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5 Top Picks to Boost Portfolio in Historically Weak September
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Wall Street completed a strong August maintaining the northward journey in 2021. The three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — have advanced 1.2%, 2.9% and 4%, respectively. The small-cap specific Russell 2000 gained 2.1%.
The market’s benchmark — the S&P 500 Index — ended the first eight months of 2021 with its strongest year-to-date gain since 1997. The broad-market index also ended in positive zone for seven months in a row, since a 10-month winning run ended in December 2017. In August, the three major stock indexes recorded fresh all-time and closing highs.
Despite a robust August, market participants are concerned about market’s behavior in September, which is historically the worst-performing month in Wall Street. According to CFRA, the S&P 500 ended in positive territory just 45% of the time in September since World War II.
This year, September is evenly balanced with negative and positive factors. Let’s discuss those factors briefly.
Negatives in September
The major threat in September is the rapid spread of the highly-infectious Delta variant of COVID-19. This has the potential to derail U.S. and global economic recovery. The two major consumer satisfaction optimization indexes plummeted in August predominantly due to people’s concerns over the Delta variant. The Consumer Sentiment Index plunged to pandemic-era low and the Consumer Confidence Index dropped to its six-month low level.
Consumer spending, the largest component of U.S. GDP, rose a mere 0.3% in July after jumping 1.1% in June. The gradual fading out of the fiscal stimulus and the spread of the Delta string are the main reasons for this drop in personal spending. The stimulus money will reduce further once the weekly unemployment benefit terminates on Sep 6.
Moreover, inflation remained elevated in July thanks to precipitous supply-chain disruptions and the shortage of labor. The tapering of the Fed’s quantitative easing program to protect the economy from overheating will raise market’s long-term interest rate.
Positives in September
The economic effect of the Delta variant of coronavirus may not be as severe as last year when there was no vaccine. On Aug 23, the FDA granted the first full approval to the COVID-19 vaccine developed by Pfizer Inc. (PFE - Free Report) and BioNTech SE (BNTX - Free Report) .
The full approval of the vaccine is expected to convince many Americans who are still reluctant to receive a shot despite the rapid spread of the highly-infectious Delta variant of coronavirus. More than 60% of U.S. citizens have already received at least one shot.
The new orders for core capital goods (non-defense capital goods excluding aircraft) remained the same in July after rising 1% in June. This metric is a closely watched proxy for business investment plan. Shipments of core capital goods rose 1% in July after rising 0.6% in June. This metric is used to calculate equipment spending in GDP measurement.
The above-mentioned data are very important at a time when market watchers are primarily concerned about consumer spending. Healthy business spending in the second half of 2021 should compensate for any material decline in consumer spending, if it happens at all.
As we are winding up the second-quarter 2021 earnings session, profits of the market’s benchmark S&P 500 Index are likely to hit a 13-year high this year. This earnings season has witnessed broad-based growth, significant acceleration of revenues and continued positive revisions to estimates for the third quarter.
As of Aug 27, total 2021 earnings of the S&P 500 Index were projected to climb 42.7% on 13% higher revenues. For 2022 and 2023, the S&P 500's total earnings are likely to grow 9.4% and 10.1% on 6.7% and 4.6% higher revenues, respectively.
Finally, on Aug 24, the House of Representatives advanced a $1 trillion bipartisan infrastructure bill. On Aug 10, the U.S. Senate passed a bipartisan infrastructure bill of $550 billion in addition to the previously approved funds of $450 billion for five years.
Total spending may go up to $1.2 trillion if the plan is extended to eight years. Infrastructure projects such as roads, bridges, passenger rails, airports, drinking water and waste-water systems, high-speed Internet, and climate-related infrastructure should benefit.
Our Top Picks
Several good stocks are available for investment in September. However, we have applied our VGM Style Score model to narrow down our search to five stocks that have provided more than 20% returns year to date.
These stocks have strong growth potential for the rest of 2021 and have seen solid earnings estimate revisions within the last 7 days, indicating that the market currently expects these companies to do solid business in 2021. Each of our picks carries a Zacks Rank #1 (Strong Buy) and a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our five picks year to date.
Image Source: Zacks Investment Research
DICK'S Sporting Goods Inc. (DKS - Free Report) has been gaining from continued focus on developing every possible avenue to generate greater sales. As part of its long-term plan, the company plans to make significant investments in e-commerce, technology, store payroll, Team Sports and private brands. It remains on track to build the best omni-channel experience for athletes by strengthening store network and expanding e-commerce presence.
