Last year traders dealt with a level of volatility they had not experienced in a while, capped off by a major market sell in December that drove the major indexes into correction territory.
Rising interest rates, slowing corporate earnings growth, and a trade war between the U.S. and China were all to blame for the market’s woes in 2018, and while the major indexes have all rebounded, there is still a lot of uncertainty moving forward.
January has seen the markets rebound as the Federal Reserve announced it would likely raise rates just twice during the year as opposed to the three rate hikes it previous forecast. There is also growing optimism that trade negotiations between the U.S. and China will lead to a deal that will put an end to the current trade tensions between the world’s two largest economies.
Most of the stocks that took a beating during the market correction have already started to recover, but there is still a long way to go before we get back to where we were before the market started to sell off, and the recent drop has created some good buying opportunities in stocks that were previously trading at record levels.
The current earnings season is just getting started, with the major financials taking the lead. The results have been mixed, but forward-looking statements have been upbeat and boosted investor confidence in the current recovery.
If you stayed on the sidelines during the sell off and now find yourself with some cash you want to put to work, here are five stocks that I like as the market emerges from the recent correction.
I have been a big fan of Amazon.com (AMZN) for years, and I continue to be a believer. The most obvious reason to like the stock is its pure dominance of e-commerce. Online retail continues to grow in importance, and Amazon faces very little competition. Not only does Amazon control e-commerce, it has also become a leader in cloud computing which happens to be the fastest growing sector in tech. Business and individuals are increasingly moving to the cloud for additional storage and computing capabilities. The cloud has become an integral part of business and the sector is growing at a rabid pace. The worldwide public cloud services market was $145.3 billion in 2017 and is expected to grow to $206 billion in 2019. Last quarter Amazon Web Services reported revenue of $6.68 billion, which was 12 percent of the company’s total revenues. The figure was up 46 percent year over year. Amazon dominates e-commerce and is second only to Microsoft (MSFT) in cloud computing which makes the company a strong long term buy. AMZN sold off in the fourth quarter with the overall market, but the stock has already started to recover and could move sharply higher if the company is able to post solid quarterly numbers when it posts Q4 results January 31. Analysts forecast earnings of $5.49 for the quarter, up from $3.75 during the same period last year. AMZN trades at $1,692.96 with an average price target of $2,161,21.
TJX Companies (TJX)
Discount retailer TJX Companies (TJX) was a strong performer in 2018 before selling off the with overall market in the final month of the year. Consumer confidence remains upbeat but there is also a growing concern of a possible economic slowdown on the horizon which would negatively impact consumers. TJX is the parent company behind several popular discount chains including TJ Maxx, Marshalls and Home Goods. The company has a good track record of growing earnings, with profits up an average of 9.4% annually over the last five years, and analysts forecast profits will rise by 11.6% per annum over the next five years. Last quarter revenues were up 12% year over year with earnings up 22%. Same store sales rose a very healthy seven percent, and the company has boosted traffic to its stores for 17 straight quarters and is very popular with younger consumers. The market selloff pulled TJX down to a reasonable valuation with shares currently trading at 18 times forward earnings. TJX trades at $47.61 with an average price target of $54.35.
Credit card company Visa (V) has enjoyed steady gains since the company went public in 2008. Visa has shown impressive earnings growth with profits up 19.5% per annum over the last five years and analysts expect to see earnings continue to rise at an annual average rate of 17.7% over the next five years. As e-commerce continues to grow and the world moves more towards a cashless society, credit card companies and payment processors have a bright future. In 2017 the average American’s credit card debt rose to a record high and with consumer confidence remaining high in 2018 that record was likely broken as well. V was a strong outperform in the first half of 2018 , but the stock ran sold off in the fourth quarter in sympathy to weakness in the overall market. The selloff created a good buying opportunity for investors wanting the stock at a lower multiple than where it was trading at its highs. V currently trades with a forward P/E of 22 which is attractive considering the company’s strong growth estimates. Analysts see a lot of upside, with an average price target of $162.08. The stock is currently trading at $137.85.
Social media giant Facebook (FB) had a tough 2018. The company is still dealing with fallout from user concerns over data privacy that surfaced early in the year, but by the summer the stock had managed to shrug off investor’s concerns and traded up to a new record high. The stock steadily lost ground throughout he second part of the year thanks to two straight revenue misses despite posting big positive earnings surprises each quarter. FB hit a 52-week low toward the end of December as the overall market corrected, but the stock found support around $125 and has since climbed to $148. While the company definitely has to work on improving user trust, it has a lot going for it moving forward. It remains the most powerful social network and is the only company to really compete against Google (GOOGL) for online advertising. Facebook also owns WhatsApp and Instagram, both of which could turn into big revenue drivers moving forward. The stock is well off its previous highs, but the selloff has lowered its valuation and it is currently trading at just 19 time forward earnings, which is very low for the stock historically. Analysts remain upbeat with an average price target of $192.65, which suggests the stock has around 30% upside potential.
When U.S. consumers shifted to a more health-conscience diet, McDonald’s (MCD) faced a big problem. Fast food was an easy target as a primary reason for America’s obesity epidemic, and consumers shied away from the company in favor of healthier fast food options such as Chipotle (CMG) and Panera Bread. McDonald’s did a fantastic job attracting customers with a limited all-day breakfast menu and revamping its overall menu to better compete in the new marketplace. Last quarter comparable same store sales growth in the U.S. was weaker than expected, but still rose 2.4 percent. The company has topped analyst estimates on the top and bottom line four straight quarters, and the stock held up well during the December correction after hitting a new record high at the end of November. The fact the stock avoided much of the market correction shows how strong the market’s view of the company’s underlying business is, and analysts have an average price target of $192.89 on the stock which currently is trading at $179.46.