In this article we present the list of 12 Best Spring Stocks To Buy Now. Click to skip ahead and see the 5 Best Spring Stocks To Buy Now.
If historical trends are anything to go by (and they usually are), then financial stocks like Mastercard Incorporated (NYSE:MA), PayPal Holdings, Inc. (NASDAQ:PYPL), and JPMorgan Chase & Co. (NYSE:JPM), as well as a wide range of energy stocks will be some of the best stocks to buy this spring.
The Running of the Spring Bulls
The stock market has traditionally performed very well during the spring, which is then followed by a summer swoon as institutional investors like hedge funds pare back their holdings in anticipation of lower summer trading volumes (and the resultant spike in volatility) and more time off for staff.
That’s particularly true of the NYSE, with April and May being the index’s strongest and third-strongest months over the past 20 years. The index has posted monthly gains during April over 16 of the past 20 years, while the index has risen during 14 of the past 20 Mays.
It’s a similar story when it comes to the stocks that make up the S&P 500, which have posted gains during 14 of the past 20 Marchs, 15 of the past 20 Mays, and 16 of the past 20 Aprils, the latter being the strongest performing month for the index. Spring has also been a good season for tech stocks, with the Nasdaq posting gains over 13 of the past 20 years in each of March, April, and May, ranking them in a tie as the third-best performing months for the index.
Energy and Finance Stocks Do a Lot of Spring Cleaning (Up)
When it comes to the performance of specific industries, energy and finance stocks have often been the runaway spring winners. According to CNBC, between 2001 and 2010, nearly half of all stocks that posted at least 20% gains during any given spring were either finance or energy stocks, with finance stocks leading the way.
There’s a surprisingly strong historical correlation between the energy and financial sectors which makes their equally strong springs somewhat less surprising. Naturally, the energy sector is highly correlated with the price of West Texas crude, at 71%. What many investors may not know is that it’s also highly correlated with the finance sector, with the correlation between the S&P 500 energy and finance indexes standing at 70% according to data compiled by Bloomberg.
In terms of where the two sectors stand today, they’re somewhat at odds despite their strong stock market correlation. The banking sector is experiencing somewhat of a crisis, with many U.S. banks borrowing heavily but tightening their lending policies, which has some experts concerned about a forthcoming credit crunch.
On the other hand, the energy sector looks like it has the potential to outperform the broader market for a third straight year in 2023 thanks to oil prices that are expected to steady but also rise this year, impressive free cash flow yields, and the lowest P/E ratio among all S&P 500 sectors.
With that in mind, let’s take a look at 12 spring stocks to buy now.
The companies in the following list of the best spring stocks to buy now are gathered from the finance and energy sectors, traditionally the strongest performing sectors during the spring, and then ranked based on hedge fund sentiment. We follow a select group of hedge funds because Insider Monkey’s research has uncovered that their consensus stock picks can deliver outstanding returns.
All hedge fund data is based on the exclusive group of 900+ funds tracked by Insider Monkey that filed 13Fs for the Q1 2023 reporting period.
12 Best Spring Stocks To Buy Now
12. Schlumberger Limited (NYSE:SLB)
Number of Hedge Fund Shareholders: 68
JPMorgan Chase & Co. (NYSE:JPM), Mastercard Incorporated (NYSE:MA), and PayPal Holdings, Inc. (NASDAQ:PYPL) are a few of the stocks that appear poised for strong springs. Another is oilfield services giant Schlumberger Limited (NYSE:SLB), which is coming off an exceptional 2022, growing revenue by 23% to $28.1 billion, including a 25% rise in services revenue. Earnings per share jumped by 70% to $2.18, while the company generated an impressive $3.7 billion in free cash flow.
Schlumberger Limited (NYSE:SLB) believes the macro backdrop suggests a strong multi-year upcycle for the sector is ongoing, which should only increase the demand for Schlumberger’s services as investment in the space continues to pick up and new projects are launched.
With things looking up over the longer term, Schlumberger has begun returning more cash to shareholders through buybacks and dividend hikes, though on the latter front, its dividend yield of 2.18% is still rather light compared to the industry average.
VGI Partners made the following comment about Schlumberger Limited (NYSE:SLB) in its 2022 annual investor letter:
“In addition to defence, we have focused our efforts on other new sectors where we see structural growth, including energy and medical technology. The long-term outlook for energy looks highly attractive given many years of under-investment and more recently amplified by ESG constraints and corporate discipline. Although we reviewed commodity owners (where we leveraged the expertise of the Regal resources team), we focused our efforts on the second derivative – the oil service companies. These are the picks-and-shovels of the industry and arguably the highest-quality way to gain exposure. As a result, we invested in Schlumberger Limited (NYSE:SLB) earlier this year and grew this to a circa 8% weight during the year (now circa 3%)”
11. The Goldman Sachs Group, Inc. (NYSE:GS)
Number of Hedge Fund Shareholders: 70
The Goldman Sachs Group, Inc. (NYSE:GS) ranks as the 11th best spring stock to buy now and should be of particular interest to value investors. The company ranked third on our list of the Most Profitable Value Stocks Now after pulling in $8.79 in GAAP EPS during the first quarter, beating estimates by $0.69. Revenue did fall year-over-year however and analysts were mixed on the quarterly results.
