NEW YORK (TheStreet) -- June has historically been one of the weakest months for equities. Stock selection -- both buying and selling -- will be critical in the short term. Despite the month's historical underperformance, there are financial services stocks worth investing in.
The stock market in June has averaged a 1.32% decline over the past 10 years, Jonathan Krinsky, the chief market technician at MKM Partners, wrote in a technical strategy report published Tuesday. Meanwhile, July has bounced back, averaging a 1.68% gain, he said.
"June will be here quickly, and it has been by far the worst month for stocks over the last 10 years," Krinsky wrote. "Therefore, some weakness into early summer would not be surprising, but in our view that would set-up a buying opportunity in July,"
"We think this market continues to be two steps forward one step back, where stock selection is more important than market direction," Krinsky added.
The report highlights 40 contrarian stock ideas by screening the Russell 3000 to find 30 stocks that have less than 25% analyst buy ratings, but have bullish charts. The report also highlights 10 stocks that have over 75% analyst buy ratings but have bearish charts.
The buy screen included 11 financial services sector stocks. Below, TheStreet paired those stocks with ratings from TheStreet Ratings. And when you're done be sure to check out MKM Partner's health care stocks to sell before June.
TheStreet Ratings, TheStreet's proprietary ratings tool, projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Based on 32 major data points, TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.
Buying an S&P 500 stock that TheStreet Ratings rated a "buy" yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a "buy" yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.
Note: Year-to-date returns are based on May 26, 2015 closing prices.AFL data by YCharts
1. Aflac Inc. (AFL)
Sub-industry: Life & Health Insurance
Market Cap: $26.8 billion
Year-to-date return: 1%
Aflac Incorporated, through its subsidiary, American Family Life Assurance Company of Columbus, provides supplemental health and life insurance products. It operates through two segments, Aflac Japan and Aflac U.S.
TheStreet Ratings: Buy, B+
TheStreet Ratings said: "We rate AFLAC INC (AFL) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, attractive valuation levels, increase in stock price during the past year and notable return on equity. We feel its strengths outweigh the fact that the company has had somewhat weak growth in earnings per share."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 7.8%. Since the same quarter one year prior, revenues slightly dropped by 7.3%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- Despite currently having a low debt-to-equity ratio of 0.34, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Insurance industry and the overall market, AFLAC INC's return on equity exceeds that of both the industry average and the S&P 500.
- In its most recent trading session, AFL has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- You can view the full analysis from the report here: AFL Ratings Report