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Solid Start to Q3 Dispels Ghosts of '87 Crash: 5 Must Buys
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When things go wrong on Wall Street, all of us remember. One such event was Oct. 19, 1987, when the stock market collapsed following a deluge of sell orders. Many blamed program trading strategies for the indiscriminate sale of stocks on overvaluation concerns.
U.S. stocks, at present, are trading at an all-time high and enjoying a bull run that began almost nine years ago. Nevertheless, some investors were concerned that such lofty valuations may mean that a correction is overdue, signaling at an impending crash again.
The Dow Jones and the S&P 500, however, overcame such selling pressure and eked out records on Oct. 19, 2017, which marked the 30th anniversary of the ’87 crash. Political tensions in Europe and lackluster economic reports out of China also failed to dampen investors’ sentiments.
So what helped the broader market fight the ghost of ’87? Robust third-quarter earnings results provided a fillip to the equity market, with American corporations showing signs of strength on the back of an improving economy. Furthermore, the White House’s intention to slash corporate taxes is also providing much-needed windfall to such companies.
Banking on such positive trends, investing in sound stocks that can make the most of the third-quarter earnings season seems judicious. Here, we should bear in mind that better-than-expected earnings performances generally lead to a rally in the share price, which enthralls almost everyone—right from the top brass to research analysts.
The Crash of 1987
Panic swept trading floors on Oct. 19, 1987, when the Dow Jones plummeted a then-record 508 points – reflecting a 22% decline. By comparison, the notorious Black Tuesday crash of October 24, 1929, which preceded the Great Depression, saw stocks plunge by only 13%.
A weak dollar, inflation, trade deficit, and conflict in the Middle East were cited as some of the reasons that had led to the crash.
However, the most popular explanation for the ’87 crash was selling by program traders. In program trading, computers automatically perform rapid stock executions based on the price of related securities. Thus, the selloff took place as the market was pricey and investors were over-bullish.
With U.S. stocks currently hovering at record-high territories, similarly steep losses were being predicted. However, robust earnings kept the market from retreating too far. Even though the Dow Jones was down more than 100 points at one point on Oct. 19, 2017, the blue-chip index rose 5.49 points to close at 23,163.04. The S&P 500 also edged up 0.84 point to 2,562.10.
Robust Start to Q3 Earnings
Among the 52 S&P 500 members that have reported so far, earnings are up 13.3% from the same period last year on 6.9% higher revenues, with 76.9% of companies beating EPS estimates and 73.1% surpassing revenue estimates.
Total third-quarter earnings are expected to be up 3% from the same period last year on 4.9% higher revenues. Such positive results will follow double-digit growth in both the first and second quarter for the S&P 500 companies (read more: Positive Start to the Q3 Earnings Season).
Economy in Great Shape
A key yardstick of manufacturing activity in the United States scaled a 13-year high in September, while non-manufacturing activity rallied to a 12-year high. According to the Institute of Supply Management (ISM), the manufacturing index climbed to 60.8% in September from 58.8% in August. The non-manufacturing gauge was at 59.8% last month, as compared with 55.3% in the prior month (read more: U.S. Manufacturing Activity Hits 13-Year High: Top 5 Winners).
Meanwhile, the September jobs report showed the first monthly decline in payrolls in seven years. Investors, however, mostly ignored the surprise contraction, which was led by unprecedented events such as Hurricanes Harvey and Irma.
Let’s not forget that even during such trying times, the unemployment rate remained at a 16-year low and hourly pay increased 2.9% in the last 12 months, up from 2.7% in the prior month and also in line with a post-recession high.
Additionally, U.S. GDP expanded 3.1% in the second quarter, which is close to the range expected by President Trump and some other Republicans. It is also up slightly from a previously reported 3%. An uptick in consumer outlays and business investments drove the upside.
Senate Passes Budget Blueprint
Trump’s initiative to overhaul the U.S. tax code overcame a critical bottleneck, when the Senate approved a budget blueprint for fiscal 2018. This has paved the way for the Republicans to pursue the much awaited tax-cut reform without Democratic support.
The far-reaching plan will trim taxes for corporations. Lowering the domestic tax rate could result in repatriation of hundreds of billions of dollars in cash. Bringing back cash held overseas will let these companies carry out share buybacks, pay dividends and get involved in M&A activities.
5 Best Stocks to Buy This Earnings Season
As Wall Street bets on more gains from earnings, investing in stocks expected to report a significant uptick in third-quarter earnings seems prudent.
