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Top 5 Stocks to Watch in May 2022

Apr 29, 2022

By:Ryan Sullivan

Current Market State

The first four months of 2022 have been choppy for the SPDR S&P 500 (SPY). The current trading price is $417.56, down 12.33% from this year's opening price. The $414.59 to $421.84 price range represents a significant support level that is once again being tested. The SPY tested this range in late-February through mid-March of 2022. The current price action testing this range represents an inflection point for the market. We will either break through this support level and test lower lows, or we will see price action return to $425.35 to $457.93 price range in the near term.

The SPDR S&P 500 (SPY), iShares Russell 2000 ETF (IWM), and iShares 20+ Year Treasury Bond ETF (TLT) have all fallen since the start of the year. All three are down between 10% and 20% year-to-date. At the same time the SPDR Gold Trust (GLD) is currently up 5.33% year-to-date. The price action across these four products represents rising interest rates, declining equity value, and a possible flight to quality in gold.

GLD, SPY, IWM & TLT percentage return YTD

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Fig. 1: GLD, SPY, IWM, and TLT price percentage change since January 1st, 2022.

5 Best Stocks to watch in May

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 BP PLC (BP)

Earnings Date: May 3rd, 2022 (Before the open)

A few oil production and operations companies will report earnings in May. BP represents an interesting opportunity in May 2022. We have seen price action in BP post high-lows and higher highs since late 2020. BP is currently trading at $29.29, up 9.72% from its opening price of 2022.

The last four quarters of earnings reports from BP have shown us increasing sales while reporting slightly positive to slightly negative net income. Over the same period, BP’s total assets have grown and the same is true for total liabilities. This tells us that while BP is recovering its sales figures, which took a huge hit due to the travel restrictions implemented during the Covid-19 pandemic, the company is keeping its net income low by spending on more assets and thereby acquiring more liabilities.

Ideally, the re-investment of BP’s net income represents the opportunity for significant future growth. The current earnings consensus for May 3rd is about $1.41. If BP can meet or exceed expectations this quarter, we can expect BP to test new high for 2022. If BP misses earnings price action will likely remain in the $27.58 to $31.42 range.

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 Pfizer Inc (PFE)

Earnings Date: May 3rd, 2022 (Before the open)

Pfizer, the biopharmaceutical company, has received a lot of attention over the last 24-months, notably bringing the first FDA approved Covid-19 vaccine to market in 2021. PFE is currently trading at $49.54, down 15.32% from its opening price of 2022. PFE has posted higher lows since early 2021.

The last four quarterly reports from Pfizer have shown us a huge increase in sales, from $5 Billion dollars in early 2021 to more than $20 Billion. PFE has reported more than $20 Billion in sales for the last two quarters. Net income had oscillated between about $3 Billion and $8.5 Billion over the same period. The last four quarters have also shown us increasing total assets and total liabilities. This relationship between increasing sales, positive net income, and increasing assets and liabilities gives us the insight that PFE is seeing significant real growth.

The real growth that Pfizer has seen over the last four quarters coincides with its stock price valuation. The current earnings consensus for May 3rd is about $1.66. If PFE can meet or exceed the consensus this quarter, we will likely see price action remain in the $45.45 to $55.48 range. However, if PFE is not able to maintain its sales figures and reports relatively low net income, we will likely see price action fall below $45.45 and test a new low range, possibly finding support around the $38.00 to $40.00 range.

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 CVS Health Corporation (CVS)

Earnings Date: May 4th, 2022 (Before the open)

The last 14-months of price action for CVS Health Corporation have been very bullish, rising more than 50% during that period. Only in the last couple of months has price action begun to display bearish tendencies. CVS is currently trading at $96.59, down 6.05% from its opening price of 2022.

The last four quarters of CVS Health Corporation earnings reports have shown us increasing sales, from just above $69 Billion to above $76 Billion last quarter. However, CVS does not produce a lot of income from its sales. During the same period CVS reported between $1.3 Billion and $2.8 Billion in net income. At the same time, CVS reported very consistent total assets and total liabilities. We can interpret their increasing sales and slight decrease in net income, while maintaining assets and liabilities, as CVS attempting to maintain their current size and number of stores while retaining positive net income, which they have been able to do over the last four quarters.

Based on their last four quarterly financial reports, CVS Health Corporation is currently trading a price that does not necessarily reflect the growth of the company over the last 12 months. The current earnings consensus for May 4th is about $2.14. If CVS meets or exceeds the consensus this quarter, we still might not see CVS retain its current valuation. It is possible that recent price action is already anticipating this. If CVS misses earnings estimates this quarter, we are likely to see CVS price action develop a bearish appearance and begin testing lower support levels. Possibly returning the $ 80.43 to $88.95 price range.

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 The Home Depot, Inc (HD)

Earnings Date: May 17th, 2022 (Before the open)

The price action for Home Depot (HD) year-to-date has been bearish, posting lower-lows and lower-highs since its opening price of 2022. HD is currently trading at $305.07, down 26.77% from its 2022 opening price.

Over the last four quarters Home Depot has reported rising then falling sales and net income figures. Narrowing in, the last three quarters of sales and net income have declined each quarter. During the same period, HD reported consistent total assets, which remained between $70 Billion and $73.25 Billion, and total liabilities, which remained between $68.5 Billion and $73.6 Billion. We can interpret the rise and fall in sales and net income, while maintaining consistent total assets and total liabilities, as a reflection of the behavior of Home Depot’s customer base. HD has displayed cyclical sales behavior in the past, which was exaggerated by the Covid-19 pandemic, due to the increased amount of time consumers were spending at home and able to work on home improvement projects.

The earnings consensus for May 17th is about $3.67. The current stock price of Home Depot reflects the decline in sales that has been reported over the last three quarters. If HD meets or exceeds the consensus this quarter, we will likely see price action remain above the $284.91 support level and possibly return to a bullish stance. If HD misses earnings in May, it is likely that price action will retest lower support levels, moving into the $252.06 to $284.91 range.

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 Target Corporation, Inc (TGT)

Earnings Date: May 18th, 2022 (Before the open)

The price action for Target is currently falling from new 2022 highs, returning to within $1.00 of its 2022 opening price. As of today, TGT is about unchanged from its 2022 opening price. Over the last month, TGT price action has defined a new range.

The last four quarters of earnings reports for Target have shown us increasing sales and consistent positive net income. Over the last four quarters sales figures rose from just above $24 Billion to more than $30.9 Billion. During the same period, net income fell from just over $2 Billion to just over $1.5 Billion. The last four quarters have remained consistent for total assets, remaining between $50 Billion and $54.5 Billion. At the same time TGT grew its total liabilities from just over $35.5 Billion to just over $40.9 Billion. Total liabilities have grown against consistent total assets. We can interpret growing sales, slightly decreasing net income, consistent total assets, and growing total liabilities as TGT pushing to grow its business by taking on more liability risk while retaining positive net income. That is a net positive for investors.

The earnings consensus for May 18th is about $3.03. The current price level reflects a positive outlook from investors in the near term. If Target meets or exceeds the consensus this quarter TGT is likely to move sideways with the potential to retest all-time highs that were posted in mid-to-late 2021. If TGT misses earnings this May, it is likely that we see price action move to retest the low of the range that has been defined over the last month by moving toward the $209.25 support level.

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