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This Long-Term Market Winner is Soaring to New Highs
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There are years when we want to be invested in the top-performing growth companies, and years when holding more stable stocks makes a lot more sense.
We are clearly in the latter category this year.
And as we move further into the second half of 2022, investors are wondering where to allocate investment capital in a highly inflationary, slowing growth environment. While it may be tempting to try and pick a bottom in some of the former darlings that experienced stellar returns in previous years, history has shown us that many of these companies likely won’t return to their price highs anytime soon (and possibly not ever).
A much more prudent approach involves identifying stocks that are leading here and now. With many companies in sustained downtrends, the risk levels are higher as their stocks need to break through significant resistance and overhead supply levels. Buyers who are currently holding these stocks at a loss may sell into this recent rally as they get closer to a breakeven point.
We want to target stocks in established uptrends that are showing immunity to this year’s volatility. One way to identify top stocks in the current environment is to target leading industry groups. The Zacks Government Services industry is ranked in the top 20% out of approximately 250 industries. This industry is currently in positive territory on the year, all while the S&P 500 continues to hover in a deep correction:
Image Source: Zacks Investment Research
Because the Government Services industry is ranked in the top half of all Zacks Ranked Industries, we expect it to outperform the market over the next 3 to 6 months. Quantitative research studies have shown that approximately half of a stock’s price movement can be attributed to its industry group. By targeting stocks within leading industries, we can provide a constant ‘tailwind’ to our investing results. Also note the favorable valuation and earnings growth characteristics of this industry below:
Image Source: Zacks Investment Research
Let’s take a look at a top stock within this leading industry group.
Booz Allen Hamilton provides management and technology consulting, analytics, engineering, mission operations, and cyber services to governments, corporations, and not-for-profit organizations globally. BAH also provides transformational solutions in the areas of artificial intelligence, machine learning, and predictive modeling. Booz Allen Hamilton was founded in 1914 and is based in McLean, VA.
BAH has constructed a reputable track record of earnings beats, having surpassed the mark in each quarter for the past five years running. The company most recently announced fiscal Q4 results back in May of $0.86 per share, a 3.61% surprise over the $0.83 estimate. BAH has delivered a trailing four-quarter average earnings surprise of 9.5%.
The broad-based services provider has witnessed steady growth over the years, with sales expected to climb 7.44% to $8.99 billion. Earnings are slated to grow 3.33% to $4.35 per share in the current fiscal year.
Image Source: Zacks Investment Research
Zooming out a bit, note how steady the stock performance has been over the last decade. BAH has delivered investors a nearly 1,100% return versus the 188% return for the S&P 500 over this timeframe. This is the type of company we want to be invested in – one with both strong fundamentals as well as technicals.
Image Source: StockCharts
What the Zacks Model Unveils
The Zacks Earnings ESP (Expected Surprise Prediction) identifies companies that have recently witnessed positive earnings estimate revision activity. The idea is that this more recent information can serve as a better predictor of the future, giving investors a leg up during earnings season. When combining a Zacks Rank #3 or better with a positive Earnings ESP, stocks produced a positive surprise 70% of the time according to our 10-year backtest.
With an Earnings ESP +4.41% and a Zacks Rank #3 (Hold) rating, another earnings beat may be in the cards for BAH investors when the company reports fiscal Q1 results later this week on July 29th. Make sure to keep an eye on BAH as we head further into the second half of the year.
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This Long-Term Market Winner is Soaring to New Highs
There are years when we want to be invested in the top-performing growth companies, and years when holding more stable stocks makes a lot more sense.
We are clearly in the latter category this year.
And as we move further into the second half of 2022, investors are wondering where to allocate investment capital in a highly inflationary, slowing growth environment. While it may be tempting to try and pick a bottom in some of the former darlings that experienced stellar returns in previous years, history has shown us that many of these companies likely won’t return to their price highs anytime soon (and possibly not ever).
A much more prudent approach involves identifying stocks that are leading here and now. With many companies in sustained downtrends, the risk levels are higher as their stocks need to break through significant resistance and overhead supply levels. Buyers who are currently holding these stocks at a loss may sell into this recent rally as they get closer to a breakeven point.
We want to target stocks in established uptrends that are showing immunity to this year’s volatility. One way to identify top stocks in the current environment is to target leading industry groups. The Zacks Government Services industry is ranked in the top 20% out of approximately 250 industries. This industry is currently in positive territory on the year, all while the S&P 500 continues to hover in a deep correction:
Image Source: Zacks Investment Research
Because the Government Services industry is ranked in the top half of all Zacks Ranked Industries, we expect it to outperform the market over the next 3 to 6 months. Quantitative research studies have shown that approximately half of a stock’s price movement can be attributed to its industry group. By targeting stocks within leading industries, we can provide a constant ‘tailwind’ to our investing results. Also note the favorable valuation and earnings growth characteristics of this industry below:
Image Source: Zacks Investment Research
Let’s take a look at a top stock within this leading industry group.
Booz Allen Hamilton Holding Corp. (BAH - Free Report)
Booz Allen Hamilton provides management and technology consulting, analytics, engineering, mission operations, and cyber services to governments, corporations, and not-for-profit organizations globally. BAH also provides transformational solutions in the areas of artificial intelligence, machine learning, and predictive modeling. Booz Allen Hamilton was founded in 1914 and is based in McLean, VA.
BAH has constructed a reputable track record of earnings beats, having surpassed the mark in each quarter for the past five years running. The company most recently announced fiscal Q4 results back in May of $0.86 per share, a 3.61% surprise over the $0.83 estimate. BAH has delivered a trailing four-quarter average earnings surprise of 9.5%.
The broad-based services provider has witnessed steady growth over the years, with sales expected to climb 7.44% to $8.99 billion. Earnings are slated to grow 3.33% to $4.35 per share in the current fiscal year.
Image Source: Zacks Investment Research
Zooming out a bit, note how steady the stock performance has been over the last decade. BAH has delivered investors a nearly 1,100% return versus the 188% return for the S&P 500 over this timeframe. This is the type of company we want to be invested in – one with both strong fundamentals as well as technicals.
Image Source: StockCharts
What the Zacks Model Unveils
The Zacks Earnings ESP (Expected Surprise Prediction) identifies companies that have recently witnessed positive earnings estimate revision activity. The idea is that this more recent information can serve as a better predictor of the future, giving investors a leg up during earnings season. When combining a Zacks Rank #3 or better with a positive Earnings ESP, stocks produced a positive surprise 70% of the time according to our 10-year backtest.
With an Earnings ESP +4.41% and a Zacks Rank #3 (Hold) rating, another earnings beat may be in the cards for BAH investors when the company reports fiscal Q1 results later this week on July 29th. Make sure to keep an eye on BAH as we head further into the second half of the year.