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5 Industries and 5 Stocks Going Strong This Year

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The S&P Global, Conference Board and IMF have set their GDP growth forecasts for the U.S. at 6-7% this year, which means that in addition to the technology sector, which carried the markets last year, other areas of the economy will see strength.

And going by the first quarter results that are behind us and the second quarter announcements that are in full swing, it’s clear that this recovery is turning out to be stronger than expected.    

Taking the S&P 500 as an example, and combining the results that have been announced with estimates for the still-to-report companies, total earnings for the S&P 500 index are currently expected to be up 74.3% from the same period last year on 20% higher revenues.

These growth rates continue to climb as companies continue to report better-than-expected results. So the final earnings growth tally for the quarter could easily be north of 80%. And it comes on top of the 49.3% earnings growth on 10.3% higher revenues in the first quarter.

And this year is not a tech story. It’s a whole lot of other industries and sectors that are rebounding or growing from the unprecedented situation in 2020. Let’s take a look at a few examples-

A component of the Communication - Network Software industry (top 27% of Zacks-classified industries), ADVA Optical Networking SE (ADVOF - Free Report) develops, manufactures and sells optical and Ethernet-based networking solutions to telecom service providers, private companies, universities and government agencies.

It is particularly strong in the academic, research and government segment with 48% market share in the EMEA region and growing into one of the top three suppliers in North America by the first quarter of 2021. ADVA also offers critical networking gear required for implementation of open network architectures in 5G.

The pandemic has been positive for this industry, as it induced organizations to do more work from home, generally increasing (by magnitudes) their investment in communications infrastructure. With fresh waves of the pandemic hitting various parts of the world and with large segments of the market still behind in digital adoption, the current strength may be expected to continue.

It may not be all smooth-sailing, however, because of the significant disruption of supply chains, primarily related to the ongoing chip shortage. But management commentary indicates that the company is on top of the situation so far.

ADVA topped the Zacks Consensus earnings estimate by 40% in the last quarter and raised and narrowed its operating margin expectation for the full year. Analyst estimates have jumped 22.8% for the current year and 14.8% for the following year.

The Zacks Rank #1 (Strong Buy) stock with a VGM Score of A is up 17.3% over the past week.

One of the world's largest footwear companies Crocs, Inc. (CROX - Free Report) is housed within the Zacks-classified Textile – Apparel industry (top 13%). Most of the company’s shoes are made up of Croslite. Its other iconic product “The Classic Clog” for adults and children offers all-day comfort. It is now using the Croslite technology in its LiteRide collection, which features proprietary foam and is soft, lightweight and resilient. They are sold at company-owned retail outlet, through ecommerce channels and partnerships.

With the pandemic pushing more people into more informal situations, Crocs is one of the few companies that continued to grow strongly in 2020. And this year, with vaccinations and more people moving outdoors, demand has only gotten stronger. The company has also successfully raised prices to offset input cost increases.

As a result, the company topped the Zacks Consensus Estimate by 37.7% in the last quarter, taking the four-quarter average surprise to 43.6%. Current-year and next-year estimates have jumped a respective 19.4% and 19.9% as a result.

The Zacks Rank #1 stock with VGM Score C (Momentum Score A) is up 10.7% in the past week.

ArcelorMittal (MT - Free Report) is a member of the Steel – Producers industry, which is in the early stages of one of the greatest manufacturing cycles.

Steel is a raw material that goes into a wide variety of goods. It’s an essential part of auto (including trucks, EVs and emerging categories), machinery (including robotics, industrial, agricultural and other), consumer products, infrastructure, construction and so on.

China remains one of the largest producers and consumers of the commodity, so Chinese manufacturing activity has an outsized influence on prices. Demand is currently very strong not only in China but also in the U.S. and across the world, as many countries increase focus on manufacturing within their borders. Biden’s infrastructure proposal is an added positive.

ArcelorMittal is seeing extremely strong demand, which helped it post a 22.9% earnings surprise in the last quarter (the four-quarter average is 52.3%). As a result, the Zacks Consensus Estimate for 2021 has moved up 30.1% while that for 2022 moved up 22.9% in the last four weeks. MT reports tomorrow before the bell.

The Zacks Rank #1 company with a VGM Score A has risen 11.2% over the past week.

Tri Pointe Homes Inc. (TPH - Free Report) belongs to the Building Products - Home Builders industry, which is currently in the top 31% of Zacks-classified industries.

As most of us already know, the housing market is seeing the kind of strength it hasn’t seen in decades, mostly driven by favorable demographics. Also, housing construction has lagged demand ever since the last recession, which pushed many land developers out of the market and made it more difficult to secure project funding.

Labor has also been an issue. The pent-up demand met with further (pandemic-induced) restrictions in supply last year, depleting inventories and pushing up prices. Additionally, mortgage rates have remained very supportive, stemming from the Fed’s response to the pandemic. The net result is very high demand, high prices and limited supply.

The company focuses on single-family homes, a segment of the market where supply has been weakest over the years and where demand has picked up strongest (as a result of the pandemic). That said, the company’s backlog and guidance indicate some alleviation in supply constraints, which could lead to slightly lower prices and a slight moderation in the gross margin for the second half of the year.

TPH topped the Zacks Consensus Estimate by 23.5% in the last quarter, which led analysts to raise its 2021 and 2022 estimates by a respective 15.2% and 14.9%. Its revenue and earnings are expected to grow double digits this year and be followed with more growth the following year.

The Zacks Rank #1 company with a VGM Score A is up 14.2% in the past week.

The last company on this list is Travelzoo (TZOO - Free Report) , which aggregates travel and entertainment-related information and local deals available from companies, and then selling the information to subscribers and website users. It belongs to the Internet – Commerce industry (bottom 27%).

One industry that is expected to benefit the most from the reopening is the travel and entertainment segment. The pandemic has pushed companies to adopt technology for meetings and presentations, limiting the need for travel. While some business travel remains no doubt, this is now a much smaller segment.

On the other hand, consumers who are eager to get out and also have the money to do it is a more attractive segment this year. Since TZOO targets these leisure travelers, it is well positioned to benefit from these changes. Fresh waves of the pandemic and infection of vaccinated populations has raised some concern, but from information available thus far, travel plans remain largely in place.

In the June quarter, the company topped the Zacks Consensus by 633.3%. Analysts raised their 2021 earnings estimate by 403.7% (up 177.3% from the pandemic-hit 2020) and their 2022 estimate by 124.7% (up 53.7%, on top of the strong growth this year).

The Zacks Rank #2 company with VGM Score A is up 17.7% in the last week.


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