Wall Street has resumed its northbound journey after last week's disappointing performance that was incidentally the worst since October 2020. The primary reason for last week's extreme volatility — a typical trading practice in which a few key heavily shorted stocks by hedge fund giants were favored by a group of individual investors organized via Reddit’s wallstreetbets forum — has evaporated. Moreover, a series of good economic data and news boosted investors' confidence.
At this stage, it will be prudent to invest in growth stocks with a favorable Zacks Rank. Notably, growth investors are primarily focused on stocks with aggressive earnings or revenue growth, which should propel their stock price higher in the future. Higher fiscal stimulus and vaccination process are likely to drive the overall growth of the economy.
Wall Street Resumes Northbound Journey
All the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — gained in each of the first four trading days of this week barring a marginal loss of Nasdaq on Feb 3. On Feb 4, the S&P 500 and the Nasdaq Composite recorded their all-time highs at 3,872.42 and 13,778.42, respectively. The Dow is just 0.7% away from its all-time high of 31,272.22 recorded on Jan 21.
Positive Economic Data and News
First, on Feb 1, the Congressional Budget Office projected that the U.S. economy will expand 4.6% in 2021 after contracting 3.5% last year. The economy is expected to reach the pre-pandemic level of February 2020 by mid-2021, much earlier than what was projected in July. In its latest projection, the Atlanta Fed estimated that the U.S. GDP will grow 6% in first-quarter 2021.
Second, we are in the middle of the fourth-quarter 2020 earnings season, which has so far delivered better-than-expected results. As of Feb 3, total earnings of 223 S&P 500 companies were up 2.5% from the same period last year on 1.5% higher revenues.
Overall, the fourth-quarter earnings for the S&P 500 Index are projected to be up 0.4% year over year on 2% higher revenues. This is in contrast to the projection of a 7.8% decline in earnings on 0.3% higher revenues at the beginning of the reporting cycle.
Third, the Democrats are moving forward with President Joe Biden’s proposed $1.9 trillion Covid-19 relief package. The proposed plan will include increasing direct payments to $2,000 from the existing $600 and supplemental unemployment benefits to $400 per week through September. The proposal also mentions that the minimum wage rate would be hiked to $15 per hour and moratoriums on eviction and foreclosure on mortgages would be extended to Sep 30.
Fourth, per the COVID Tracking Project, daily average new cases in the United States averaged 136,438 in the past week, down 30% from the average two weeks ago. As of Feb 3, there were 91,440 COVID-19 patients in U.S. hospitals on, down from 92,880 a day earlier and the lowest since Nov 27.
Fifth, initial jobless claims totaled 779,000 for the week ended Jan 30, lower than the consensus estimate of 837,000. Previous week's data was revised downward from 847,000 to 812,000. Initial claims fell for the third straight week and the latest data was the lowest since Nov 28.
The manufacturing purchasing managers' index of the Institute of Supply Management has expanded for the last eight months. The U.S. manufacturing industry witnessed a V-shaped recovery during the pandemic. Construction spending grew 1% in December. Total vehicle sales increase to 16.6 million units in January from 16.2 million units in December. Factory orders for manufactured goods rose 1.1% in December.
Our Top Picks
We have narrowed down our search to five large-cap (market capital > $10 billion) stocks as these companies have an established business model and a solid brand value. These stocks have strong growth potential for 2021 and witnessed robust earnings estimate revisions in the last 7 to 60 days. Each of our picks carries a Zacks Rank #1 (Strong Buy) and has 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 five picks year to date.
Apple Inc. 's ( AAPL Quick Quote AAPL - Free Report) Services and Wearables businesses are expected to drive top-line growth in fiscal 2021 and beyond. Although its business primarily runs around its flagship iPhone, the Services portfolio has emerged as the new cash cow. The company's focus on autonomous vehicles and augmented reality/virtual reality technologies presents growth opportunities in the long haul.
The company has an expected earnings growth rate of 36.3% for the current year (ending September 2021). The Zacks Consensus Estimate for the current year has improved 10.9% over the last 7 days.
FedEx Corp. ( FDX Quick Quote 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 81.5% for the current year (ending May 2021). The Zacks Consensus Estimate for current-year earnings has improved 12% over the last 60 days.
Ford Motor Co. ( F Quick Quote F - Free Report) designs, manufactures, markets, and services a range of Ford cars, trucks, sport utility vehicles, electrified vehicles, and Lincoln luxury vehicles worldwide. It operates through three segments: Automotive, Mobility, and Ford Credit.
The company has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 12.5% over the last 30 days.
Hologic Inc. ( HOLX Quick Quote HOLX - Free Report) develops, manufactures, and supplies diagnostics products, medical imaging systems, and surgical products for women's health through early detection and treatment in the United States, Europe, the Asia-Pacific, and internationally. It operates through four segments: Diagnostics, Breast Health, GYN Surgical and Skeletal Health.
The company has an expected earnings growth rate of more than 100% for the current year (ending September 2021). The Zacks Consensus Estimate for current-year earnings has improved 15.6% over the last 7 days.
Weyerhaeuser Co. ( WY Quick Quote WY - Free Report) is one of the leading U.S. forest product companies with operations primarily concentrated in Southern California, Nevada, Washington, Texas, Maryland and Virginia. It caters to a diverse clientele spread over the United States, Canada, Japan, Europe and other regions. The company has an expected earnings growth rate of 24.8% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 7.3% over the last 7 days. Breakout Biotech Stocks with Triple-Digit Profit Potential
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