Wall Street has maintained its northbound journey for the past 11 months. However, the drivers of the rally have changed. Cyclical sectors like consumer discretionary, industrials, materials, financials and oil-energy have taken the reins over in 2021 from the growth-oriented technology space in 2020.
Ongoing nationwide COVID-19 vaccination and a steep reduction in new coronavirus cases have bolstered market participants' expectation of faster reopening of the economy. On Mar 2, President Joe Biden said the country will have more than sufficient supply of COVID-19 vaccines to vaccinate every adult by the end of May.
Moreover, the recent spike in long-term sovereign bonds compelled investors to dump technology stocks in favor of cyclical stocks. The yield of the benchmark U.S. 10-year Treasury Note is currently hovering around 1.5%. On Feb 25, the yield jumped to 1.614%, its highest since Feb 14, 2020. Higher risk-free return is detrimental to high growth industries like technology as most of these companies depend on easy borrowing at cheap rates.
Several cyclical stocks have already skyrocketed so far this year. However, a handful of these stocks carry a favorable Zacks Rank and have solid upside left for 2021. Investment in these stocks is likely to be fruitful going forward.
Robust Pent-up Demand
On Mar 2, Bloomberg Economics reported that consumers in the world’s largest economies such as the United States, China, the U.K., Japan and the biggest eurozone nations saved a staggering $2.9 trillion during coronavirus-led lockdowns. Of the total, the U.S. consumers are estimated to save around $1.5 trillion.
Two weeks ago, Goldman Sachs reported that currently U.S. citizens have nearly $1.5 trillion in "excess" or "forced" savings that could climb to $2.4 trillion by mid-2021. The massive savings were due to concerns over pandemic-led economic uncertainties. Consumers were restrained or restricted by the government to spend on those items that were unavailable during lockdowns.
The U.S. economy is witnessing strong consumer demand buoyed by massive fiscal and monetary stimulus injected in it. In January, personal expenditure rose 2.4% — the first gain in three months and the biggest monthly increase since June 2020.
The rebound in consumer demand was primarily due to $900 billion of second-round of fiscal stimulus injected by the U.S. Congress in December 2020. The package included one-time cash payments of $600 and a special weekly unemployment benefit of $300.
Meanwhile, on Feb 27, the House of Representatives passed President Joe Biden's proposed $1.9 trillion fresh coronavirus-aid package. Per the bill, eligible U.S. citizens will receive a $1,400 check payment in addition to $1,400 for any dependent. Moreover, the extra amount in unemployment benefits would be increased to $400 a week and the period will be extended up to Aug 29. If Senate passes this bill, it is likely to significantly boost pent-up demand for U.S. consumers.
Some economists are skeptical about inflationary pressure on the U.S. economy in the near future. However, in January, the core PCE index — Fed's favorite gauge of inflation — rose 1.5%, year over year, which is well below the central bank's 2% target rate. This supports Fed Chairman Jerome Powell's repeated confirmation of pursuing ultra-dovish monetary policies for a longer period.
Our Top Picks
We have narrowed down our search to six large-cap stocks from cyclical sectors that have popped more than 25% year to date and still have strong upside left for 2021. Notably, these large-cap stocks have witnessed robust earnings estimate revision in the past seven days.
Large-cap companies generally have established business model. Favorable earnings estimate revisions in the past seven days indicates that the market believes that these companies have solid business potential. Finally, each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see
. the complete list of today’s Zacks #1 Rank stocks here
The chart below shows the price performance of our six picks year to date.
Deere & Co. ( DE Quick Quote DE - Free Report) manufactures and distributes farm equipment worldwide. It operates through three segments: Agriculture and Turf, Construction and Forestry, and Financial Services.
This Zacks Rank #1 company has an expected earnings growth rate of 80.3% for the current year (ending October 2021). The Zacks Consensus Estimate for current-year earnings has improved 2.2% over the past seven days. The stock price has appreciated 27.5% year to date.
The Mosaic Co. ( MOS Quick Quote MOS - Free Report) produces and markets concentrated phosphate and potash crop nutrients in North America and internationally. It operates through three segments: Phosphates, Potash, and Mosaic Fertilizantes.
This Zacks Rank #1 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 10.2% over the past seven days. The stock price has climbed 37.1% year to date.
L Brands Inc. ( LB Quick Quote LB - Free Report) operates as a specialty retailer of women's intimate and other apparel, personal care, and beauty and home fragrance products. It operates in three segments: Victoria's Secret, Bath & Body Works, and Victoria's Secret and Bath & Body Works International.
This Zacks Rank #1 company has an expected earnings growth rate of 13.9% for the current year (ending January 2022). The Zacks Consensus Estimate for current-year earnings has improved 16.9% over the past seven days. The stock price has jumped 47.5% year to date.
Penumbra Inc. ( PEN Quick Quote PEN - Free Report) is an interventional therapies company that designs, develops, manufactures and markets medical devices in the United States, Europe, Canada, Australia, Japan, and internationally.
This Zacks Rank #1 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 11% over the past seven days. The stock price has rallied 53.8% year to date.
Denbury Inc. ( DEN Quick Quote DEN - Free Report) operates as an independent oil and natural gas company in the United States. It holds interests in various oil and natural gas properties located in Mississippi, Texas, and Louisiana in the Gulf Coast region; and in Montana, North Dakota and Wyoming in the Rocky Mountain region.
This Zacks Rank #1 company has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for its current-year earnings has increased 10.5% over the past seven days. The stock price has soared 71.8% year to date.
The Goldman Sachs Group Inc. ( GS Quick Quote GS - Free Report) operates as an investment banking, securities and investment management company worldwide. It operates in four segments: Investment Banking, Global Markets, Asset Management, and Consumer & Wealth Management.
This Zacks Rank #2 company has an expected earnings growth rate of 18.9% for the current year. The Zacks Consensus Estimate for the current year has improved 1.4% over the past seven days. The stock price has advanced 26.8% year to date.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>