Analysts expect 10% earnings growth from these companies

 

Following President Trump’s inability to reach a deal with his fellow republicans to repeal and replace Obamacare, Wall Street moved into risk-off mode, and encountered its longest streak of down days since 2011.

The underlying fear is that if the republicans were unable to form a deal on Obamacare, which has been a primary focus for the party over the last seven years, how will they be able to tackle more challenging proposals such as tax reform?

The expectation of tax reform, both on the individual and corporate level, has been the primary catalyst in the market’s recent run to record levels, but if it becomes apparent that Trump runs into the same obstacles with tax reform that he did with healthcare, the market could run into major selling pressure.

Should the market turn lower, investors will turn to stocks that have the highest expected earnings growth. Earnings will always be king on Wall Street, so finding stocks with strong growth estimates is more important than ever considering the uncertainty surrounding the market at this time.

Each of the following companies are forecast to grow earnings by at least 10% during the current year.

Morgan Stanley

Financial giant Morgan Stanley (MS) has been a top performer over the last six months. Rising interest rates are a big reason for the stock’s recent strength, but that is not the only reason the financial sector has been strong since the election. President Trump wants to ease restrictions on the sector that were put in place following the financial crisis, which experts believe will result in solid revenue and earnings growth for the entire sector. Trump also wants to enact tax reform, which could lead to overall economic growth that will benefit the banking sector. MS trades with a P/E of 14.7, and earnings are forecast to rise by 15.8% this year, and an additional 16.0% in 2018.

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Chart courtesy of www.stockcharts.com

BB&T Corp.

Regional banks are poised to enjoy significant earnings growth as interest rates rise. Regional banks such as BB&T Corp. (BBT) generate a significant amount of the earnings from loans they generate for their customers, and as the Federal Reserve allows the federal funds rate to rise, banks will be able to widen the spread between the money they borrow versus the rates they charge customers. The positive impact of rising rates on the financial sector has already resulted in strong gains for banking stocks, but with the Federal Reserve expected to lift rates two more times during the current year, bank stocks will likely build on recent gains through the course of the year. Analysts expect BB&T to grow its earnings by 11.6% this year, and by an additional 12.9% in 2018. The stock has a P/E of 16.0, so there is plenty of upside potential should the company live up to the bullish growth estimates.

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Chart courtesy of www.stockcharts.com

Facebook

Social media leader Facebook (FB) has enjoyed strong growth in recent years, as the company has done a stellar job in monetizing its massive number of mobile users. For the current year, analysts expect to see the company grow its earnings by 28.1% in 2017 and 23.2% in 2018. FB’s valuation is a bit, with a P/E of 40.6, but considering how strongly the company is forecast to grow its bottom line over the next two years, the valuation is not a huge concern at this point. FB shares are currently trading just shy of their all-time high, but there is no reason to expect the stock to lose its upward momentum with earnings growing at the current pace.

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Chart courtesy of www.stockcharts.com

Boeing Co.

Aerospace and defense contractor Boeing (BA) recently hit an all-time high, and there are good reasons to believe that the stock will continue to build on its recent gains. The primary thing working in the company’s favor is President Trump’s desire to significantly boost military spending during his reign as Commander in Chief. Trump believes that every branch of the U.S. military needs work, and he will push hard to make sure the federal government makes a huge investment in military spending over the next few years in order to accomplish his goals. The entire defense sector has been strong since the election, since republicans won enough seats on election day to control not only the White House, but both houses of Congress, leading what most analysts believe will be a smooth road for Trump to get the approval he needs to boost military spending. BA has a P/E of 23.2, and analysts believe earnings will rise by 28.6% during the current year, and 9.7% in 2018.

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Chart courtesy of www.stockcharts.com

KB Home

While there is some concern over the impact of rising interest rates on the housing market, for now the housing recovery remains intact. Across the nation there is now a shortage of inventories, which has allowed prices to rise even as rates start to inch higher. Homebuilders claim that they are having a hard time hiring enough employees to keep pace with demand, and as such experts do not see the inventory shortage ending any time soon. Rates will rise, and ultimately that will make it more difficult for homebuyers to afford new homes, but even with a couple more small increases, interest rates will remain very low on an historic basis, and the housing market should be able to withstand a few more increases. Homebuilder KB Home (KBH) is in a strong upward trend, with a P/E of 17.7, and earnings expected to rise 42.0% this year, and 20.8% in 2018.

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Chart courtesy of www.stockcharts.com

Symbols: BA BBT FB KBH MS
Michael Fowlkes

Michael Fowlkes

Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va.

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