The Goldman Sachs Group, Inc. (NYSE:GS) is undertaking several initiatives to deal with the challenging macro environment, including the partial sale of its Marcus unsecured loan portfolio. With the pace of fundraising expected to slow throughout the rest of the year, the company is also scaling back its share repurchase program.
Manole Capital Management discussed The Goldman Sachs Group, Inc. (NYSE:GS)’s partnership with Apple in its Q3 2022 investor letter:
“Back in 2019, The Goldman Sachs Group, Inc. (NYSE:GS) made a splash in the card industry by working with Apple and MasterCard on a credit card. The actual card is fairly sleek (as you can see below), as customers names are etched into an Apple titanium card. The no-fee card generated a lot of hype, as many early users were quick to post their latest card on various social media sites.
The initial goal of Marcus (back in 2016) was to leverage Goldman’s wonderful name brand and build a full-service digital bank. This card was a large piece of GS’s ambitions to grow its retail banking franchise called Marcus. After 5 years, Marcus now has 14 million customers and $16 billion in loan balances. Surprisingly, Marcus now represents nearly 20% of the firm’s total revenue.
We thought it would be interesting to look how the Apple Card is doing in terms of loans and exposures. With over $100 billion in assets, this has been a successful source of cheap deposits for GS. Despite having an institutional / “white shoe” brand in the investment banking and trading world, GS’s Apple Card has been a disappointment.” (Click here to read the full text)
10. Exxon Mobil Corporation (NYSE:XOM)
Number of Hedge Fund Shareholders: 74
Hedge fund ownership of Exxon Mobil Corporation (NYSE:XOM) has dipped by 14% over the past year after hitting a 10-year high in the first quarter of 2022. The company’s shareholders have been pressuring it to consider abandoning its fossil fuel investments, or at the very least to look into the potential costs of abandoning them versus the financial risks those investments could incur if the world achieves net-zero emissions by 2050. Exxon plans to invest as much as $25 billion annually over the next few years on various energy projects.
While Exxon Mobil Corporation (NYSE:XOM) believes the net-zero initiative is unlikely to succeed, it’s nonetheless looking into other ways to diversify into renewables, including the recent purchase of a 120,000-acre tract of land in Arkansas that’s believed to be rich in lithium. The company has also been expanding its EV charging network.
First Eagle Investments Global Fund likes some of the other things Exxon Mobil Corporation (NYSE:XOM) has been doing with its cash, as relayed in the fund’s Q2 2022 investor letter:
“Integrated oil and gas giant Exxon Mobil performed well in the second quarter as continued high prices for energy products supported the stock. As the largest refiner in the US, the company has benefitted from wide “crack spreads,” or the margin between the cost of crude oil and the petroleum products extracted from it. Exxon continues to invest in refining capacity in the US, which industrywide has been in steady decline since 2019. We are pleased that Exxon has been using its strong cash flows to reduce debt and to return cash to shareholders through dividends and stock repurchases.”
9. ConocoPhillips (NYSE:COP)
Number of Hedge Fund Shareholders: 75
Hedge funds have been swarming into ConocoPhillips (NYSE:COP) in recent quarters, with ownership of the stock jumping by 50% since Q3 of 2021, which helped push the stock up to ninth on the list of top spring stocks to buy now. Steve Cohen’s Point72 Asset Management opened a new COP stake in Q1, while Louis Bacon’s Moore Global Investments did so in the fourth quarter of last year.
ConocoPhillips (NYSE:COP) achieved record production of 1,792 MBOED in the first quarter beat earnings estimates by over 10% at $2.38. That could be just the tip of the iceberg when it comes to company’s earnings potential, as it recently unveiled a 10-year plan in which it projects to generate $225 billion in free cash flow at a modest West Texas price point of $60 per barrel. After accounting for capital expense during that timeframe, that could leave it with $100 billion or more in excess cash, the bulk of which will likely be returned to shareholders.
Oakmark Global Fund revealed why it believes ConocoPhillips (NYSE:COP) shares to be undervalued in its Q1 2023 investor letter:
“ConocoPhillips (NYSE:COP) is one of the largest and lowest cost U.S. exploration and production companies in the country, led by CEO Ryan Lance—in our view one of the best value creators in the industry. ConocoPhillips’s share prices fell in the first quarter as oil prices receded, which is not atypical. We were buying the company at prices where it could generate its entire market cap in free cash flow over the next decade while growing the production such that at the end of that time, the base of production would be one-third higher. This sort of reinvestment opportunity is unique to ConocoPhillips and clearly not reflected in the current share price.”
