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.
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 three tech sector stocks. Below, TheStreet paired those stocks with ratings from TheStreet Ratings. And when you're done be sure to check out which health care stocks MKM Partner's says 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.
ADP data by YCharts
1. Automatic Data Processing Inc. (ADP)
Sub-industry: Data Processing & Outsourced Services
Market Cap: $40.1 billion
Year-to-date return: 3.6%
Automatic Data Processing, Inc., together with its subsidiaries, provides technology-based outsourcing solutions to employers worldwide. The company operates through Employer Services and Professional Employer Organization (PEO) Services segments.
TheStreet Ratings: Buy, A+
TheStreet Ratings said: "We rate AUTOMATIC DATA PROCESSING (ADP) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, reasonable valuation levels, expanding profit margins and good cash flow from operations. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 22.5%. Since the same quarter one year prior, revenues slightly increased by 7.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 27.73% over the past year, a rise that has exceeded that of the S&P 500 Index. Turning to the future, naturally, any stock can fall in a major bear market. However, in almost any other environment, the stock should continue to move higher despite the fact that it has already enjoyed nice gains in the past year.
- 46.64% is the gross profit margin for AUTOMATIC DATA PROCESSING which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 16.14% is above that of the industry average.
- Net operating cash flow has increased to $857.10 million or 15.21% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -11.75%.
- You can view the full analysis from the report here: ADP Ratings Report