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Inflation Seems to Have Picked Up, May Stay Elevated: 5 Picks
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A few recently released economic data have shown early indications that U.S. inflation may have picked up and is likely to remain elevated for the rest of 2021. The Fed Chairman Jerome Powell has also repeatedly said that the current inflation is transitory, however, it may stay for a longer period than previously expected.
Recently Released Data
On Aug 11, the Department of Labor reported that the Consumer Price index (CPI) rose 0.5% in July compared with 0.9% in June. The consensus estimate was of a 0.5% rise. Year over year, CPI jumped 5.4%, in line with June, marking the highest monthly reading in 13 years.
Importantly, the core CPI (excluding the volatile items like food and energy) was up 0.3% in July, well below the 0.9% increase in the previous month. The consensus estimate was for an increase of 0.4%. Year over year, core CPI climbed 4.3% compared with 4.5% in June.
On July 27, the Conference Board reported that the consumer confidence index increased to 129.1 in the month, marking its highest level since February 2020. The short-term expectations of inflation declined in July . Consequently, spending intentions picked up last month, with a larger percentage of consumers saying that they planned to purchase homes, automobiles and major appliances in the coming months.
The Institute of Supply Management (ISM) revealed in its U.S. manufacturing PMI report for July that the Prices Paid Index (prices paid by manufacturers for producing goods) decreased to 85.7% in July from 92.1% in the previous month.
Moreover, the core PCE inflation —- Fed's favorite inflation gauge — climbed 3.5% annually in June, its highest since July 1991. However, the data was slightly above May's reading of 3.4% and fell below the consensus estimate of 3.6%.
Inflation Likely to Cool Down
One reason for the recent spike in the inflation rate is the low base of last year due to the coronavirus-led lockdowns. After adjusting for the base effect, inflation may not be as severe as reported by the government agencies.
Moreover, the recent thrust of the demand-pull inflation will settle down once the initial euphoria of pent-up demand evaporates and the existing $300 per week unemployment benefit comes to an end in September.
On Jul 14, in his first of two days of testimony before Congress about the state of the economy, the Fed Chair said that the current spike is temporary and the condition will settle down by the end of this year as most of the current inflation has stemmed from a few industries.
Powell said that prices of used cars, a major source of current inflation, are rising mainly due to soaring demand and low supply. Prices will cool down once the demand-supply imbalance stabilizes.
The supply-chain disruptions and the labor-shortage problem is likely to be solved to a great extent by this year-end. The ISM U.S. manufacturing PMI report for July revealed that the Supplier Deliveries Time Index dropped to 72.5% in July from 75.1% in June.
Inflation will be transitory as most of the recent price rise will not persist in the long term. For example, supply problems of autos are primarily owing to shortages of semiconductors. Prices also increased for air travel fairs, staying at hotels, and dining at bars and restaurants. Americans were barred from enjoying these during lockdowns last year.
Our Top Picks
At this stage, it will be prudent to invest in growth stocks to enhance one's portfolio. Growth investors are primarily focused on stocks with aggressive earnings or revenue growth, which should propel their stock price higher in the future.
A decline in inflation may delay the Fed in starting to taper its existing $120 billion per month bond-buying program. A low-interest-rate regime will be good for growth-oriented stocks that depend on easy access to credit at a cheap rate to maintain the company's growth rate.
We have narrowed down our search to five large-cap (market capital > $10 billion) growth stocks that witnessed robust earnings estimate revisions within the last 30 days and have strong upside left for the rest of 2021.
The chart below shows the price performance of our five picks in the past month.
Image Source: Zacks Investment Research
Jones Lang LaSalle Inc. (JLL - Free Report) provides commercial real estate and investment management services worldwide. The company continues to benefit from the sustained resilience of Property & Facility Management, highlighting the strength of its global platform. Technology investments and cost-mitigation efforts also augur well for its long-term profitability.
The company has an expected earnings growth rate of 62.5% for the current year. The Zacks Consensus Estimate for the current year improved 27.1% over the last 7 days. The stock price has soared 32.6% in the past month.