These stocks have a positive Earnings ESP. This is our proprietary methodology for determining stocks that have the best chance to surprise with their next earnings announcement. It provides the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
These stocks also flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score of A or B. Here V stands for Value, G for Growth, and M for Momentum, and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.
Abraxas Petroleum Corp. (AXAS - Free Report) is an independent energy company. The company is engaged in the acquisition, exploration, development and production of oil and gas. Abraxas has a Zacks Rank #2 and a VGM Score of A.
The company is expected to report earnings for the third quarter on Nov. 7. Abraxas Petroleum has an Earnings ESP of +15.39%. The company’s expected growth rate for the current year is 321.4%, higher than the industry’s projected growth of 36.2%.
Big Lots, Inc. (BIG - Free Report) is a non-traditional, discount retailer operating in the United States. The company has a Zacks Rank #2 and a VGM Score of A.
The company is expected to report earnings for the quarter ending in September on Dec. 1. It has an Earnings ESP of +15.39%. Big Lots’ expected growth rate for the current year is 16%, higher than the industry’s projected growth of 14.8%.
CNH Industrial NV (CNHI - Free Report) is a capital goods company. The company has a Zacks Rank #2 and a VGM Score of B.
CNH Industrial is expected to report its latest quarterly earnings on Oct. 31. The company has an Earnings ESP of +14.87%. Its expected growth rate for the current year is 29.1%, better than the industry’s projected growth of 17.8%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Louisiana-Pacific Corporation (LPX - Free Report) is a manufacturer of building products. The company has a Zacks Rank #1 and a VGM Score of A.
Louisiana-Pacific is expected to report earnings for the quarter ending in September on Nov. 6. The company has an Earnings ESP of +3.49%. The company’s expected growth rate for the current year is 137.8%, higher than the industry’s projected growth of 11.6%.
Dave & Buster's Entertainment, Inc. (PLAY - Free Report) owns and operates entertainment and dining venues for adults and families in North America. The company has a Zacks Rank #2 and a VGM Score of A.
The company is expected to report its latest quarterly earnings results on Dec. 5. Dave & Buster's has an Earnings ESP of +9.86%. The company’s expected growth rate for the current year is 26.9%, higher than the industry’s projected growth of 4.5%.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Image: Bigstock
Solid Start to Q3 Dispels Ghosts of '87 Crash: 5 Must Buys
When things go wrong on Wall Street, all of us remember. One such event was Oct. 19, 1987, when the stock market collapsed following a deluge of sell orders. Many blamed program trading strategies for the indiscriminate sale of stocks on overvaluation concerns.
U.S. stocks, at present, are trading at an all-time high and enjoying a bull run that began almost nine years ago. Nevertheless, some investors were concerned that such lofty valuations may mean that a correction is overdue, signaling at an impending crash again.
The Dow Jones and the S&P 500, however, overcame such selling pressure and eked out records on Oct. 19, 2017, which marked the 30th anniversary of the ’87 crash. Political tensions in Europe and lackluster economic reports out of China also failed to dampen investors’ sentiments.
So what helped the broader market fight the ghost of ’87? Robust third-quarter earnings results provided a fillip to the equity market, with American corporations showing signs of strength on the back of an improving economy. Furthermore, the White House’s intention to slash corporate taxes is also providing much-needed windfall to such companies.
Banking on such positive trends, investing in sound stocks that can make the most of the third-quarter earnings season seems judicious. Here, we should bear in mind that better-than-expected earnings performances generally lead to a rally in the share price, which enthralls almost everyone—right from the top brass to research analysts.
The Crash of 1987
Panic swept trading floors on Oct. 19, 1987, when the Dow Jones plummeted a then-record 508 points – reflecting a 22% decline. By comparison, the notorious Black Tuesday crash of October 24, 1929, which preceded the Great Depression, saw stocks plunge by only 13%.
A weak dollar, inflation, trade deficit, and conflict in the Middle East were cited as some of the reasons that had led to the crash.
However, the most popular explanation for the ’87 crash was selling by program traders. In program trading, computers automatically perform rapid stock executions based on the price of related securities. Thus, the selloff took place as the market was pricey and investors were over-bullish.
With U.S. stocks currently hovering at record-high territories, similarly steep losses were being predicted. However, robust earnings kept the market from retreating too far. Even though the Dow Jones was down more than 100 points at one point on Oct. 19, 2017, the blue-chip index rose 5.49 points to close at 23,163.04. The S&P 500 also edged up 0.84 point to 2,562.10.
