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.
Consumer stocks, particularly discretionary stocks, along with financials, have been the worst performing sectors in June.
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 10 consumer stocks. Below, TheStreet paired those stocks with ratings from TheStreet Ratings. And when you're done be sure to check out three contrarian tech stock ideas.
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 27, 2015 closing prices.MCD data by YCharts
1. McDonald's Corp. (MCD)
Industry: Consumer Goods & Services/Restaurants
Market Cap: $93.8 billion
Year-to-date return: 5.3%
McDonald's Corporation operates and franchises McDonald's restaurants in the United States, Europe, the Asia/Pacific, the Middle East, Africa, Canada, and Latin America. The company's restaurants offer various food products, soft drinks, coffee, and other beverages.
TheStreet Ratings: Buy, B
TheStreet Ratings said: "We rate MCDONALD'S CORP (MCD) 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 notable return on equity and expanding profit margins. 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:
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market, MCDONALD'S CORP's return on equity significantly exceeds that of both the industry average and the S&P 500.
- 43.42% is the gross profit margin for MCDONALD'S CORP which we consider to be strong. Regardless of MCD's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, MCD's net profit margin of 13.61% compares favorably to the industry average.
- MCD, with its decline in revenue, slightly underperformed the industry average of 7.5%. Since the same quarter one year prior, revenues fell by 11.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- In its most recent trading session, MCD 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. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.
- Net operating cash flow has decreased to $1,699.50 million or 10.89% when compared to the same quarter last year. Despite a decrease in cash flow of 10.89%, MCDONALD'S CORP is in line with the industry average cash flow growth rate of -11.49%.
- You can view the full analysis from the report here: MCD Ratings Report