A look at the best stocks to own in November, historically
It's been a rough October for the stock market, with the S&P 500 on pace for its worst month since May 2010. However, if recent history is any indicator, a pair of construction & materials stocks could be on the verge of a big November rebound: Vulcan Materials Company (NYSE:VMC) and A. O. Smith Corp (NYSE:AOS). Below we take a closer look at the best stocks to own in November, with VMC and AOS topping the list ahead of their earnings releases tomorrow.
Best November Stocks
Looking back 10 years, only a handful of S&P stocks have ended November in the black every single time, among them VMC and AOS, per Schaeffer's Senior Quantitative Analyst Rocky White. Specifically, Vulcan Materials shares have averaged a monthly gain of 7.72%, while A. O. Smith stock has averaged a gain of 4.88%.
VMC Stock Oversold Ahead of Earnings
VMC stock hasn't been immune to the broad-market headwinds -- not to mention a spate of ugly housing data -- shedding more than 19% so far in October. Further, the equity touched a two-year low of $86.09 just last Friday. As such, VMC's 14-day Relative Strength Index (RSI) of 19 indicates the shares are deep into oversold territory. Today, VMC is up 1.6% to trade at $89.75. Another 7.72% jump in November would put the security around $96.68.
As far as earnings are concerned, the shares have moved higher after three of the last five reports. Last quarter, however, VMC surrendered 4.5% the day after reporting. On average, the stock has moved 3.5% -- regardless of direction -- the day after earnings, looking back eight quarters. This time around, the options market is pricing in a much bigger-than-usual 10.6% swing for Vulcan Materials stock.
AOS Could Bounce from Two-Year Lows
A. O. Smith stock has dropped 16.4% so far in October, and also touched a two-year low of $43.57 on Friday, Oct. 26. As such, the equity's 14-day RSI sits at a very low 22, suggesting today's bounce may have been in the short-term cards. At last check, AOS was up 2.2% to trade at $44.71. Another 4.88% gain in November would place the security just under $47.
While absolute options volume tends to run light on the water heater concern, speculators have been upping the bearish ante ahead of tomorrow's earnings release. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 7.36 is in the 81st percentile of its annual range. This indicates a healthier-than-usual appetite for long puts over calls on AOS during the past two weeks.
Perhaps that's because the stock has moved lower the day after earnings in seven of the past eight quarters, including a 4.6% drop after earnings a year ago. On average, AOS has moved 2.2% -- regardless of direction -- after the last eight earnings reports. This time around, implied volatility (IV) readings indicate options are pricing in a much bigger 8.7% swing for the shares.
Volatility Crush Will Make Short-Term Calls Cheaper
In conclusion, while VMC and AOS have suffered tremendously this month -- and while the stocks' earnings history isn't much to write home about -- seasonality has definitely been on the side of the bulls. The duo have ended the month of November in the black 100% of the time in the past 10 years, but perhaps traders should wait until after earnings tomorrow to try to ride any November tailwinds. Further, a post-earnings volatility crush should make short-term options much cheaper to buy, for those looking to capitalize on the leverage of call options instead of buying the shares outright.