Four months into 2019, the volatility that wreaked havoc on the market in the fourth quarter has been notably absent. And for investors on the hunt for the best stocks to buy, growing investor optimism isn't always a good thing -- it's one of a contrarian's favorite bearish signals.
The S&P 500 gained another 3% in April, bringing its year-to-date gains above 16%.
This smooth sailing can't continue forever, though, and the best stocks to buy for May include a handful of blue-chip names for good measure -- it never hurts to insulate your portfolio from possible volatility.
Here are five of the best stocks to buy for May:
-- Johnson & Johnson (JNJ)
-- Berkshire Hathaway (BRK.B, BRK.A)
-- Applied Materials (AMAT)
-- Aflac (AFL)
-- General Electric (GE)
Johnson & Johnson (JNJ)
What can one say about Johnson & Johnson that hasn't already said? A stock about as blue-chip as they get, JNJ is a multibillion-dollar international conglomerate with world-class businesses in consumer products, pharmaceuticals and medical devices.
Boasting a 2.6% dividend, Johnson & Johnson has been around since 1887, and its stable, diversified revenue base makes JNJ stock a great portfolio anchor should volatility return.
Even if things take a dramatic turn for the worse -- think recession or severe economic slowdown -- JNJ's financials themselves are still extremely well-insulated. Consumers won't stop buying Band-Aids and Tylenol or suddenly stop needing life-saving medications, and hospitals will still need JNJ's medical devices to treat patients.
Berkshire Hathaway (BRK.A, BRK.B)
While this list of the best stocks to buy for May is chock-full of more conservative plays, Berkshire holds up in almost any market.
It's hard to go wrong with what amounts to a diversified portfolio of Warren Buffett's stock picks and a core insurance business he built.
Berkshire just struck a $10 billion financing deal with Occidental Petroleum ( OXY), agreeing to help fund the company's bid to snap up Anadarko Petroleum ( APC). Occidental entered the fray last week, offering $38 billion for Anadarko and possibly sparking a showdown with Chevron Corp. ( CVX), which had already agreed to buy out Anadarko for $33 billion.
Berkshire's funding deal will only happen if Anadarko ties up with Occidental, but boy, are the terms sweet. Berkshire will get 100,000 perpetual preferred shares of Occidental stock yielding 8% annually, plus a warrant to buy 80 million shares of Occidental at $62.50 each.
These preferred stock deals are almost always amazing bargains for Berkshire and typically the sort of deal that only Buffett and Berkshire can strike. The Oracle of Omaha must see extreme value in the warrants, too, but the 8% coupon on preferred stock is an amazing investment on a standalone basis.
Applied Materials (AMAT)
A nice little derivative way to play Silicon Valley, Applied Materials develops, manufactures and sells the machines that ultimately make the machines that make technology products of all shapes and stripes hum.
Someone's got to make the complex and high-precision equipment used to make the next great semiconductor chip or OLED TV screen, and AMAT is a leader in that industry.
Trading at just 11 times earnings and paying a 1.9% dividend, AMAT isn't a growth stock. Despite being up over 30% in 2019, shares remain down over 10% from a year ago, due largely to the U.S.-China trade spat that's limited mutually beneficial trade between AMAT and its foreign customers and partners.
Investors are likely to be less bullish on AMAT until the tariff dispute is solved, but a resolution will likely be very good for the company. Keep in mind that the equipment supplier reports earnings on May 16 as well, so the near-term will contain several potentially big catalysts for shares.
Let's return to the boring stocks. The most exciting thing about them is arguably the fact that legendary investor Peter Lynch loved to scour this category for stocks to buy.
Insurance heavyweight Aflac is coming off a solid, better-than-expected first quarter it announced in late April. Revenue rose 3.5% year-over-year, which was stupendous for a stock like AFL, which analysts expected to increase revenue by just 0.5%. Earnings per share also beat, coming in at $1.12 versus a $1.06 consensus.
The supplemental health and life insurance provider boasts a number of qualities that come in handy when markets get frenzied: generally low volatility, consistent long-term performance, a profitable and predictable business and a 2.1% dividend.
With AFL trading at less than 7 times free cash flow, Aflac might not be exciting but it is one of the best stocks to buy for May.
General Electric Co. (GE)
Over the course of over a century as a publicly traded company -- the iconic industrial powerhouse first went public in 1892 -- it's been a rare occasion that investors could consider GE stock a speculative bet.
This is one of those rare occasions.
GE stock has been in freefall since 2017, when a series of costly mistakes from yesteryear, including its long-term care insurance and power generation businesses, started costing a fortune.
After multiple rounds of major write-downs, asset sales and dividend cuts, GE's C-suite has been a revolving door for a few years and its once-enviable financials have turned to nightmarish reflections of its trimmed-down and struggling business.
Sounds awful. So why is GE one of May's stocks to buy?
Simply put: if you're an enterprising investor willing to weather out a risky turnaround play over the long run, GE is an interesting opportunity. Its newest CEO, Lawrence Culp, who took the helm in October, already turned in a better-than-expected first quarter, reported April 30, limiting its cash flow burn to $1.2 billion when some on Wall Street were fearing a $2 billion to $4 billion hit.
It looks like GE stock has found its bottom, and if market confidence slowly begins to return, shares of the highly levered former blue-chip should accelerate even more rapidly. The risk-reward ratio looks fairly attractive at this early stage in the turnaround, but surer bets abound, including all four stocks mentioned above.