Things are rather gloomy around the globe. South Korea’s economy has shrunk and Japan’s economy is not showing promising growth. Further, Germany is barely expanding, affecting an already ailing Eurozone. Amid all this, the U.S. economy is standing tall. 

 

U.S. economic growth was stronger than expected in the first quarter, mostly backed by inventory and trade components that offset slowdowns in consumer and business spending. This bolstered hopes that the economy is in sound shape after its recent soft patch. Let us, thus, look at stocks that can make the most of the strength in the U.S. economy.

 

 

According to the Commerce Department, the U.S. economy expanded at a 3.2% annual pace in the January-March period, the best first-quarter growth since 2015. The gain was well above analysts’ expectations of a 2.3% increase in gross domestic product (GDP). 

 

Such encouraging growth followed a 2.2% advance in the prior three months. President Trump also cheered the GDP growth saying that the numbers were “far higher than the high expectations.”

 

 

Acceleration in GDP was primarily due to two typically volatile components — inventories and trade. The value of inventories jumped to $128.4 billion from $96.8 billion, while the trade sector added a little more than 1% to GDP’s growth in the first quarter. 

 

Exports climbed nearly 4%, but sluggish domestic demand dragged imports down by almost 3.7%, leading to a smaller trade deficit. In fact, this was the first time since 2013 when inventories and trade together boosted GDP numbers.

 

 

At the same time, increase in both state and local government spending fueled GDP growth. Spending improved 3.9% after a decline of 1.3% in the prior three months.

 

Offsetting these gains to some extent, however, were consumer spending and business investment numbers. Consumer spending, which accounts for almost 70% of U.S. economic activity, rose a meager 1.2% in the first quarter, down from 2.5% gain in the quarter before. Business fixed investments decelerated to a 2.7% gain from a 5.4% gain in the prior quarter. Investment in new housing was another weak spot.

 

 

The major factors behind the first-quarter GDP growth may be temporary. This is because global trade collapsed in the three months to February, with world trade volume contracting 1.9%, the sharpest plunge since May 2009. Thus, the United States can’t rely on net exports to propel growth in the near term.

 

And when it comes to inventories, any increase does signal that companies expect demand to rise and also that unsold goods are piling up due to drop in demand. So, the inventory measure definitely doesn’t tell us much about the underlying strength in business activity. 

 

Finally, when you ignore the volatile trade and inventories components, private sector spending gained a mere 1.3%, the weakest quarterly growth since 2013.

 

But, let’s admit that the economy dispelled concerns of a slowdown on the horizon. It also shook off severe market volatility in recent times and recovered exceptionally well in the first quarter. It overcame headwinds including government shutdown in January and uncertainty about tax refunds, indicating that the economy is well poised to gain in the long run.

 

Some other recent reports have also pointed to signs of strength. March retail sales’ surprise jump of 1.6% does indicate that consumer spending will eventually improve and a proxy for business investment has risen sharply. 

 

Headline durable goods orders expanded at 2.7% last month, easily surpassing estimates. In fact, durable goods orders grew at the fastest pace in seven months. Similarly, core orders gained 0.4% compared to a month earlier. And when it comes to housing, the sector is setto gain steam on the back of lower mortgage rates and more affordable properties.

 

 

With the U.S. economy showing enough signs of strength as well as poised to gain further, investing in fundamentally-sound companies at this moment seems judicious. These companies are financially stable enough to gain from a healthy economy. We have zeroed in on companies that flaunt a Zacks Rank #1 (Strong 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.

 

Bed Bath & Beyond Inc. operates a chain of retail stores. It sells a range of domestics merchandise, including bed linens and related items, bath items, and kitchen textiles. The company has a VGM Score of A. In the last 60 days, 11earnings estimates moved up, while none moved lower for the current year. The Zacks Consensus Estimate for earnings has moved 11.9% up in the same time frame. The stock’s expected earnings growth rate for the next quarter is 11.1% against the Retail - Miscellaneous industry’s projected decline of 34.1%.

