Could April Be A Better Month For Stocks? 5 Large-Cap Ideas

After enduring the toughest start to the year in recent times, markets have started the second quarter on a sorry note. U.S. stocks have had their most disappointing start to April since 1929. And now trade war and tech stock related concerns are threatening to cause a deeper correction for the markets.

Historically, however, April has been a good month for stock gains. Also, first-quarter earnings are likely to be strong, coming on the back of strong fourth numbers. A flurry of recent reports also suggests that the economy continues to be resilient.

And it remains to be seen whether Trump follows up on all the warnings he has issued recently. Taking all these factors into consideration, picking large-cap stocks which promise considerable returns may be a good idea at this point.

April Historically Strong for Stocks

Going by historical data, April has traditionally been a productive month for U.S. stocks. Data from the Stock Trader's Almanac for 2018 shows that the Dow has gained 1.9% on average during April since 1950. This means that April is the most profitable month for the Dow, going by average monthly returns.

Other major indexes also fair well during April, per the Almanac. For both the small-cap heavy Russell 2000 and the S&P 500, April is the third-best month of the year. Both these indexes have increased 1.5% on the average every April since 1950. April is also the fourth-best month for the Nasdaq. The tech-heavy index has notched up a 1.4% average gain during the month, per historical data.

Data from independent broker-dealer LPL Financial shows that gains in April have been particularly notable during the last few years. The S&P 500 has ended April with gains 90% of the time over the past 10 years. The index has notched up an average gain of 2.2% over this period. The success rate of 90% is the highest for any month during this period. Also, average monthly gains are the third highest, after March and July. 

Strong Economy, Q1 Earnings to Boost Stocks

The U.S. economy had finished 2017 on a strong note, growing faster during the fourth quarter than earlier estimated. Business investment expanded during this period even as consumer spending hit a three-year high.

The first economic reports for April indicate that the economy continues to be resilient. Though the ISM Manufacturing Index dipped slightly, the economy as a whole expanded for the 107th consecutive month. Construction spending also inched up in February.

Meanwhile, the outlook for first-quarter earnings is particularly bright, coming on the back of strong results for the fourth quarter. As of Mar 23, total Q1 earnings for the S&P 500 index were expected to be up +15.9% from the same period last year on +7.3% higher revenues. This would follow +13.5% earnings growth on +8.5% revenue growth in the preceding period.

Our Choices

Stocks have recently been buffeted by the twin concerns of an impending trade war with China and losses for tech stocks. While losses for tech stocks are likely temporary, it remains to be seen whether Trump follows up on his warnings or opts for a compromise. Meanwhile, April remains a historically good month for stocks. Also, while the economy remains strong, prospects for first-quarter earnings remain encouraging.

Given this backdrop, it seems prudent to bet on relatively stable alternatives which hold out the promise of considerable returns. Large-cap stocks are relatively safer bets. At the same time, it is important to consider only those which offer the promise of short-term benefits and the prospect of good long-term performance.

Centene Corporation CNC is a well-diversified, multi-national healthcare company that primarily provides a set of services to the government-sponsored healthcare programs.

Centene has a VGM Score of A. The company's projected growth rate for the current year is 40.9%.

Western Digital Corporation WDC headquartered in Irvine, California, is one of the largest hard disk drive (HDD) producers in the United States. The company's projected growth rate for the current year is 52%.

Concho Resources Inc. CXO based in Midland, Texas, is an independent oil and gas exploration and production company with producing properties mainly in the Permian Basin of southeast New Mexico and west Texas. The company has expected earnings growth of 81.5% for the current year.

Pioneer Natural Resources Company PXD is an independent oil and gas exploration and production company, the asset base of which is anchored by the Spraberry oil field located in West Texas, the Hugoton gas field in Southwest Kansas and the West Panhandle gas field in Texas Panhandle. The company's expected earnings growth for the current year is more than 100%.

Tyson Foods Inc. TSN is the biggest U.S. chicken company and produces, distributes and markets chicken, beef, pork as well as prepared foods. The company has expected earnings growth of 25.3% for the current year.    

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