Are These 3 Stocks a Slam Dunk in September?

Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA), Darden Restaurants, Inc. (NYSE:DRI), and McDonald's Corporation (NYSE:MCD) have historically been among the best stocks to own in September

Aug 31, 2016 at 12:05 PM
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Near the start of every month, we highlight stocks with the potential to shine. Today, with a new month just around the corner, we're going to dig deep on three of the best September stocks over the past decade. Among these top stocks are Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA), Darden Restaurants, Inc. (NYSE:DRI), and McDonald's Corporation (NYSE:MCD).

Below is a list of the top stocks for September, looking back 10 years at S&P 500 Index (SPX) components. The data comes courtesy of Schaeffer's Senior Quantitative Analyst Rocky White, and to qualify, each stock needed to have at least eight returns.

best september stocks august 31

Ulta Salon, Cosmetics & Fragrances, Inc. (NASDAQ:ULTA)

Historically, ULTA has been the best SPX stock to own during the last eight Septembers. The shares have been positive 100% of the time, and the average one-month gain stands at a staggering 18.4%. Last year's return was less amazing than usual, but by most any standard, a 3.3% one-month gain is nothing to sneeze at.

ulta september returns august 31

ULTA could certainly use the boost after getting absolutely demolished on earnings guidance last week. However, at $244.59, the retail stock remains 59% higher year-over-year. Short-term options traders certainly have high hopes, based on ULTA's call-tilted short-term open interest levels. Specifically, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.73 ranks near the bottom quartile of its annual range.

Darden Restaurants, Inc. (NYSE:DRI)

DRI has been positive in eight of the past 10 Septembers, with an average single-month advance of 3.2%. A repeat performance could help the restaurant stock get back into positive 2016 territory. At $61.39, the shares are currently sitting on a year-to-date loss of 3.5%.

dri september returns august 31

Unfortunately, near-term gains appear to be far from guaranteed. Short interest on DRI plummeted 17.2% during the last two reporting periods, yet the short covering failed to result in positive price action for the shares -- hinting at potential underlying weakness. Meanwhile, options traders have been wagering on losses across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). DRI's 10-day put/call volume ratio of 3.61 ranks in the bearishly skewed 85th annual percentile.

McDonald's Corporation (NYSE:MCD)

Finally, MCD sports an average September return of 2.9%, and has been positive 80% of the time over the previous decade. Last year was even better than normal, as the restaurant stock tacked on an impressive 3.7% during the month.

mcd september returns august 31

More recently, MCD has been making a series of lower highs and lows. Since topping out near $132 on May 10, the stock has shed over 12% to trade at $115.70. If MCD's proverbial ship doesn't get righted soon, the shares could be hammered as short sellers come out of hiding.

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