The company has an expected earnings growth rate of 96.6% for the current year (ending January 2022). The Zacks Consensus Estimate for current-year earnings improved 35.3% over the last 7 days. The stock price has soared 150.5% year to date.
Abercrombie & Fitch Co. (ANF - Free Report) operates as a specialty retailer of premium, high-quality casual apparel for men, women, and kids. Abercrombie is making significant progress in expanding digital and omni-channel capabilities to better engage with consumers. It has been on track with its cost minimization measures, which improves its margins.
The company has an expected earnings growth rate of more than 100% for the current year (ending January 2022). The Zacks Consensus Estimate for current-year earnings improved 19.1% over the last 7 days. The stock price has soared 75.6% year to date.
Rent-A-Center Inc. is the largest rent-to-own operator in the United States, offering durable goods such as consumer electronics, appliances, computers, furniture and accessories. The company is on track with integrating Acima’s capabilities to craft a premier fintech platform. It expects to achieve potential synergies of nearly $25 million in 2021.
The company has an expected earnings growth rate of 72.5% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 0.8% over the last 7 days. The stock price has rallied 64.7% year to date.
Kohl's Corp. (KSS - Free Report) operates as a retail company in the United States. It has been benefiting from its strategic framework, which focuses on driving top-line growth, expanding operating margin, implementing disciplined capital management as well as undertaking an agile, accountable and inclusive culture. Kohl’s strong brand portfolio and partnerships are diving growth.
The company has an expected earnings growth rate of more than 100% for the current year (ending January 2022). The Zacks Consensus Estimate for current-year earnings improved 4.1% over the last 7 days. The stock price has climbed 41.1% year to date.
HP Inc. (HPQ - Free Report) is benefiting from solid demand for Personal Computers amid the pandemic-led remote-working and online-learning wave. Recently reported earnings reflect a strong rebound in the Printing business, which is a welcome development. Furthermore, stringent cost control measures are expected to drive margin over the long run.
The company has an expected earnings growth rate of 63.6% for the current year (ending October 2021). The Zacks Consensus Estimate for current-year earnings improved 6.6% over the last 7 days. The stock price has surged 20.9% year to date.
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5 Top Picks to Boost Portfolio in Historically Weak September
Wall Street completed a strong August maintaining the northward journey in 2021. The three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — have advanced 1.2%, 2.9% and 4%, respectively. The small-cap specific Russell 2000 gained 2.1%.
The market’s benchmark — the S&P 500 Index — ended the first eight months of 2021 with its strongest year-to-date gain since 1997. The broad-market index also ended in positive zone for seven months in a row, since a 10-month winning run ended in December 2017. In August, the three major stock indexes recorded fresh all-time and closing highs.
Despite a robust August, market participants are concerned about market’s behavior in September, which is historically the worst-performing month in Wall Street. According to CFRA, the S&P 500 ended in positive territory just 45% of the time in September since World War II.
This year, September is evenly balanced with negative and positive factors. Let’s discuss those factors briefly.
Negatives in September
The major threat in September is the rapid spread of the highly-infectious Delta variant of COVID-19. This has the potential to derail U.S. and global economic recovery. The two major consumer satisfaction optimization indexes plummeted in August predominantly due to people’s concerns over the Delta variant. The Consumer Sentiment Index plunged to pandemic-era low and the Consumer Confidence Index dropped to its six-month low level.
Consumer spending, the largest component of U.S. GDP, rose a mere 0.3% in July after jumping 1.1% in June. The gradual fading out of the fiscal stimulus and the spread of the Delta string are the main reasons for this drop in personal spending. The stimulus money will reduce further once the weekly unemployment benefit terminates on Sep 6.
Moreover, inflation remained elevated in July thanks to precipitous supply-chain disruptions and the shortage of labor. The tapering of the Fed’s quantitative easing program to protect the economy from overheating will raise market’s long-term interest rate.
Positives in September
The economic effect of the Delta variant of coronavirus may not be as severe as last year when there was no vaccine. On Aug 23, the FDA granted the first full approval to the COVID-19 vaccine developed by Pfizer Inc. (PFE - Free Report) and BioNTech SE (BNTX - Free Report) .
The full approval of the vaccine is expected to convince many Americans who are still reluctant to receive a shot despite the rapid spread of the highly-infectious Delta variant of coronavirus. More than 60% of U.S. citizens have already received at least one shot.