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 is seeing consistent momentum in the non-residential construction market. Demand in non-residential construction markets was strong in the most recent quarter. Nucor’s downstream products unit is benefiting from the continued strength of non-residential construction markets.
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 improved 15.4% over the last 30 days. The stock price has jumped 28.8% in the past month.
Textron Inc. (TXT - Free Report) is a global multi-industry company that manufactures aircraft, automotive engine components and industrial tools. It also offers solutions and services for aircraft, fastening systems, and industrial products and components.
The company continues to enjoy strong order flows, which not only strengthen its revenue-generating capacity but also expand its footprint across the world. On the new product front, the certification program for SeaSkyCar aircraft continues to progress well as the company works toward entering the service targeted for later this year.
The company has an expected earnings growth rate of 58.5% for the current year. The Zacks Consensus Estimate for its current-year earnings improved 3.8% over the last 30 days. The stock price has surged 11.7% 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.
Lithia’s diversified product mix and multiple streams of income reduce its risk profile. Enhanced digital solutions — including Driveway e-commerce program — are helping it to further boost profitability and market presence. Lithia’s acquisition of dealerships helps to increase its market share and positions it for growth.
The company has an expected earnings growth rate of 63.4% for the current year. The Zacks Consensus Estimate for its current-year earnings improved 26.1% over the last 30 days. The stock price has gained 5.6% in the past month.
Gartner Inc. (IT - Free Report) operates as a research and advisory company in the United States, Canada, Europe, the Middle East, Africa, and internationally. It operates through three segments: Research, Conferences, and Consulting.
The company offers timely, thought-provoking and comprehensive analysis that is known for its high quality, independence and objectivity. Its research reports have become indispensable tools for various companies across different sectors, strengthening its leading position in the market. It has a large and diverse addressable market with low customer concentration that mitigates operating risks.
The company has an expected earnings growth rate of 60.1% for the current year. The Zacks Consensus Estimate for its current-year earnings improved 21.4% over the last 30 days. The stock price has advanced 15.6% in the past month.
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Inflation Seems to Have Picked Up, May Stay Elevated: 5 Picks
A few recently released economic data have shown early indications that U.S. inflation may have picked up and is likely to remain elevated for the rest of 2021. The Fed Chairman Jerome Powell has also repeatedly said that the current inflation is transitory, however, it may stay for a longer period than previously expected.
Recently Released Data
On Aug 11, the Department of Labor reported that the Consumer Price index (CPI) rose 0.5% in July compared with 0.9% in June. The consensus estimate was of a 0.5% rise. Year over year, CPI jumped 5.4%, in line with June, marking the highest monthly reading in 13 years.
Importantly, the core CPI (excluding the volatile items like food and energy) was up 0.3% in July, well below the 0.9% increase in the previous month. The consensus estimate was for an increase of 0.4%. Year over year, core CPI climbed 4.3% compared with 4.5% in June.
On July 27, the Conference Board reported that the consumer confidence index increased to 129.1 in the month, marking its highest level since February 2020. The short-term expectations of inflation declined in July . Consequently, spending intentions picked up last month, with a larger percentage of consumers saying that they planned to purchase homes, automobiles and major appliances in the coming months.
The Institute of Supply Management (ISM) revealed in its U.S. manufacturing PMI report for July that the Prices Paid Index (prices paid by manufacturers for producing goods) decreased to 85.7% in July from 92.1% in the previous month.
Moreover, the core PCE inflation —- Fed's favorite inflation gauge — climbed 3.5% annually in June, its highest since July 1991. However, the data was slightly above May's reading of 3.4% and fell below the consensus estimate of 3.6%.
Inflation Likely to Cool Down
One reason for the recent spike in the inflation rate is the low base of last year due to the coronavirus-led lockdowns. After adjusting for the base effect, inflation may not be as severe as reported by the government agencies.
Moreover, the recent thrust of the demand-pull inflation will settle down once the initial euphoria of pent-up demand evaporates and the existing $300 per week unemployment benefit comes to an end in September.
