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Top 5 Picks to Gain From Wall Street's Omicron-Relief Rally

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Wall Street rebounded on Nov 29, recovering to a large extent the lost ground that it suffered on Nov 26. U.S. stock markets resumed their northward journey as concerns regarding the omicron variant of coronavirus eased. Confidence of market participants buoyed up on some good news on the virus front and President Joe Biden’s assurance of no immediate lockdown.

Investors’ sentiment bolstered on risky assets like equities, we have selected five stocks with a favorable Zacks Rank to tap the rally. These are — Exxon Mobil Corp. (XOM - Free Report) , Avis Budget Group Inc. (CAR - Free Report) , Builders FirstSource Inc. (BLDR - Free Report) , Westlake Chemical Corp. (WLK - Free Report) and Devon Energy Corp. (DVN - Free Report) .

Wall Street Rebounds as Virus Concern Ease

On Nov 29, stocks markets across the world recovered some lost ground after coronavirus-led market rout on Black Friday on Nov 26. The Dow, the S&P 500 and the Nasdaq Composite have rallied 0.7%, 1.3% and 1.9%, respectively. The CBOE VIX — Wall Street’s fear gauge — dropped nearly 20% to 22.96.

Global stock markets plummeted on Nov 26, fearing a new lockdown as a new variant of coronavirus — Omicron — was detected in South Africa. The World Health Organization (WHO) warned that it could be more transmissible than the previous variants.

Consequently, the Dow recorded its worst single-day drop since October 2020 and the biggest Black Friday selloff since 1931. The S&P 500 and the Nasdaq Composite posted the biggest Black Friday decline in history.

Positive News Surfaces

On Nov 29, the South African doctor who first raised the alarm over the omicron variant described COVID-19 symptoms linked to  the new variant as “extremely mild.” A section of medical scientists, after analyzing early data, has concluded that omicron may turn out to be less infectious but more transmissible than the Delta.

The same day, President Biden said that he doesn’t expect the United States to impose additional travel restrictions to stem the spread of the Omicron and any possibility of an immediate lockdown. “I don’t anticipate that at this point,” Biden said.

Moreover, several biotech and pharmaceutical firms that have already received the FDA authorization for COVID-19 vaccines or are in the process of developing new vaccines said that they have already started R&D to modify their vaccines to combat Omicron. The new vaccines may be available in markets early next year.

Strong Fundamentals of U.S. Economy

Fundamentals of the U.S. economy remain robust. Both consumer spending and business spending remain strong despite mounting inflation and supply-chain disruptions. Manufacturing and services PMIs stayed elevated. The struggling labor market is showing a systematic recovery. The last-reported weekly jobless claims data for the week ended Nov 20, came in at the lowest level since Nov 15, 1969.

Moreover, in its latest projection on Nov 24, the Atlanta Fed reported that the U.S. economy would grow by 8.4% in fourth-quarter 2021. U.S. GDP grew 6.4%, 6.7% and 2.1%, in the first, second and third quarters of this year, respectively.

Total third-quarter earnings of the market's benchmark — the S&P 500 Index — are projected to jump 40.3% from the same period last year on 17.2% higher revenues. Moreover, in fourth-quarter 2021, total earnings of the S&P 500 Index are expected to up 19.4% year over year on 11.1% higher revenues.

Our Top Picks

Several good stocks are available for investment for the rest of this year. However, we have applied our VGM Style Score to narrow the search to the five stocks mentioned above. These stocks have strong growth potential for the rest of 2021 and have seen solid earnings estimate revisions within the past 30 days. Each of our picks sports a Zacks Rank #1 (Strong Buy) and a VGM Score of A or B. 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.

Zacks Investment ResearchImage Source: Zacks Investment Research

Exxon Mobil Corp. made multiple world-class oil discoveries at the Stabroek Block, located off the coast of Guyana. XOM has raised the estimate for discovered recoverable resources from the Stabroek Block to approximately 10 billion oil-equivalent barrels.

Exxon Mobile’s bellwether status and an optimal integrated capital structure, which has historically produced industry-leading returns make it a relatively lower-risk energy sector play. The integrated oil behemoth expects to reduce greenhouse gas emissions by 30% in its upstream business. By the same time, XOM expects to reduce flaring and methane emissions by 40%.

Exxon Mobil has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 1% over the last 30 days. The stock price of XOM has advanced 11.7% in the past three months.

Avis Budget Group provides car and truck rentals, car sharing, and ancillary services to businesses and consumers. The ability of Avis Budget Group to cater to a wide range of mobility demands helps it expand and strengthen its global foothold through organic growth.

Avis Budget Group operates through distinct global brands that focus on different market segments and complement other brands in their respective regional markets. Fleet expansion and technology enhancement efforts by CAR are likely to enhance its offerings.  

Avis Budget Group has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 7.6% over the last 7 days. The stock price of CAR has soared 240% in the past three months.

Devon Energy Corp. aims for strong oil production from the Delaware Basin holdings. Devon Energy’s presence in Delaware has expanded due to its all-stock merger deal with WPX Energy. DVN is using new technology in production process to lower expenses.

Devon Energy’s divestiture of Canadian and Barnett Shale gas assets will allow it to focus on its five high-quality oil-rich U.S. basins assets. DVN’s stable free cash flow generation allows it to pay dividend and buy back shares. Devon Energy has ample liquidity to meet near-term debt obligations.

Devon Energy has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 0.9% over the last 7 days. The stock price of DVN has jumped 47.5% in the past three months.

Builders FirstSource manufactures and supplies building materials, manufactured components, and construction services to professional homebuilders, sub-contractors, remodelers, and consumers in the United States. Builders FirstSource operates through four segments: Northeast, Southeast, South and West.

Builders FirstSource benefits from its focus on cost synergies, strategic acquisition, and robust demand arising from solid housing and repair & remodeling activities. BLDR continues to focus on investing in innovations and enhancing digital solutions for its customers.  

Builders FirstSource has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 31.1% over the past 30 days. The stock price of BLDR has climbed 34.5% in the past three months.

Westlake Chemical is benefiting from synergies from the Axiall acquisition. The buyout has diversified its product portfolio and geographical operations. The NAKAN acquisition has also allowed Westlake Chemical to boost its compounding business globally. Further, Westlake Chemical sees favorable demand trends for polyethylene and polyvinyl chloride resin.

Strong demand in the polyethylene business is likely to continue, especially in food packaging. Also, rising housing starts in the United States augur well for WLK’s downstream vinyl products business and domestic demand for PVC. Westlake Chemical should also benefit from its capacity expansion projects.

Westlake Chemical has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 11.6% over the last 30 days. The stock price of WLK has surged 12.2% in the past three months.