 

ANI Pharmaceuticals, Inc. (ANIP Quick QuoteANIP - Free Report) develops, manufactures, and markets branded and generic prescription pharmaceuticals. The company has a VGM Score of A. In the last 60 days, one earnings estimate moved up, while none moved lower for the current year. The Zacks Consensus Estimate for earnings has moved 0.5% up in the same time frame. The stock’s expected earnings growth rate for the current year is 17.8% compared with the Medical - Biomedical and Genetics industry’s estimatedriseof 6.1%.

 

DXP Enterprises, Inc. (DXPE Quick QuoteDXPE - Free Report) engages in distributing maintenance, repair, and operating (MRO) products, equipment, and services to energy and industrial customers. The company has a VGM Score of B. In the last 60 days, two earnings estimates moved up, while none moved down for the current year. The Zacks Consensus Estimate for earnings has moved 6.7% up in the same time frame. The stock’s expected earnings growth rate for the current year is 22.7% compared with the Manufacturing - General Industrial industry’s projected rally of 16.2%.You can see the complete list of today’s Zacks #1 Rank stocks here.

 

Foot Locker, Inc. (FL Quick QuoteFL - Free Report) operates as an athletic shoes and apparel retailer. The company has a VGM Score of A. In the last 60 days, 11earnings estimates moved higher, while none moved lower for the current year. The Zacks Consensus Estimate for earnings has moved 6.1% up in the same time frame. The stock’s expected earnings growth rate for the current year is 10.4% compared with the Retail - Apparel and Shoes industry’s projected rally of 3.5%.

 

ACI Worldwide, Inc. (ACIW Quick QuoteACIW - Free Report) provides software products and services for facilitating electronic payments to banks, financial intermediaries, merchants, and corporate. The company has a VGM Score of B. In the last 60 days, one earnings estimate moved up, while none moved lower for the current year. The Zacks Consensus Estimate for earnings has moved 6.5% up in the same time frame. The stock’s expected earnings growth rate for the next quarter is 161.5% compared with the Computer - Software industry’s estimated rally of 9.3%.

 

 

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This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year. 

 

See their latest picks free >>Things are rather gloomy around the globe. South Korea’s economy has shrunk and Japan’s economy is not showing promising growth. Further, Germany is barely expanding, affecting an already ailing Eurozone. Amid all this, the U.S. economy is standing tall. 

U.S. economic growth was stronger than expected in the first quarter, mostly backed by inventory and trade components that offset slowdowns in consumer and business spending. This bolstered hopes that the economy is in sound shape after its recent soft patch. Let us, thus, look at stocks that can make the most of the strength in the U.S. economy.

Boom Time for the U.S. Economy

According to the Commerce Department, the U.S. economy expanded at a 3.2% annual pace in the January-March period, the best first-quarter growth since 2015. The gain was well above analysts’ expectations of a 2.3% increase in gross domestic product (GDP). 

Such encouraging growth followed a 2.2% advance in the prior three months. President Trump also cheered the GDP growth saying that the numbers were “far higher than the high expectations.”

Acceleration in GDP was primarily due to two typically volatile components — inventories and trade. The value of inventories jumped to $128.4 billion from $96.8 billion, while the trade sector added a little more than 1% to GDP’s growth in the first quarter. 

Exports climbed nearly 4%, but sluggish domestic demand dragged imports down by almost 3.7%, leading to a smaller trade deficit. In fact, this was the first time since 2013 when inventories and trade together boosted GDP numbers.

At the same time, increase in both state and local government spending fueled GDP growth. Spending improved 3.9% after a decline of 1.3% in the prior three months.

Offsetting these gains to some extent, however, were consumer spending and business investment numbers. Consumer spending, which accounts for almost 70% of U.S. economic activity, rose a meager 1.2% in the first quarter, down from 2.5% gain in the quarter before. Business fixed investments decelerated to a 2.7% gain from a 5.4% gain in the prior quarter. Investment in new housing was another weak spot.

Beyond the Numbers

The major factors behind the first-quarter GDP growth may be temporary. This is because global trade collapsed in the three months to February, with world trade volume contracting 1.9%, the sharpest plunge since May 2009. Thus, the United States can’t rely on net exports to propel growth in the near term.