On Jul 14, in his first of two days of testimony before Congress about the state of the economy, the Fed Chair said that the current spike is temporary and the condition will settle down by the end of this year as most of the current inflation has stemmed from a few industries.
Powell said that prices of used cars, a major source of current inflation, are rising mainly due to soaring demand and low supply. Prices will cool down once the demand-supply imbalance stabilizes.
The supply-chain disruptions and the labor-shortage problem is likely to be solved to a great extent by this year-end. The ISM U.S. manufacturing PMI report for July revealed that the Supplier Deliveries Time Index dropped to 72.5% in July from 75.1% in June.
Inflation will be transitory as most of the recent price rise will not persist in the long term. For example, supply problems of autos are primarily owing to shortages of semiconductors. Prices also increased for air travel fairs, staying at hotels, and dining at bars and restaurants. Americans were barred from enjoying these during lockdowns last year.
Our Top Picks
At this stage, it will be prudent to invest in growth stocks to enhance one's portfolio. Growth investors are primarily focused on stocks with aggressive earnings or revenue growth, which should propel their stock price higher in the future.
A decline in inflation may delay the Fed in starting to taper its existing $120 billion per month bond-buying program. A low-interest-rate regime will be good for growth-oriented stocks that depend on easy access to credit at a cheap rate to maintain the company's growth rate.
We have narrowed down our search to five large-cap (market capital > $10 billion) growth stocks that witnessed robust earnings estimate revisions within the last 30 days and have strong upside left for the rest of 2021.
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 in the past month.
Image Source: Zacks Investment Research
Jones Lang LaSalle Inc. (JLL - Free Report) provides commercial real estate and investment management services worldwide. The company continues to benefit from the sustained resilience of Property & Facility Management, highlighting the strength of its global platform. Technology investments and cost-mitigation efforts also augur well for its long-term profitability.
The company has an expected earnings growth rate of 62.5% for the current year. The Zacks Consensus Estimate for the current year improved 27.1% over the last 7 days. The stock price has soared 32.6% in the past month.
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 is seeing consistent momentum in the non-residential construction market. Demand in non-residential construction markets was strong in the most recent quarter. Nucor’s downstream products unit is benefiting from the continued strength of non-residential construction markets.
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 improved 15.4% over the last 30 days. The stock price has jumped 28.8% in the past month.
Textron Inc. (TXT - Free Report) is a global multi-industry company that manufactures aircraft, automotive engine components and industrial tools. It also offers solutions and services for aircraft, fastening systems, and industrial products and components.
The company continues to enjoy strong order flows, which not only strengthen its revenue-generating capacity but also expand its footprint across the world. On the new product front, the certification program for SeaSkyCar aircraft continues to progress well as the company works toward entering the service targeted for later this year.
The company has an expected earnings growth rate of 58.5% for the current year. The Zacks Consensus Estimate for its current-year earnings improved 3.8% over the last 30 days. The stock price has surged 11.7% 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.
Lithia’s diversified product mix and multiple streams of income reduce its risk profile. Enhanced digital solutions — including Driveway e-commerce program — are helping it to further boost profitability and market presence. Lithia’s acquisition of dealerships helps to increase its market share and positions it for growth.
The company has an expected earnings growth rate of 63.4% for the current year. The Zacks Consensus Estimate for its current-year earnings improved 26.1% over the last 30 days. The stock price has gained 5.6% in the past month.
Gartner Inc. (IT - Free Report) operates as a research and advisory company in the United States, Canada, Europe, the Middle East, Africa, and internationally. It operates through three segments: Research, Conferences, and Consulting.
The company offers timely, thought-provoking and comprehensive analysis that is known for its high quality, independence and objectivity. Its research reports have become indispensable tools for various companies across different sectors, strengthening its leading position in the market. It has a large and diverse addressable market with low customer concentration that mitigates operating risks.
The company has an expected earnings growth rate of 60.1% for the current year. The Zacks Consensus Estimate for its current-year earnings improved 21.4% over the last 30 days. The stock price has advanced 15.6% in the past month.