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Recent Market Meltdown Provides a Good Entry Point: 5 Picks

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Wall Street closed sharply lower on Jul 8. After two months of intense speculation about an impending inflation that may sustain, market participants were suddenly concerned about the pace of global economic recovery. The yield of the 10-Year U.S. Treasury Note fell as low as 1.25% on the day before closing at 1.287%. The yield was around 1.58% at the start of this month and as high as 1.778% on Mar 30.

A large section of market participants started to worry that falling yield on the long-term 10-year government bond indicates a slowing pace of global as well as U.S. economic recovery. Moreover, with a resurgence of the highly infectious delta variant of the coronavirus in several Asian countries, the government of Japan decided to declare a state of emergency in Tokyo for the upcoming Olympics games. This significantly dented investors confidence.

However, we believe that yesterday's  meltdown is more of a technical correction and a temporary phenomenon. On Jul 7, the S&P 500 and the Nasdaq Composite registered their 37th and 22nd all-time highs of this year. The Dow was hovering around 1% below its all-time high posted on May 10. Several market participants were talking for quite some days about overvaluation in the U.S. stock markets. Yesterday, it was more of a correction.

Fundamentals of the U.S. Economy Remain Firm

The U.S. economy is witnessing a robust recovery in 2021 from last year's coronavirus-led devastations. U.S. manufacturing is flourishing and the services sector is expanding gradually on the back of reopening. The struggling labor market is showing signs of a gradual recovery.

Per our projections on Jul 2, total earnings of the market's benchmark — the S&P 500 Index — are expected to climb 35.5% year over year on 10.7% higher revenues in 2021. Moreover, in 2022, total earnings of the S&P Index are forecast to grow 11.3% year over year on 6.4% higher revenues. In 2023, total earnings of the S&P Index are forecast to grow 11.6% year over year on 5.1% higher revenues.

Consumer spending, the major driver of the U.S. economy, is expected to remain firm buoyed by around $2.6 trillion of savings. The consumer confidence data in June has shown that the number of Americans planning to purchase homes, automobiles, and major appliances in the next six months saw a solid rise. This will likely support consumer spending in the second half of 2021.

On Jul 1, the Congressional Budget Office raised its outlook for U.S. GDP growth rate in 2021 to 7.4%, marking a significant jump from 4.6% forecast on Feb 1. The Federal Reserve raised the U.S. GDP growth rate for 2021 to 7% in June from 6.5% in March.

On Jun 24, CNBC/Moody’s Analytics survey of economists’ forecasts reported that the U.S. economy is expected to grow by 7.2% in 2021, marking the highest yearly GDP growth in 38 years. Several world famous economic and financial agencies such as World Bank, IMF, OECD and Oxford Economics have also raised the U.S. economic growth projection to around 7% for 2021.

How to Select Stocks

Several good stocks are available to invest in the rest of 2021. However, to filter among those we need to apply our VGM Style Score model. Using this model, we have narrowed down our search to five large-cap (market capital > $10 billion) stocks that have provided better returns than the S&P 500 Index year to date.

These stocks have strong growth potential for the rest of 2021 and have seen solid earnings estimate revisions within the last 30 days. Each of our picks carries a Zacks Rank #1 (Strong Buy) and a VGM score A or B. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The chart below shows the price performance of our five picks year to date.

Zacks Investment ResearchImage Source: Zacks Investment Research

Nucor Corp. (NUE - Free Report) is a leading producer of structural steel, steel bars, steel joists, steel deck and cold-finished bars in the United States. It operates through three segments: Steel Mills, Steel Products, and Raw Materials.

The 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 improved 9.3% over the last 7 days. The stock price has soared 76.1% year to date.

Target Corp. (TGT - Free Report) has been deploying resources to enhance omni-channel capacities, including same-day delivery of in-store purchases and acceleration of technology improvements. Target has been aggressively adopting strategies to provide a seamless shopping experience through miscellaneous channels.

The company has an expected earnings growth rate of 28.5% for the current year (ending January 2022). The Zacks Consensus Estimate for its current-year earnings has improved 2.3% over the last 7 days. The stock price has jumped 40.8% year to date.

General Motors Co. (GM - Free Report) designs, builds, and sells cars, trucks, crossovers and automobile parts worldwide. It operates through the GM North America, GM International, Cruise and GM Financial segments.

The company has an expected earnings growth rate of 24.9% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 13.1% over the last 30 days. The stock price has climbed 34.6% year to date.

Lennar Corp. (LEN - Free Report) operates as a homebuilder primarily under the Lennar brand in the United States. It operates through the Homebuilding East, Homebuilding Central, Homebuilding Texas, Homebuilding West, Financial Services, Multifamily, and Lennar Other segments.

The company  has an expected earnings growth rate of 73.4% for the current year (ending November 2021). The Zacks Consensus Estimate for its current-year earnings has moved up 16.1% over the last 30 days. The stock price has surged 29.2% year to date.

CF Industries Holdings Inc. (CF - Free Report) is one of the largest manufacturers and distributors of nitrogenous fertilizer and other nitrogen products globally. Its principal nitrogenous fertilizer products are ammonia, granular urea, urea ammonium nitrate solution and ammonium nitrate.  

The 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 improved 20.5% over the last 30 days. The stock price has advanced 28.2% year to date.

Breakout Biotech Stocks with Triple-Digit Profit Potential

The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.

Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.

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