Our market may be staging a comeback this morning but don't expect this month to be a good one for equity investors which have suffered big losses among some of our most loved blue-chip stocks.
The S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is rallying 0.5% on the last day of the month thanks to positive overnight off shore leads, and that should put us on track to finish May where we started.
Things could have been worse as May tends to be a weak period for the market and we can thank the share price performance of our national carrier Qantas Airways Limited (ASX: QAN), shopping centre owner Vicinity Centres Re Ltd (ASX: VCX) and property and construction group Lendlease Group (ASX: LLC) from keeping us from sliding deeper into the red.
But can we count on the worst performing large cap stocks in May to outperform over the next month or two as this is usually the time in the cycle when value stocks start to overtake growth stocks.
Value stocks are typically those that lag the market, which puts them on cheaper valuations, while growth stocks tend to trade at a premium to the market as investors are more confident about the bullish outlook for these companies.
This is why some bargain hunters will be licking their lips at Telstra Corporation Ltd (ASX: TLS) as our biggest telco tops the large cap loser list in May with a loss of 12%. In fact, it can also claim the wooden spoon for the past 12-months as Telstra shed nearly 40% of its value.
Some may be willing to bet that Telstra's next investor day on 20 June could trigger a rebound in the stock (click here to find out why), but I think the second worst laggard, global logistics company Brambles Limited (ASX: BXB), will give you better bang for your risk-adjusted dollar.
Brambles has "only" lost 8% this month and is 14% in the hole over the last 12 months on worries about rising costs of oil and lumber squeezing its margins even as global economic activity is picking up pace.
But I believe the bad news is largely in the price with the stock trading on a FY19 consensus price-earnings (P/E) multiple under 17 times. That's around a 30% discount to its historical value.
Telstra may be trading at a deeper discount on this front but the macro outlook for Telstra is far worse than Brambles, although they both will need to work hard to cut costs to protect margins.
There's no doubt that Telstra has more upside if it can turn around its ship, but I believe there's greater chance of Brambles getting it right – unless the European Union descends into economic chaos due to an Italian or Spanish-led split in the union.
Another May laggard that is worth looking at is gas producer Santos Ltd (ASX: STO). The stock enjoyed a sharp rally this month on takeover speculation and suffered an even sharper loss when management rejected the offer from US private equity group Harbour Energy.
The stock is down close to 8% this month as investors who piled into the stock on hopes that the takeover offer would get through quickly dumped Santos. Harbour Energy did likewise after Santos' board showed it the door, and that has added to the selling pressure.
This is now mostly done and I think the stock will recover from here, although I believe Santos wasn't acting in shareholders' best interest by sending the bidder packing so quickly.
Santos' board better be praying that the recent sell-off of crude abates and the commodity starts to rebound or they could be facing a lot of uncomfortable questions at its next annual general meeting.
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