And when it comes to inventories, any increase does signal that companies expect demand to rise and also that unsold goods are piling up due to drop in demand. So, the inventory measure definitely doesn’t tell us much about the underlying strength in business activity. 

Finally, when you ignore the volatile trade and inventories components, private sector spending gained a mere 1.3%, the weakest quarterly growth since 2013.

But, let’s admit that the economy dispelled concerns of a slowdown on the horizon. It also shook off severe market volatility in recent times and recovered exceptionally well in the first quarter. It overcame headwinds including government shutdown in January and uncertainty about tax refunds, indicating that the economy is well poised to gain in the long run.

Some other recent reports have also pointed to signs of strength. March retail sales’ surprise jump of 1.6% does indicate that consumer spending will eventually improve and a proxy for business investment has risen sharply. 

Headline durable goods orders expanded at 2.7% last month, easily surpassing estimates. In fact, durable goods orders grew at the fastest pace in seven months. Similarly, core orders gained 0.4% compared to a month earlier. And when it comes to housing, the sector is setto gain steam on the back of lower mortgage rates and more affordable properties.

5 Top Gainers

With the U.S. economy showing enough signs of strength as well as poised to gain further, investing in fundamentally-sound companies at this moment seems judicious. These companies are financially stable enough to gain from a healthy economy. We have zeroed in on companies that flaunt a Zacks Rank #1 (Strong 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.

Bed Bath & Beyond Inc. operates a chain of retail stores. It sells a range of domestics merchandise, including bed linens and related items, bath items, and kitchen textiles. The company has a VGM Score of A. In the last 60 days, 11earnings estimates moved up, while none moved lower for the current year. The Zacks Consensus Estimate for earnings has moved 11.9% up in the same time frame. The stock’s expected earnings growth rate for the next quarter is 11.1% against the Retail - Miscellaneous industry’s projected decline of 34.1%.

ANI Pharmaceuticals, Inc. (ANIP Quick QuoteANIP - Free Report) develops, manufactures, and markets branded and generic prescription pharmaceuticals. The company has a VGM Score of A. In the last 60 days, one earnings estimate moved up, while none moved lower for the current year. The Zacks Consensus Estimate for earnings has moved 0.5% up in the same time frame. The stock’s expected earnings growth rate for the current year is 17.8% compared with the Medical - Biomedical and Genetics industry’s estimatedriseof 6.1%.

DXP Enterprises, Inc. (DXPE Quick QuoteDXPE - Free Report) engages in distributing maintenance, repair, and operating (MRO) products, equipment, and services to energy and industrial customers. The company has a VGM Score of B. In the last 60 days, two earnings estimates moved up, while none moved down for the current year. The Zacks Consensus Estimate for earnings has moved 6.7% up in the same time frame. The stock’s expected earnings growth rate for the current year is 22.7% compared with the Manufacturing - General Industrial industry’s projected rally of 16.2%.You can see the complete list of today’s Zacks #1 Rank stocks here.

Foot Locker, Inc. (FL Quick QuoteFL - Free Report) operates as an athletic shoes and apparel retailer. The company has a VGM Score of A. In the last 60 days, 11earnings estimates moved higher, while none moved lower for the current year. The Zacks Consensus Estimate for earnings has moved 6.1% up in the same time frame. The stock’s expected earnings growth rate for the current year is 10.4% compared with the Retail - Apparel and Shoes industry’s projected rally of 3.5%.

ACI Worldwide, Inc. (ACIW Quick QuoteACIW - Free Report) provides software products and services for facilitating electronic payments to banks, financial intermediaries, merchants, and corporate. The company has a VGM Score of B. In the last 60 days, one earnings estimate moved up, while none moved lower for the current year. The Zacks Consensus Estimate for earnings has moved 6.5% up in the same time frame. The stock’s expected earnings growth rate for the next quarter is 161.5% compared with the Computer - Software industry’s estimated rally of 9.3%.

Today's Best Stocks from Zacks 

Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.

This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year. 

See their latest picks free >>