The new orders for core capital goods (non-defense capital goods excluding aircraft) remained the same in July after rising 1% in June. This metric is a closely watched proxy for business investment plan. Shipments of core capital goods rose 1% in July after rising 0.6% in June. This metric is used to calculate equipment spending in GDP measurement.
The above-mentioned data are very important at a time when market watchers are primarily concerned about consumer spending. Healthy business spending in the second half of 2021 should compensate for any material decline in consumer spending, if it happens at all.
As we are winding up the second-quarter 2021 earnings session, profits of the market’s benchmark S&P 500 Index are likely to hit a 13-year high this year. This earnings season has witnessed broad-based growth, significant acceleration of revenues and continued positive revisions to estimates for the third quarter.
As of Aug 27, total 2021 earnings of the S&P 500 Index were projected to climb 42.7% on 13% higher revenues. For 2022 and 2023, the S&P 500's total earnings are likely to grow 9.4% and 10.1% on 6.7% and 4.6% higher revenues, respectively.
Finally, on Aug 24, the House of Representatives advanced a $1 trillion bipartisan infrastructure bill. On Aug 10, the U.S. Senate passed a bipartisan infrastructure bill of $550 billion in addition to the previously approved funds of $450 billion for five years.
Total spending may go up to $1.2 trillion if the plan is extended to eight years. Infrastructure projects such as roads, bridges, passenger rails, airports, drinking water and waste-water systems, high-speed Internet, and climate-related infrastructure should benefit.
Our Top Picks
Several good stocks are available for investment in September. However, we have applied our VGM Style Score model to narrow down our search to five stocks that have provided more than 20% returns year to date.
These stocks have strong growth potential for the rest of 2021 and have seen solid earnings estimate revisions within the last 7 days, indicating that the market currently expects these companies to do solid business in 2021. Each of our picks carries a Zacks Rank #1 (Strong Buy) and a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our five picks year to date.
Image Source: Zacks Investment Research
DICK'S Sporting Goods Inc. (DKS - Free Report) has been gaining from continued focus on developing every possible avenue to generate greater sales. As part of its long-term plan, the company plans to make significant investments in e-commerce, technology, store payroll, Team Sports and private brands. It remains on track to build the best omni-channel experience for athletes by strengthening store network and expanding e-commerce presence.
The company has an expected earnings growth rate of 96.6% for the current year (ending January 2022). The Zacks Consensus Estimate for current-year earnings improved 35.3% over the last 7 days. The stock price has soared 150.5% year to date.
Abercrombie & Fitch Co. (ANF - Free Report) operates as a specialty retailer of premium, high-quality casual apparel for men, women, and kids. Abercrombie is making significant progress in expanding digital and omni-channel capabilities to better engage with consumers. It has been on track with its cost minimization measures, which improves its margins.
The company has an expected earnings growth rate of more than 100% for the current year (ending January 2022). The Zacks Consensus Estimate for current-year earnings improved 19.1% over the last 7 days. The stock price has soared 75.6% year to date.
Rent-A-Center Inc. is the largest rent-to-own operator in the United States, offering durable goods such as consumer electronics, appliances, computers, furniture and accessories. The company is on track with integrating Acima’s capabilities to craft a premier fintech platform. It expects to achieve potential synergies of nearly $25 million in 2021.
The company has an expected earnings growth rate of 72.5% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 0.8% over the last 7 days. The stock price has rallied 64.7% year to date.
Kohl's Corp. (KSS - Free Report) operates as a retail company in the United States. It has been benefiting from its strategic framework, which focuses on driving top-line growth, expanding operating margin, implementing disciplined capital management as well as undertaking an agile, accountable and inclusive culture. Kohl’s strong brand portfolio and partnerships are diving growth.
The company has an expected earnings growth rate of more than 100% for the current year (ending January 2022). The Zacks Consensus Estimate for current-year earnings improved 4.1% over the last 7 days. The stock price has climbed 41.1% year to date.
HP Inc. (HPQ - Free Report) is benefiting from solid demand for Personal Computers amid the pandemic-led remote-working and online-learning wave. Recently reported earnings reflect a strong rebound in the Printing business, which is a welcome development. Furthermore, stringent cost control measures are expected to drive margin over the long run.
The company has an expected earnings growth rate of 63.6% for the current year (ending October 2021). The Zacks Consensus Estimate for current-year earnings improved 6.6% over the last 7 days. The stock price has surged 20.9% year to date.