Back to top

Image: Bigstock

7 Top Growth Picks for October on Truncated Stimulus Hope

Read MoreHide Full Article

On Oct 7, U.S. stock markets closed sharply higher after President Donald Trump tweeted urging U.S. Congress to immediately pass a coronavirus-aid package for some specific segments of the economy.

This was in contrast to Trump's tweet on Oct 6 when he asked his administration to halt negotiations with Democrats regarding a full-phased fiscal stimulus till the scheduled U.S. election on Nov 3. Wall Street saw an immediate downturn and ended sharply lower as soon as the news broke. However, investors' hope for at least a truncated second round of stimulus package helped the market to more than offset the previous day's losses.

A Partial Fiscal Stimulus

President Trump has urged Congress to clear $25 billion for airline payroll support and $135 billion for a small business paycheck protection program. Both of these aids could be paid for out of unused funds from the Cares Act, which came to an end on July. Moreover, Trump has also sent a stand-alone bill of $1,200 per individual as unemployment benefit.

Notably, the $2.2 trillion of first round of coronavirus-relief package — popularly known as the CARES ACT — terminated at July end. Meanwhile, coronavirus-led severe economic devastation compelled lawmakers to inject another round of stimulus.

However, the U.S. Congress failed to reach an amicable solution regarding the size and scope of the aid package. The Democrats want a package of $2.2 trillion while the Republicans settled for $1.6 trillion.

Importance of Fiscal Stimulus

In the absence of the second round of stimulus, it appears that the U.S. economy lost the pace of its recovery. Lack of stimulus will significantly hurt reopening stocks like airlines, leisure travel, restaurants and bars, cinema hall and theater operators, theme parks and other entertainment segments.

A series of economic data for August and September like jobs data, retail sales data, durable goods orders data, manufacturing data and consumer spending data, has slowed compared with the previous four months. Several large companies of airlines, and media and entertainment industries have decided to furlough thousands of jobs without further government aids.

Moreover, the Fed after ascertaining to pursue its ultra-dovish monetary stance at least up to 2023 has requested Congress to urgently release a fresh round of stimulus in order to streamline the economy in an unprecedented tough situation.

Wall Street Has Room to Grow Further  

The market is not overvalued. Historically, the average returns of the S&P 500 and the Dow in the last 23 U.S. presidential election years were 11.3% and 6%, respectively.

Moreover, in its latest projection on Oct 6, the Atlanta Fed estimated 35.3% growth for third-quarter U.S. GDP, up from 34.6% projected on Oct 1. Furthermore, projections for U.S. corporate earnings for third-quarter and full-year 2020 are rising since early July, indicating growing corporate profits.

Our Top Picks

At this stage, it will be prudent to invest in growth stocks with a favorable Zacks Rank that popped in the past month. Growth investors are primarily focused on stocks with aggressive earnings or revenue growth, which should propel their stock price higher in the future.

We have narrowed down our search to seven growth stocks each carrying a Zacks Rank #1 (Strong Buy) and  having a Growth Score A. You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows the price performance of our seven picks in the past month.

 

RH (RH - Free Report) operates as a retailer in home furnishings. It offers products in various categories, including furniture, lighting, textiles, bathware, décor, outdoor and garden, tableware, and child and teen furnishings.

The company has an expected earnings growth rate of 47.5% for the current year (ending January 2021). The Zacks Consensus Estimate for the current year has improved 0.8% over the last 7 days. The stock price has rallied 21.1% in the past month.

Lithia Motors Inc. (LAD - Free Report) is one of the leading automotive retailers of new and used vehicles and related services in the United States. It operates through three segments: Domestic, Import, and Luxury.

The company has an expected earnings growth rate of 28.5% for the current year. The Zacks Consensus Estimate for the current year has improved 6.9% over the last 7 days. The stock price has jumped 17.8% in the past month.

Jabil Inc. (JBL - Free Report) provides manufacturing services and solutions worldwide. It operates in two segments, Electronics Manufacturing Services and Diversified Manufacturing Services.

The company has an expected earnings growth rate of 39.3% for the current year (ending August 2021). The Zacks Consensus Estimate for the current year has improved by 14.1% over the last 30 days. The stock price has climbed 15.9% in the past month.

The Boston Beer Co. Inc. (SAM - Free Report) produces and sells alcohol beverages primarily in the United States. Aside from its flagship Samuel Adams Boston Lager beer, it offers various beers, hard ciders and hard seltzers under the Samuel Adams, Twisted Tea, Angry Orchard Hard Cider and Truly Hard Seltzer brands.

The company has an expected earnings growth rate of 34.6% for the current year. The Zacks Consensus Estimate for the current year has improved by 4.6% over the last 30 days. The stock price has surged 15.6% in the past month.

Thor Industries Inc. (THO - Free Report) designs, manufactures, and sells recreational vehicles (RV) and related parts and accessories in the United States, Canada and Europe. It is the largest manufacturer of RVs in the world.

The company has an expected earnings growth rate of 38.6% for the current year (ending July 2021). The Zacks Consensus Estimate for the current year has improved by 14.1% over the last 30 days. The stock price has appreciated 11.8% in the past month.

Target Corp. (TGT - Free Report) operates as a general merchandise retailer in the United States. It offers beauty and household essentials, food assortments, including perishables, dry grocery, dairy, and frozen items; and apparel, accessories, home décor products, electronics, toys, seasonal offerings, and other merchandise.

The company’s expected earnings growth rate for the current year (ending January 2021) is 11.9%. The Zacks Consensus Estimate for the current year has improved 44.2% over the last 60 days. The stock price has advanced 11.6% in the past month.

FedEx Corp. (FDX - Free Report) is the leader in global express delivery services. It provides a broad portfolio of transportation, e-commerce and business services through companies competing collectively, operating independently and managed collaboratively, under the FedEx brand.

The company has an expected earnings growth rate of 59.4% for the current year (ending May 2021). The Zacks Consensus Estimate for the current year has improved 44.7% over the last 30 days. The stock price has soared 21.4% in the past month.

More Stock News: This Is Bigger than the iPhone!

It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.

Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2021.

Click here for the 6 trades >>