Pharmaceuticals Inc (NASDAQ:REGN) are lower today -- earlier touching a three-year low of $298.19 -- extending last week's slide sparked by partner Sanofi's (SNY) disappointing quarterly drug sales. Fellow pharma stock McKesson Corporation (NYSE:MCK), meanwhile, is modestly lower today, but fresh off a five-day winning streak and eyeing its best month in nearly a year. What's more, if history is any indicator, both REGN and MCK stocks could rally in May.
Healthcare ETFs Outperform in May
Over the past 10 years, healthcare stocks have done very well in the month of May. In fact, pharmaceutical exchange-traded funds (ETF) have been the best to own in the last decade, according to data from Schaeffer's Senior Quantitative Analyst Rocky White. The Health Care Select Sector SPDR ETF (XLV) has led the pack, ending the month higher 80% of the time, with an average gain of 1.31%. The SPDR S&P Biotech ETF (XBI) has generated the best average return of all, gaining 2.72% and higher 70% of the time. The SPDR S&P Pharmaceuticals ETF (XPH) has also ended the past seven of 10 Mays higher, averaging a gain of 1.75%.
Best Stocks to Own in May
It's no surprise, then, to find several healthcare stocks on our list of best S&P 500 stocks to own in May, looking back 10 years. REGN is the only stock that boasts a 100% win rate for the month, and has averaged the highest return -- 9.83%. MCK stock takes runner-up, with a win rate of 90% and an average monthly gain of 8.14%.
REGN Stock Rallied After Last May Earnings Reports
Regeneron stock has struggled since its June peak of $543.55, led lower by its 50-day and 80-day moving averages. As alluded to earlier, REGN stock fell to a new low south of $300 earlier, and was last seen 4.1% lower to trade at $300.10, despite the Food & Drug Administration (FDA) granting priority review for cemiplimab.
Regeneron is expected to report its own quarterly earnings before the open on Thursday, May 3. It's worth noting that REGN shares surged 6.7% the day after their report roughly one year ago, and jumped 4.7% after the May 2016 earnings release. Should the equity extend its trend of May gains, another 9.83% bump from current levels would place the drug stock around $329.60 -- back above its 50-day trendline.
A stronger-than-expected earnings showing could also spook a few analysts. Currently, REGN boasts 16 "hold" or worse recommendations, compared to just eight "buy" or better endorsements.
Short Squeeze Could Propel MCK Stock
McKesson stock has added nearly 12% in April, set to wrap up its best month since May 2017. The equity got a lift mid-month on easing concerns about Amazon (AMZN) competition in the pharmaceuticals industry, and last week rallied after the company issued upbeat guidance.
MCK shares are now trading back above their 200-day moving average, as well as a 50% Fibonacci retracement of their rally from late October to late January. After a five-day win streak, though, the stock is taking a breather, down 0.4% to trade at $157.57. However, the $162 area -- a 38.2% retracement of that rally -- has acted as a speed bump in the past.
Another 8.14% rally from current levels would put McKesson stock around $170.40 -- territory not charted since January, when the security was flirting with annual highs. What's more, a short squeeze could add fuel to the drug stock's fire. Short interest represents more than a week' worth of pent-up buying demand, at MCK stock's average pace of trading.