U.S. stock markets have performed better than expected so far this year with just four days of trading left in the third quarter. Despite the meltdown in September, most of the stock indexes are currently at a level well above the average estimations of the market analysts at the beginning of the year. The trend is likely to continue in the fourth quarter despite the threat of the Delta variant and higher inflationary pressure.
S&P 500 – The Best Performer YTD
Year to date (YTD), the S&P 500 Index — popularly known as the market’s benchmark — has rallied 18.6% while the Dow and the Nasdaq Composite climbed 13.7% and 16.8%, respectively. The small-cap-centric Russell 2000 advanced 13.8% and the mid-cap-specific S&P 400 appreciated 17%.
The S&P 500 registered an all-time high of 4,545.85 on Sep 2. However, owing to the market’s meltdown this month, the benchmark is currently trading at 2% below its all-time high. Nevertheless, the index has regained momentum, finishing the last three trading sessions in positive territory. Moreover, the S&P 500 has seen a broad-based rally so far in 2021 with all its 11 sectors currently in the green.
At its current level of 4,455.48, the S&P 500 is well above its 50-day and 200-day moving averages of 4,439.43 and 4,120.53, respectively. In financial literature, the 50-day moving average line is generally recognized as the short-term trend setter, while the 200-day moving average is considered a long-term trend setter.
Furthermore, it is widely believed in the technical analysis space that whenever the 50-day moving average line surges ahead of the 200-day moving average line, a long-term uptrend for the index becomes a strong possibility.
The Wall Street rally continued in the first two months of third-quarter 2021 before suffering a big blow in September. However, U.S. stock markets rebounded impressively in the last three trading sessions and recouped a large part of the losses it suffered in September.
In his statement after the conclusion of the two-day FOMC meeting on Sep 22, Fed Chairman Jerome Powell said, “If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted.” However, the impact of tapering seems to have been already factored in market valuations.
U.S. corporate profits are likely to remain solid in the third quarter after skyrocketing in the first two quarters of 2021. Per our current projection, total earnings of the S&P 500 Index are expected to jump 26% year over year on 13.7% higher revenues. For 2021, total earnings of the S&P 500 Index are currently forecast to soar 42.5% year over year on 13.4% higher revenues.
On Aug 24, the House of Representatives advanced a $1 trillion bipartisan infrastructure bill. On Sep 26, Speaker Nancy Pelosi said that the bill is expected to be passed this week. On Aug 10, the U.S. Senate had passed a bipartisan infrastructure bill of $550 billion in addition to the previously approved funds of $450 billion for five years.
Total spending may go up to $1.2 trillion if the plan is extended to eight years. Infrastructure projects such as roads, bridges, passenger rails, airports, drinking water, and waste-water systems, high-speed Internet, and climate-related infrastructure should benefit.
Our Top Picks
We have narrowed down our search to five large-cap (market capital > $10 billion) S&P 500 stocks that have strong growth potential for the rest of 2021. These stocks have seen positive earnings estimate revisions in the past 30 days indicating that the market is expecting companies to do good business in the near term.
Moreover, these stocks have provided double-digit returns in the past three months compared with the benchmark’s return of a mere 4.1%. Finally, each of our picks carries 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 in the past three months.
Image Source: Zacks Investment Research West Pharmaceutical Services Inc. ( WST Quick Quote WST - Free Report) manufactures and sells containment and delivery systems for injectable drugs and healthcare products in the United States, Europe and internationally. It operates through two segments, Proprietary Products and Contract-Manufactured Products.
The company’s high-value products continue to drive higher gross and operating margins. Additionally, it continued to see strong uptake of HVP components, which include Westar, FluroTec, Envision and NovaPure offerings along with Daikyo’s Crystal Zenith.
The company has an expected earnings growth rate of 72.7% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 2.8% over the past 30 days. The stock price has jumped 25.8% in the past three months.
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.
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 has improved 3.8% over the past 30 days. The stock price has climbed 17.8% in the past three months.
AutoZone Inc. ( AZO Quick Quote AZO - Free Report) is one of the leading specialty retailers and distributors of automotive replacement parts and accessories in the United States. It operates in the Do-It-Yourself (DIY) retail, Do-It-for-Me (DIFM) auto parts and products markets.
AutoZone's high-quality products, store-expansion initiatives and omni-channel efforts to improve customer shopping experience are boosting the company’s market share. This retailer of automotive aftermarket parts has been generating record revenues for 23 consecutive years and the trend is expected to continue. The ramp up of e-commerce efforts is aiding AutoZone’s top-line growth.
The company has an expected earnings growth rate of 1% for the current year (ending August 2022). The Zacks Consensus Estimate for its current-year earnings has improved 3.4% over the past 30 days. The stock price has risen 13.2% in the past three months.
O'Reilly Automotive Inc. ( ORLY Quick Quote ORLY - Free Report) operates as a retailer of automotive aftermarket parts, tools, supplies, equipment, and accessories in the United States. The specialty retailer of automotive aftermarket parts is poised to benefit from store openings and distribution centers in profitable regions.
The company has a competitive edge due to a dual market strategy by serving the Do-it-Yourself and Do-it-for-Me customers. A customer-centric business model and the growing demand for high-quality auto parts are likely to boost O’Reilly’s prospects.
The company has an expected earnings growth rate of 17.5% for the current year. The Zacks Consensus Estimate for its current-year earnings has improved 0.1% over the past 30 days. The stock price has appreciated 11.4% in the past three months.
Ulta Beauty Inc. ( ULTA Quick Quote ULTA - Free Report) operates as a retailer of beauty products in the United States. The company has been seeing market share gains in major beauty categories for a while now, with skincare standing out. Its foremost priority is to strengthen its omnichannel business and explore the potential of both physical and digital facets.
The company has an expected earnings growth rate of more than 100% for the current year (ending January 2022). The Zacks Consensus Estimate for current-year earnings has improved 9.8% over the past 30 days. The stock price has advanced 11.3% in the past three months.