Are there any best months for the stock market? Yes, there are! The Stock Trader’s Almanac stated that there are five months in a year that deliver considerably better and safer returns. April happens to be one of them. 

If this is not enough reason for enthusiastic investments, uptick in corporate profits in both the third and fourth quarters of last year, and expectations of the trend continuing in this year’s first reporting cycle, are also encouraging. Earnings are set to grow and economic fundamentals are upbeat. Fourth-quarter economic growth was upwardly revised and consumer confidence for March touched the highest level in more than 16 years.

However, doubts over President Trump’s ability to pull of tax reform remain after he failed to pass a major campaign promise to revamp U.S. healthcare. Investors also reacted adversely to the Federal Reserve’s monetary policy, as they expected a more aggressive rate hike forecast. Thus, even if April is historically a good month for the stock market, investors should buy fundamentally sound stocks having significant upside potential.

April – One of the Most Exciting Months for Investors

April marks the end of the “Best Six Months” for both the Dow Jones and the S&P 500. Just like summer changes to autumn and then to winter, the equity market has its own seasons too. From November through April every year, the stock market gives massive returns compared to the period from May to October.

We have all heard the market adages “sell in May and go away” and “buy in October and stay invested”. Since 1950, the S&P 500 has surged 7.1% on average from November through April, but gained a meagre 1.4% from May to October. Stocks mostly tend to go sideways and are more vulnerable to downdrafts during May to October. In fact, October has seen the highest percentage of correction and bear-market bottoms.

So, what makes April so special?  Investors look forward to funding their individual retirement accounts before the Apr 15 tax deadline, which helps in injecting capital into the stock market. Some investors may also have a little extra money in their hands in the form of year-end bonuses that tend to go right into the equity market. This increases cash inflows, improves the financial health of a company, boosts stock buying and eventually pushes the broader markets higher.

Corporate Profits on Upswing Again

Adjusted-pretax profit rose at a 0.5% annual pace in the fourth-quarter 2016  after a nearly 6% gain in the third quarter, according to the Commerce Department. Higher profits are a good sign for the economy, suggesting that businesses can do more hiring and spend. This, in turn, will drive the markets northward. In fact, total earnings for the first quarter are poised to jump 6.6% from the same period last year on 6.5% higher revenues (read more: Looking Ahead to the Q1 Earnings Season).

The Commerce Department also said that the U.S. expanded at a 2.1% pace in the fourth quarter, offering further evidence that the economy entered this year on a stronger footing. Consumer spending for the said quarter was revised up to 3.5% from 3%. U.S. consumer confidence, additionally, leaped in March to the highest level since Dec 2000 amid growing labor market optimism. More the confidence a household generates, more it will spend. Per the Conference Board, the consumer confidence index jumped to 125.6 in March from 116.1 in February, surpassing the consensus expectation of 113 (read more: 5 Stocks to Buy as Consumer Confidence Hits 16-Year High).

Labor Market Strengthens

The year is off to a sizzling start for job creation. Employers added almost half a million jobs in the first two months of 2017, the best back-to-back performance since last summer. Not only were workers hired at a robust pace, unemployment came down and wages scaled higher. The number of people losing jobs is also at its lowest since 1973.

U.S. employers added 235,000 new jobs in February, within the first full month of Trump’s win, surpassing expectations of 191,000. The unemployment rate also fell to 4.7% in February from 4.8% in January as more people entered the labor force in search of work while fewer gave up searching for jobs. Wages for American workers, in the meanwhile, went up 0.2% in February to $26.09 an hour. The average annual rate of growth for hourly employee earnings was 2.8% in the month, up from 2.6% in January (read more: 4 Strong Buy Staffing Stocks on Blowout Job Creation).

A Word of Caution – “Trump Trade” Deflates & Fed Disappoints

If you now think that everything is hunky dory heading into April, you are mistaken. Many companies were also hopeful in early 2017 that pro-growth policies by the Trump administration will give them further impetus to expand. Trump’s polices including tax cuts, repealing regulations and increased infrastructure outlays restored expectations of a pro-growth agenda.

But, the Republicans failed to secure enough votes for the much talked about healthcare bill. Trump’s failure to repeal and replace Obamacare dented investors’ sentiment as it could delay or even derail his other promises, which were seen as market-friendly (read more: 5 Stocks for Bargain Hunters as "Trump Trade" Deflates).

Adding to the woes is the Federal Reserve, which dropped hints that it will not raise rates four times this year, a definite loss for the Wall Street as traders expected a more hawkish tone on the pace of the tightening cycle. This conservative approach also knocked the dollar (read more: 5 Biggest Winners from the Fed Rate Hike).

5 Best Picks for April

Going by the historical trends, April is likely to be a promising month for stocks. The catalysts for the rally are firmly in place, but as mentioned above, there are some lingering concerns. To eliminate such issues, investing in sound stocks is the need of hour.

We have, thus, selected five such stocks that flaunt a Zacks Rank #1 (Strong Buy) or #2 (Buy) and a VGM Score of ‘A’ or ‘B’. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.

Applied Materials, Inc. (AMAT Quick QuoteAMAT - Free Report) provides manufacturing equipment, services and software to the global semiconductor, display and related industries. It has a Zacks Rank #1 and VGM Score of ‘B’.

The Zacks Consensus Estimate for its current-year earnings jumped 9.9%, over the last 60 days. The company is likely to yield a return of 51.4% this year, more than the Semiconductor Equipment - Wafer Fabrication industry’s gain of 30.7%. Applied Materials outperformed the broader industry on a year-to-date basis (+21.07% vs +20.42%).

Best Buy Co Inc (BBY Quick QuoteBBY - Free Report) is a provider of technology products, services and solutions.  It has a Zacks Rank #1 and VGM Score of ‘A’.

The Zacks Consensus Estimate for its current-year earnings increased 5.7%, over the last 60 days. The company is projected to yield a return of 3.3% this year, as against the Retail - Consumer Electronics industry’s expected decline of 3.6%. Best Buy outperformed the broader industry on a year-to-date basis (+18.66% vs +6.3%).

Bravo Brio Restaurant Group, Inc. is the owner and operator of approximately two Italian restaurant brands, including BRAVO! Cucina Italiana and BRIO Tuscan Grille. It has a Zacks Rank #1 and VGM Score of ‘B’.

The Zacks Consensus Estimate for its current-year earnings surged 44.4%, over the last 60 days. The company is expected to yield a return of 51% this year, more than the Retail - Restaurants industry’s gain of 6.2%. Bravo Brio Restaurant outperformed the broader industry on a year-to-date basis (+34.21% vs +0.87%).

Brooks Automation, Inc is a provider of automation and cryogenic solutions for various applications and markets. It has a VGM Score of ‘B’ and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for its current-year earnings jumped 17.1%, over the last 60 days. The company is projected to yield a return of 105% this year, more than the Electronics - Manufacturing Machinery industry’s gain of 29.6%. Brooks Automation outperformed the broader industry on a year- to-date basis (+37.11% vs +12.76%).

Huntington Ingalls Industries Inc (HII Quick QuoteHII - Free Report) is a military shipbuilding company and a provider of professional services to partners in government and industry. It has a Zacks Rank #1 and VGM Score of ‘A’.

The Zacks Consensus Estimate for its current-year earnings climbed 8.3%, over the last 60 days. The company is expected to yield a return of 11.1% this year, more than the Aerospace - Defense industry’s gain of 1.9%. Huntington Ingalls outperformed the broader industry on a year- to-date basis (+10.04% vs +8.99%).

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