After losing 0.1% on Monday, the S&P 500 gained less than 0.1% on Tuesday. This is keeping with the benchmark’s movement recently, where it has traded within a range of 1% over an extended period. As the index remains stuck within the doldrums, market watchers are struggling to predict how long such a trend will continue.
That may be difficult to predict, but it could possibly extend over quite a few of the next sessions. Even as a better than expected earnings season has been pushing up the index, a number of factors, primarily the uncertain stance of the new administration have been acting as a drag on stocks. However, some components of the S&P 500 still hold the promise for superior gains and would make lucrative additions to your portfolio even at this time.
Trading Within a Tight Band
As of the beginning of trading on Feb 6, the S&P 500 had not experienced a daily trading range of 1% or more over 34 successive sessions. This was the longest such stretch in 22 years, according to the Wall Street Journal. This, in fact, has happened, and the market has continued to linger around similar levels on Monday and Tuesday as well.
According to Thomson Reuters data, this is the longest such streak since 1974. Since Dec 14, the average daily trading range within an intraday high and low has been merely 0.54%, per FactSet data. Last year, the average daily trading range stood at 0.96%.
Of course, the S&P 500 has gained 1% over this stretch and has also created new all-time highs, as recently as Jan 25. However, uncertainties regarding the Trump administration’s policies, the reluctance of the Fed Reserve to raise rates and steep valuations have curbed any significant movement for stocks.
Expectations for Near-Terms Gains Low
The recent behavior of the S&P 500 stands in sharp contrast to its movement immediately following a Presidential election result which defied most expectations. Between the declaration of results on Nov 8 and Dec 13, the S&P 500 had surged 6.2%.
But large one day movements could continue to be hard to come by for the S&P 500 over the next few weeks, at least. According to CBOE Livevol, the historical volatility of the SPDR S&P 500 is currently at 6.5. The gauge, a measure of the S&P 500’s volatility over two months, has now hit its lowest point in two years. At 8.1, the measure of historical volatility for three months is also at comparable levels.
Additionally, expectations for future price movements are similarly low for the next 30 days. Ever since the election, the market’s preferred measure of volatility, the VIX has lingered at record lows. Currently at 11.29, the VIX is languishing far below its long term average which stands around 20.
Looking for stocks which are free of this trading rut presents a difficult task in this scenario. This is particularly true for the S&P 500’s components, many of which are larger companies which may inherently not be susceptible to wider price movements.
In order to generate significantly large gains, it is important to pick stocks with significant momentum behind them. The Momentum Style Score is an indication of the time to buy a stock to benefit from rising share prices. The highest score is an A, so getting in on an A or B on a C or D could be a strategy for short term gains.
However, picking winning stocks may be difficult.
This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score.
We have narrowed down our search to the following stocks, each of which has a good Zacks Rank, VGM score and Momentum score.
Western Digital Corporation WDC is one of the largest hard disk drive producers in the U.S. The company’s second-quarter fiscal 2017 earnings were impressive with both earnings and revenues exceeding estimates and growing year-over-year.
Western Digital has a Zacks Rank #1 (Strong Buy), a VGM Score of A and a Momentum Score of A. The company has expected earnings growth of 38.1% for the current year. Its earnings estimate for the current year has improved by 15.7% over the last 30 days. The stock has returned 17.7% since Dec 14, outperforming the Zacks Computer- Storage Devices sector, which has returned 10.3% over the same period.
PulteGroup Inc. PHM engages in the homebuilding and financial services businesses primarily in the U.S. The company surpassed earnings and revenue estimates in fourth-quarter 2016 by 15.5% and 6.9%, respectively.
PulteGroup has a Zacks Rank #1, a VGM Score of B and a Momentum Score of A. The company has expected earnings growth of 27.9% for the current year. Its earnings estimate for the current year has improved by 6.7% over the last 30 days. The stock has returned 11.3% since Dec 14, outperforming the Zacks Building Products – Home Builders sector, which has returned 3.1% over the same period.
Texas Instruments, Inc. TXN is one of the largest suppliers of analog integrated circuits. The company’s fourth quarter revenues and earnings grew year-over-year.
Texas Instruments has a VGM Score of B and a Momentum Score of B. The company has expected earnings growth of 9.9% for the current year. Its earnings estimate for the current year has improved by 6.8% over the last 30 days. The stock has returned 5.1% since Dec 14, nearly in line with the Zacks Semiconductor – General sector, which has returned 5.2% over the same period. The stock has a Zacks Rank #1.
The Allstate Corp. ALL is the second-largest property-casualty (P&C) insurer and the largest publicly-held personal lines carrier in the U.S.
Allstate Corp has a Zacks Rank #2 (Buy), a VGM Score of A and a Momentum Score of A. The company has expected earnings growth of 28.2% for the current year. Its earnings estimate for the current year has improved by 1.9% over the last 30 days. The stock has returned 7.6% since Dec 14, outperforming the Zacks Insurance – Property and Casualty sector, which has lost 0.3% over the same period.
Campbell Soup Company CPB is a worldwide manufacturer and marketer of high-quality, branded convenience food products.
Campbell Soup has a Zacks Rank #2, a VGM Score of B and a Momentum Score of A. The company has expected earnings growth of 5.3% for the current year. Its earnings estimate for the current year has improved by 0.3% over the last 30 days. The stock has returned 7% since Dec 14, outperforming the Zacks Food – Miscellaneous sector, which has returned 0.3% over the same period.