History Says Buy This August Outperformer Before Earnings

Humana is among the best stocks to own next month, looking back 10 years

Andrea Kramer
Jul 31, 2018 at 10:47 AM
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Despite a recent rough patch for tech stocks, July has been a solid month for Wall Street, with the major market indexes set to wrap up the month with gains. Looking ahead, health insurance issue Humana Inc (NYSE:HUM) -- which reports earnings tomorrow, Aug. 1 -- could have a big month, if history is any indicator. HUM is the only S&P 500 Index (SPX) stock that's ended August higher in each of the past 10 years, putting it atop the Best Stocks to Own in August list.

best stocks for august

More specifically, HUM has averaged an August gain of nearly 6% over the past decade, per data from Schaeffer's Senior Quantitative Analyst Rocky White. That's the second-best average return on the list above.

Humana shares have been in a channel of higher highs and lows since late 2016. More recently, the stock has racked up a 2018 lead of more than 27%, with pullbacks contained by its 50- and 100-day moving averages. HUM notched a record high of $321.27 on July 23, and was last seen trading at $316.27. A similar 6% gain in August would put the equity around $335.25 -- deeper into uncharted territory.

HUM stock chart july 31

As alluded to earlier, Humana is set to report second-quarter earnings before the open tomorrow. While the stock has moved lower after the company's last three earnings reports, HUM shares jumped 4.5% the day after earnings in August 2017. Looking back eight quarters, the insurance stock has moved 2.5% the day after earnings, regardless of direction. This time around, the options market is pricing in a swing of 5.1% -- more than double the norm.

Should Humana beat earnings expectations tomorrow, a handful of analysts could finally abandon the bearish camp. Currently, five brokerage firms still maintain tepid "hold" ratings on outperforming HUM stock. Plus, the average 12-month price target of $323 is just a stone's throw from the security's current perch, suggesting price-target hikes could be in store on an earnings beat.


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