Robust Start to Q3 Earnings
Among the 52 S&P 500 members that have reported so far, earnings are up 13.3% from the same period last year on 6.9% higher revenues, with 76.9% of companies beating EPS estimates and 73.1% surpassing revenue estimates.
Total third-quarter earnings are expected to be up 3% from the same period last year on 4.9% higher revenues. Such positive results will follow double-digit growth in both the first and second quarter for the S&P 500 companies (read more: Positive Start to the Q3 Earnings Season).
Economy in Great Shape
A key yardstick of manufacturing activity in the United States scaled a 13-year high in September, while non-manufacturing activity rallied to a 12-year high. According to the Institute of Supply Management (ISM), the manufacturing index climbed to 60.8% in September from 58.8% in August. The non-manufacturing gauge was at 59.8% last month, as compared with 55.3% in the prior month (read more: U.S. Manufacturing Activity Hits 13-Year High: Top 5 Winners).
Meanwhile, the September jobs report showed the first monthly decline in payrolls in seven years. Investors, however, mostly ignored the surprise contraction, which was led by unprecedented events such as Hurricanes Harvey and Irma.
Let’s not forget that even during such trying times, the unemployment rate remained at a 16-year low and hourly pay increased 2.9% in the last 12 months, up from 2.7% in the prior month and also in line with a post-recession high.
Additionally, U.S. GDP expanded 3.1% in the second quarter, which is close to the range expected by President Trump and some other Republicans. It is also up slightly from a previously reported 3%. An uptick in consumer outlays and business investments drove the upside.
Senate Passes Budget Blueprint
Trump’s initiative to overhaul the U.S. tax code overcame a critical bottleneck, when the Senate approved a budget blueprint for fiscal 2018. This has paved the way for the Republicans to pursue the much awaited tax-cut reform without Democratic support.
The far-reaching plan will trim taxes for corporations. Lowering the domestic tax rate could result in repatriation of hundreds of billions of dollars in cash. Bringing back cash held overseas will let these companies carry out share buybacks, pay dividends and get involved in M&A activities.
5 Best Stocks to Buy This Earnings Season
As Wall Street bets on more gains from earnings, investing in stocks expected to report a significant uptick in third-quarter earnings seems prudent.
These stocks have a positive Earnings ESP. This is our proprietary methodology for determining stocks that have the best chance to surprise with their next earnings announcement. It provides the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
These stocks also flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score of A or B. Here V stands for Value, G for Growth, and M for Momentum, and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.
Abraxas Petroleum Corp. (AXAS - Free Report) is an independent energy company. The company is engaged in the acquisition, exploration, development and production of oil and gas. Abraxas has a Zacks Rank #2 and a VGM Score of A.
The company is expected to report earnings for the third quarter on Nov. 7. Abraxas Petroleum has an Earnings ESP of +15.39%. The company’s expected growth rate for the current year is 321.4%, higher than the industry’s projected growth of 36.2%.
Big Lots, Inc. (BIG - Free Report) is a non-traditional, discount retailer operating in the United States. The company has a Zacks Rank #2 and a VGM Score of A.
The company is expected to report earnings for the quarter ending in September on Dec. 1. It has an Earnings ESP of +15.39%. Big Lots’ expected growth rate for the current year is 16%, higher than the industry’s projected growth of 14.8%.
CNH Industrial NV (CNHI - Free Report) is a capital goods company. The company has a Zacks Rank #2 and a VGM Score of B.
CNH Industrial is expected to report its latest quarterly earnings on Oct. 31. The company has an Earnings ESP of +14.87%. Its expected growth rate for the current year is 29.1%, better than the industry’s projected growth of 17.8%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Louisiana-Pacific Corporation (LPX - Free Report) is a manufacturer of building products. The company has a Zacks Rank #1 and a VGM Score of A.
Louisiana-Pacific is expected to report earnings for the quarter ending in September on Nov. 6. The company has an Earnings ESP of +3.49%. The company’s expected growth rate for the current year is 137.8%, higher than the industry’s projected growth of 11.6%.
Dave & Buster's Entertainment, Inc. (PLAY - Free Report) owns and operates entertainment and dining venues for adults and families in North America. The company has a Zacks Rank #2 and a VGM Score of A.
The company is expected to report its latest quarterly earnings results on Dec. 5. Dave & Buster's has an Earnings ESP of +9.86%. The company’s expected growth rate for the current year is 26.9%, higher than the industry’s projected growth of 4.5%.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Click for details >>