Wall Street has been northbound since the beginning of 2019 barring some minor fluctuations. After completing the best first quarter in more than two decades, all three major stock indexes — the Dow, S&P 500 and Nasdaq Composite — are currently at a striking distance to reaching all-time highs. Wall Street still has something to offer irrespective of the fact that the bull run is in its eleventh year.
Consequently, it will be prudent to invest in those stocks that skyrocketed this year with a favorable Zacks Rank and are poised to best first quarter earnings.
A Dovish Fed
On Mar 20, after the completion of its two-day policy meeting of the Federal Open Market Committee, the central bank decided not to hike interest rate in 2019 unless the situation changes abruptly. Fed members have unanimously decided to maintain patience before adopting any decision to raise interest rate. This means the benchmark fund rate will remain 2.25-2.5%.
Moreover, the central bank also decided to end its balance sheet reduction program in September. Under its quantitative easing program, the Fed allows $30 billion in Treasury proceeds and $20 billion from mortgage-backed securities to roll off and reinvest the rest of the bonds.
Likelihood of U.S.-China Trade Deal
Since the beginning of 2019, both United States and China are negotiating earnestly to find an amicable solution to the trade spat.
On Apr 10, U.S. Treasury Secretary Steven Mnuchin said the U.S. and China are making progress on a trade deal, including resolving a key sticking point — full protection for U.S. intellectual property. Both countries have decided to establish enforcement offices to deal with the negotiation process.
On Apr 11, The Wall Street Journal reported that China has agreed to open its cloud-computing space to foreign companies, especially to U.S. companies in an effort to clinch a trade deal with the United Sates.
Benign Inflation Despite Robust Labor Market
The U.S. labor market remains robust. Unemployment rate is at its 50-year low level of 3.8%. Job data for March also revealed that the average wage rate increased 0.14%. Wage rate increased 3.2% year over year in March. Despite a record-low unemployment level and rising nominal wage rate, inflation remains within the target level of the Fed.
The consumer price index (CPI) for March came in at 0.4%, in line with the consensus estimate. Year over year, the cost of living index increased 1.9%, below the Fed’s target rate of 2%. The last available (released on Mar 29) personal consumption expenditures (PCE) price index rose 1.8% year over year. This was also below the 2% target rate of the Fed. Notably, PCE price index is the Fed’s most-favored inflation gauge.
Our Top Picks
At this stage, investment in stocks with a positive Earnings ESP and a Zacks Rank #3 (Hold) or better should prove to be lucrative. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.
We have been able to narrow down our search to five stocks with a Zacks Rank #1 (Strong Buy) and positive ESP, which have skyrocketed in 2019. You can see the complete list of today’s Zacks #1 Rank stocks here.
CommScope Holding Co. Inc. COMM provides infrastructure solutions for communication networks worldwide. It has an Earnings ESP of +1.89% for the current quarter. The Zacks Consensus Estimate for the current quarter and year has improved 2.3% and 36.1%, respectively, over the last 30 days. The stock has surged 58.9% year to date.
Legg Mason Inc. LM is engaged in providing asset management, securities brokerage, investment banking and related financial services to individuals, institutions, corporations and municipalities. It has an Earnings ESP of +4.33% for the current quarter. The Zacks Consensus Estimate for the current quarter and year has improved 2% and 4.2%, respectively, over the last 30 days. The stock has surged 27.8% year to date.
Apergy Corp. APY provides engineered equipment and technologies that help companies drill and produce oil and gas worldwide. It has an Earnings ESP of +0.65% for the current quarter. The Zacks Consensus Estimate for the current quarter and year has improved 3.3% and 2.1%, respectively, over the last 30 days. The stock has surged 50.6% year to date.
The Estée Lauder Companies Inc. EL manufactures and markets skin care, makeup, fragrance and hair care products. It has an Earnings ESP of +1.39% for the current quarter. The Zacks Consensus Estimate for the current quarter and year has improved 0.8% and 0.6%, respectively, over the last 30 days. The stock has surged 28.4% year to date.
Synopsys Inc. SNPS provides electronic design automation software products. It has an Earnings ESP of +1.15% for the current quarter. The Zacks Consensus Estimate for the current quarter and year has improved 0.9% and 0.2%, respectively, over the last 30 days. The stock has surged 39.6% year to date.
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