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5 Must-Buy High-Flying S&P 500 Stocks With Strong Upside Left

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Wall Street flourished in the first eight months of 2021 despite facing intermittent fluctuations. However, the northward journey has halted a little bit in early September — historically the worst-performing month on Wall Street.

The rapid pace of the highly infectious Delta variant of coronavirus raised serious concerns among investors about a possible decline in U.S. economic growth. A series of recently released weak economic data also dented market participants’ confidence.

U.S. stock markets are likely to remain subdued as market participants are waiting for the Fed’s decision on the tapering of the $120 billion per month bond-buy program in the next FOMC meeting scheduled for Sep 21-22.

However, the fundamentals of the U.S. economy remain strong. Sky-high personal savings, soaring corporate profits, businesses’ eagerness to expand the scale of operations and recruit more manpower and the Biden administrations’ proposed infrastructure plans should drive Wall Street in the rest of 2021.

At this stage, it will be prudent to invest in S&P 500 stocks with a favorable Zacks Rank that have witnessed positive earnings estimate revisions within the last 30 days. The combination of these two features is expected to drive stock prices in the near future.

Immediate Concerns

On Sep 8, the Fed published its Beige Book wherein it was stated that from early July through August, economic growth in the United States “downshifted slightly to a moderate pace.” The reasons were the resurgence of coronavirus, lingering supply-chain disruptions and a shortage of labor.

Nonfarm payrolls in August were highly disappointing. The index of both consumer confidence and consumer sentiment dropped significantly last month. Manufacturing and services PMIs declined in August, but remained elevated. Inflation rates stayed at a 30-year high.

Consumer spending, the largest component of U.S. GDP, rose a mere 0.3% in July after jumping 1.1% in June. The gradual fading out of the fiscal stimulus and the spread of the Delta string are the main reasons for this drop in personal spending. The stimulus money will reduce further as the weekly unemployment benefit terminated on Sep 6.

On Sep 8, Treasury Secretary Janet Yellen stated that the Treasury Department would exhaust at some point of time in October, its extended efforts to timely pay the federal government’s bills and urged Congress to raise or suspend the debt limit for preventing a default. Yellen stated in a letter to House Speaker Nancy Pelosi that a delay could cause “irreparable damage to the U.S. economy and global financial markets.”

Future Drivers

The above-mentioned negatives will also act as positives for the U.S. economy. The Fed is unlikely to change its ongoing ultra-dovish monetary policies anytime soon as Fed Chair Jerome Powell clearly said that the economy has to improve a lot, especially related to the labor market, to achieve the Fed’s target of substantial progress. The central bank will think about readjusting accommodative stances only after the economy achieves that target.

After September, the Fed’s next FOMC meeting will be held in November. Even if the central bank takes any sort of tapering decision in that meeting, the actual implementation is unlikely to take place before early 2022. As a result, a hike in the benchmark interest rate, which is currently as low as 0-0.25%, will possibly not materialize before late 2023.

Moreover, a lack of weekly unemployment benefits may reduce personal consumption expenditure (“PCE”). Therefore, the resurgence of coronavirus and the lack of fiscal stimulus are expected to reduce demand-pull inflation.

The Institute of Supply Management revealed in its U.S. manufacturing PMI report for August that the Prices Paid Index (input costs to manufacturers) dropped to 79.4% in August from 85.7% in July and 92.1% in June. The gradual decline in this key index has clearly indicated that the cost-push inflation in the U.S. economy is possibly dwindling.

Finally, total earnings of the S&P 500 Index are currently projected to grow 26.2% year over year on 13.7% higher revenues in third-quarter 2021 after earnings soared 94.6% on 24% higher revenues in second-quarter 2021. Total earnings of the S&P 500 are expected climb 42.6% year over year on 13.0% higher revenues in 2021 and increase 9.3% year over year on 6.7% higher revenues in 2022.

Our Top Picks

We have narrowed down our search to five S&P 500 stocks that have skyrocketed more than 35% year to date and still have solid upside left for the rest of 2021. These stocks have witnessed strong earnings estimate revisions over the last 30 days. Each of our picks sports a Zacks Rank #1 (Strong Buy). 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.

Zacks Investment Research
Image 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 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 in the 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 10.8% over the last 30 days. The stock price has soared 110.9% year to date.

Devon Energy Corp. (DVN - Free Report) is primarily engaged in the exploration, development, and production of oil, natural gas and natural gas liquids in the United States and Canada. Its diversified portfolio and focus on high-margin assets hold significant long-term growth potential. Devon Energy is focused on advanced technology to produce high oil volumes from wells and implement cost savings initiatives.

The company has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 1.1% over the last 7 days. The stock price has jumped 78.5% year to date.

LKQ Corp. (LKQ - Free Report) distributes replacement parts, components, and systems used in the repair and maintenance of vehicles. It operates through three segments: North America, Europe, and Specialty.

The company is benefiting from its strategic buyouts like the Elite Electronics buyout and the acquisition of Green Bean Battery and Greenlight Automotive. It is witnessing ongoing recovery in demand in its North American and European segments, along with robust strength in its Specialty segment and the trend is likely to continue.

The company has an expected earnings growth rate of 42% for the current year. The Zacks Consensus Estimate for its current-year earnings improved 1.4% over the last 7 days. The stock price has rallied 44.3% year to date.

Deere & Co. (DE - Free Report) is likely to benefit from growth in non-residential investment and strong order activity from independent rental companies. Focus on investing in new products equipped with the latest technology and features to help make farming automated and to expand in precision agriculture will drive growth in the long haul.

The company has an expected earnings growth rate of more than 100% for the current year (ending October 2021). The Zacks Consensus Estimate for current-year earnings improved 5.1% over the last 30 days. The stock has climbed 37.6% year to date.

The Mosaic Co. (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.

Demand for phosphate and potash in North America remains strong in 2021. Strong grower economics and crop commodity prices are driving fertilizer demand globally. The company should also gain from higher prices. The acquisition of Vale Fertilizantes is also expected to deliver significant synergies. Mosaic is also expected to benefit from its cost-reduction initiatives.

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 5.6% over the last 7 days. The stock price has surged 35.3% year to date.