8. American Express Company (NYSE:AXP)
Number of Hedge Fund Shareholders: 79
The number of hedge funds long American Express Company (NYSE:AXP) hit a 10-year high in the first quarter and has risen in each of the past three quarters. Warren Buffett’s Berkshire Hathaway maintained its gargantuan AXP holding during Q1, owning nearly 152 million AXP shares worth over $25 billion as of March 31.
American Express Company (NYSE:AXP) was one of ten companies with “Great” Earnings Reports Jim Cramer is Talking About after the company grew revenue by 21.7% year-over-year to $14.3 billion, though its EPS of $2.40 missed estimates. Cramer characterized it as “a gigantic quarter with tremendous growth”.
Some analysts weren’t quite as bullish on the results however. BMO Capital lowered its price target on American Express Company (NYSE:AXP) to $185 from $194, noting that the company’s growth is moderating while its credit losses are on the rise. Piper Sandler also lowered its price target on the stock, dropping it to $172 from $179, given expectations that comps will become more challenging later this year and into 2024 as consumer leverage rises.
7. Citigroup Inc. (NYSE:C)
Number of Hedge Fund Shareholders: 81
Hedge funds continued to sell off Citigroup Inc. (NYSE:C) during Q1, with the number of funds long Citigroup falling for the 16th time in the last 21 quarters. Ownership of the stock has fallen by 37% during that time. Citigroup is another finance stock that Warren Buffett loves, while Lee Ainslie’s Maverick Capital was at the other end of the spectrum, selling off its Citi stake during Q1.
Citigroup Inc. (NYSE:C) appears to be rather attractive from several standpoints, including its industry-low price-to-book ratio of 0.43x and its moderate price-to-earnings ratio of 6.39x. While Citi hasn’t raised its dividend payout in four years and still has a relatively high payout ratio compared to the industry average despite that, the company is expected to begin repurchasing shares again later this year.
Diamond Hill Long-Short Fund noted that some of Citigroup Inc. (NYSE:C)’s initiatives may be dilutive to the company’s earnings in the near-term as of the fund’s Q1 2022 investor letter:
“Shares of Citigroup declined in the quarter as investors became increasingly negative on capital markets activity. The company is also continuing to divest certain consumer banking geographies which may be dilutive to earnings in the near term.”
6. Wells Fargo & Company (NYSE:WFC)
Number of Hedge Fund Shareholders: 85
Closing out the first part of our list of the best spring stocks to buy now is Wells Fargo & Company (NYSE:WFC). Several hedge funds bailed on Wells Fargo in the first quarter, including Warren Buffett, who otherwise maintains high conviction in several other finance stocks. The company nonetheless ranks as one of hedge funds’ top five picks among investment banks.
Wells Fargo & Company (NYSE:WFC) bought back $4 billion worth of shares in Q1 and appears poised to continue buying back shares in the coming quarters. CEO Charlie Scharf recently stated that the company feels good about the size of its buffer zone above the regulatory minimums required to be held by banks to balance out their risk-weighted assets, which would allow them to continue buying back shares while otherwise remaining fiscally prudent.
Davis New York Venture Fund is impressed by the resiliency of Wells Fargo & Company (NYSE:WFC)’s customers, as expressed in the fund’s 2022 annual investor letter:
“Our investment thesis for our next largest bank investment, Wells Fargo, is totally different. As is well known, Wells Fargo & Company (NYSE:WFC) is the country’s third-largest bank, serving one in three U.S. households. Years of regulatory missteps under prior managements resulted in reputational damage, higher-than-average expenses, numerous consent orders, caps on asset growth, all added to the negative impact of low rates on their interest income. However, where others see bad news, we see resiliency and gradual improvement. Wells Fargo’s resiliency is reflected in the fact that despite years of terrible headlines and congressional hearings, Wells Fargo’s core customers stayed put and customer attrition remains extraordinarily low.
As to gradual improvement, new management has made steady headway in closing consent orders, settling regulatory matters and upgrading systems. Thus, rather than increasing profits from growth, Wells Fargo’s earnings growth for the next three-to-five years should come from the combined tailwinds of rising interest income, partially offset by normalizing credit costs, reduced expenses as systems improve and the scandals of the last decade are gradually put behind them, and the return of excess capital through share repurchases and rising dividends. The hypothetical earnings bridge displayed in Figure 6 gives some sense of the earnings power we see unfolding in the years ahead for this durable financial franchise.
While our grounded optimism carries the day, we are mindful of the risk that Wells Fargo’s historically excellent credit culture may have deteriorated, or that exasperated regulators may choose to extract even more major penalties for past infractions.”
PayPal Holdings, Inc. (NASDAQ:PYPL), JPMorgan Chase & Co. (NYSE:JPM), and Mastercard Incorporated (NYSE:MA) are three of the top spring stocks to buy now. Check out the details by clicking the link below.
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Disclosure: None. 12 Best Spring Stocks To Buy Now is originally published at Insider Monkey.