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Top 5 Momentum Stocks for May Amid Fed's FOMC Meeting
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Wall Street completed last month on a positive note despite volatility. In April, the Dow advanced 2.5%, marking its best month since January. The S&P 500 gained 1.5%, finishing the second positive month in a row.
The Nasdaq Composite also rose marginally despite a weak start. The tech-heavy index regained momentum last week supported by strong first-quarter earnings of big techs. Last week, the Nasdaq Composite ended 1.3% higher, while the Dow and the S&P 500 rose 0.9% each.
The momentum of the U.S. stock markets is likely to sustain in May. The major driver of this month will be the Fed’s FOMC meeting and the first-quarter 2023 earnings season.
Fed’s May FOMC Meeting
The Fed is scheduled to meet its FOMC meeting on May 2 and 3. In the post-FOMC statement in March, Fed Chairman Jerome Powell said that the central bank is approaching the end of its ongoing interest rate hike regime. The terminal rate is likely to be 5.125%, which means just one 25 basis-point rate hike from the existing range of 4.75-5%.
Per the CME FedWatch, there exists an 85.5% probability of a 25-basis point rate hike while a 14.5% probability for the central bank to maintain the status quo for the benchmark lending rate. In March, Powell said that no reduction in the Fed fund rate is expected before 2024. However, at present 77.2% of respondents are expecting a rate reduction by late 2023.
Better-Than-Expected Q1 Earnings So Far
U.S. corporates have presented relatively good earnings results so far despite the threat of a recession later this year.
As of Apr 28, 267 companies on the S&P 500 Index have reported their quarterly financial numbers. Total earnings of these companies are down 2.4% year over year on 4.1% higher revenues. Further, 77.2% of companies have surpassed earnings estimates while 73% have surpassed revenue estimates.
Our projection has shown that total earnings of the S&P 500 Index are set to decline 5.7% year over year on 2.8% higher revenues compared with a 10% year-over-year decline in earnings on 1.7% higher revenues, estimated at the beginning of the reporting cycle. This will follow a 5.4% year-over-year decline in earnings of the S&P 500 Index on 5.9% higher revenues in fourth-quarter 2022.
Our Top Picks
We have narrowed our search to five momentum stocks that have popped in the past month with more upside left. These stocks have seen positive earnings estimate revisions in the last seven days. Each of our picks carries a Zacks Rank #1 (Strong Buy) and has a Momentum Score of A or B. 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 in the past month.
Image Source: Zacks Investment Research
Meta Platforms Inc. (META - Free Report) is benefiting from steady user growth across all regions, particularly Asia Pacific. Increased engagement for its products like Instagram, WhatsApp, Messenger and Facebook has been a major growth driver. META is considered to have pioneered the concept of social networking.
However, as developed regions mature, Meta Platforms has taken measures to drive penetration in emerging markets of South East Asia, Latin America and Africa. Of all places, India deserves a-special mention in terms of user growth. The world’s second-largest populated country offers tremendous potential for META. With China off the radar, India can prove to be a terrific growth engine for Meta.
The stock price of META has climbed 12.8% in the past month. The Zacks Consensus Estimate for current-year earnings has improved 8.5% over the last seven days.
Watsco Inc. (WSO - Free Report) is the largest distributor of heating, ventilation and air conditioning equipment, as well as related parts and supplies in the United States, Canada, Mexico, and Puerto Rico. WSO has been witnessing solid demand for HVAC/R products and pricing despite seasonality.
Also, operating efficiencies and strategic acquisitions added to the positives of Watsco. It is to be noted that Watsco is investing heavily to enhance customer experience through e-commerce and deploying technology that improves order fill rates with speed and accuracy. In addition, WSO is focused on enhancing shareholder value.
The stock price of WSO has advanced 8.2% in the past month. The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last seven days.
PulteGroup Inc. (PHM - Free Report) has been benefiting from robust land acquisition and operational strategic initiatives. PHM expects the land acquisition and development investment in 2023 to range from $3.5-$4 billion, up from the previously considered value of $3.3 billion. This is attributed to strong buyer demand and an increase in its construction activities.
Earnings estimates for 2023 have increased in the past 30 days. Although a challenging sales environment, higher cancellation rates, supply-chain issues, and significant inflation are dampening the performance, the improving interest rate environment is raising hope.
The stock price of PHM has jumped 13.8% in the past month. The Zacks Consensus Estimate for current-year earnings has improved 13.3% over the last seven days.
D.R. Horton Inc. (DHI - Free Report) believes that the housing demand will remain favorable, courtesy of a limited supply of new and existing homes at affordable price points despite challenging market conditions, comprising higher rates and uncertain economic conditions.
DHI’s production capabilities, industry-leading market share, solid acquisition strategy, broad geographic footprint and diverse product offerings across multiple brands and price points are encouraging.
The stock price of DHI has surged 12% in the past month. The Zacks Consensus Estimate for current-year earnings has improved 16.5% over the last seven days.
Manhattan Associates Inc. (MANH - Free Report) is the global leader in providing supply chain execution and optimization solutions. MANH enables operational excellence through its warehouse, transportation, distributed order management, reverse logistics and trading partner management solutions. MANH’s RFID, performance management and event management capabilities are other positives.
The stock price of MANH has gained 5.8% in the past month. The Zacks Consensus Estimate for current-year earnings has improved 6.3% over the last seven days.
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Top 5 Momentum Stocks for May Amid Fed's FOMC Meeting
Wall Street completed last month on a positive note despite volatility. In April, the Dow advanced 2.5%, marking its best month since January. The S&P 500 gained 1.5%, finishing the second positive month in a row.
The Nasdaq Composite also rose marginally despite a weak start. The tech-heavy index regained momentum last week supported by strong first-quarter earnings of big techs. Last week, the Nasdaq Composite ended 1.3% higher, while the Dow and the S&P 500 rose 0.9% each.
The momentum of the U.S. stock markets is likely to sustain in May. The major driver of this month will be the Fed’s FOMC meeting and the first-quarter 2023 earnings season.
Fed’s May FOMC Meeting
The Fed is scheduled to meet its FOMC meeting on May 2 and 3. In the post-FOMC statement in March, Fed Chairman Jerome Powell said that the central bank is approaching the end of its ongoing interest rate hike regime. The terminal rate is likely to be 5.125%, which means just one 25 basis-point rate hike from the existing range of 4.75-5%.
Per the CME FedWatch, there exists an 85.5% probability of a 25-basis point rate hike while a 14.5% probability for the central bank to maintain the status quo for the benchmark lending rate. In March, Powell said that no reduction in the Fed fund rate is expected before 2024. However, at present 77.2% of respondents are expecting a rate reduction by late 2023.
Better-Than-Expected Q1 Earnings So Far
U.S. corporates have presented relatively good earnings results so far despite the threat of a recession later this year.
As of Apr 28, 267 companies on the S&P 500 Index have reported their quarterly financial numbers. Total earnings of these companies are down 2.4% year over year on 4.1% higher revenues. Further, 77.2% of companies have surpassed earnings estimates while 73% have surpassed revenue estimates.
Our projection has shown that total earnings of the S&P 500 Index are set to decline 5.7% year over year on 2.8% higher revenues compared with a 10% year-over-year decline in earnings on 1.7% higher revenues, estimated at the beginning of the reporting cycle. This will follow a 5.4% year-over-year decline in earnings of the S&P 500 Index on 5.9% higher revenues in fourth-quarter 2022.
Our Top Picks
We have narrowed our search to five momentum stocks that have popped in the past month with more upside left. These stocks have seen positive earnings estimate revisions in the last seven days. Each of our picks carries a Zacks Rank #1 (Strong Buy) and has a Momentum Score of A or B. 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 in the past month.
Image Source: Zacks Investment Research
Meta Platforms Inc. (META - Free Report) is benefiting from steady user growth across all regions, particularly Asia Pacific. Increased engagement for its products like Instagram, WhatsApp, Messenger and Facebook has been a major growth driver. META is considered to have pioneered the concept of social networking.
However, as developed regions mature, Meta Platforms has taken measures to drive penetration in emerging markets of South East Asia, Latin America and Africa. Of all places, India deserves a-special mention in terms of user growth. The world’s second-largest populated country offers tremendous potential for META. With China off the radar, India can prove to be a terrific growth engine for Meta.
The stock price of META has climbed 12.8% in the past month. The Zacks Consensus Estimate for current-year earnings has improved 8.5% over the last seven days.
Watsco Inc. (WSO - Free Report) is the largest distributor of heating, ventilation and air conditioning equipment, as well as related parts and supplies in the United States, Canada, Mexico, and Puerto Rico. WSO has been witnessing solid demand for HVAC/R products and pricing despite seasonality.
Also, operating efficiencies and strategic acquisitions added to the positives of Watsco. It is to be noted that Watsco is investing heavily to enhance customer experience through e-commerce and deploying technology that improves order fill rates with speed and accuracy. In addition, WSO is focused on enhancing shareholder value.
The stock price of WSO has advanced 8.2% in the past month. The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last seven days.
PulteGroup Inc. (PHM - Free Report) has been benefiting from robust land acquisition and operational strategic initiatives. PHM expects the land acquisition and development investment in 2023 to range from $3.5-$4 billion, up from the previously considered value of $3.3 billion. This is attributed to strong buyer demand and an increase in its construction activities.
Earnings estimates for 2023 have increased in the past 30 days. Although a challenging sales environment, higher cancellation rates, supply-chain issues, and significant inflation are dampening the performance, the improving interest rate environment is raising hope.
The stock price of PHM has jumped 13.8% in the past month. The Zacks Consensus Estimate for current-year earnings has improved 13.3% over the last seven days.
D.R. Horton Inc. (DHI - Free Report) believes that the housing demand will remain favorable, courtesy of a limited supply of new and existing homes at affordable price points despite challenging market conditions, comprising higher rates and uncertain economic conditions.
DHI’s production capabilities, industry-leading market share, solid acquisition strategy, broad geographic footprint and diverse product offerings across multiple brands and price points are encouraging.
The stock price of DHI has surged 12% in the past month. The Zacks Consensus Estimate for current-year earnings has improved 16.5% over the last seven days.
Manhattan Associates Inc. (MANH - Free Report) is the global leader in providing supply chain execution and optimization solutions. MANH enables operational excellence through its warehouse, transportation, distributed order management, reverse logistics and trading partner management solutions. MANH’s RFID, performance management and event management capabilities are other positives.
The stock price of MANH has gained 5.8% in the past month. The Zacks Consensus Estimate for current-year earnings has improved 6.3% over the last seven days.