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5 Must-Buy Stocks to Gain From Range-Bound Stock Markets

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Wall Street has been witnessing a free fall since the beginning of this year, barring the second half of March. The day-to-day fluctuations of the major indexes are higher than what we saw in February-March 2020, during the coronavirus outbreak.

Market participants are facing the real effect of the pandemic as the impact of coronavirus and its variants on daily activities are now much less. As real-life activities are returning to normalcy and fiscal and monetary stimuli have stopped, the pain of the pandemic is being felt by investors.

Complete devastation of the global supply-chain system, skyrocketing inflation and lingering geopolitical conflict between Russia and Ukraine, have raised serious doubts about global economic growth.

In the past month, major indexes have traded within a specific range. Despite these headwinds, several good stocks are available for investment. We have applied our VGM Style Score to narrow the search to five stocks. These are — Nucor Corp. (NUE - Free Report) , Steel Dynamics Inc. (STLD - Free Report) , Marathon Petroleum Corp. (MPC - Free Report) , Valero Energy Corp. (VLO - Free Report) and Packaging Corporation of America (PKG - Free Report) .

Sale on the Rise: The New Theme

U.S. inflation is currently at a 40-year high and the Fed has shifted from an ultra-dovish to an ultra-hawkish policy regime. The central bank terminated the $120 billion per month quantitative easing program in March, and raised the benchmark lending rate by 25 basis points the same month and by 50 basis points in May. It also gave a clear signal that two more rate hikes of 50 basis points are coming in June and July and that systematic shrinking of the $9 trillion balance sheet started Jun 1.

A large section of economists and financial experts have already warned of an imminent recession either in 2022 or 2023. These negatives have converted market’s sentiment to extremely bearish. As sentiments turn completely bearish, “sale on the rise” is the buzz word and not “buy on the dip”. At this juncture, Wall Street needs a trigger to rebound. However, that silver line is still not visible.

In the past month, the Dow is trading within the range of 31,000 to 33,000. The trading range for the S&P 500 and the Nasdaq Composite were 4,000 to 4,200 and 11,850 to 12,250, respectively, in the same period. During April and May, Wall Street tried to rebound several times. However, the rallies could not be sustained in absence of effective positive catalysts.

Panic selling by market participants owing to several reasons, such as tougher-than-expected hawkish comments by top Fed officials, a disappointing outlook of the U.S. economy given by the CEOs of various banking behemoths, China’s COVID-19 restrictions and weak economic data, soaring yield of the benchmark U.S. 10-Year Treasury Note and geopolitical conflict in East Europe halted Wall Street’s relief rallies of prematurely.

Our Top Picks

We have narrowed our search to five U.S. large-cap corporate that have strong growth potential for the rest of 2022. These stocks have seen positive earnings estimate revisions in the last 30 days. Moreover, these companies are regular dividend payers. Finally, each of our picks carries 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 month.

Zacks Investment Research
Image Source: Zacks Investment Research

Nucor is committed to expanding its production capabilities and growing its business through strategic acquisitions. NUE has already commissioned some of its growth projects. These should drive growth and strengthen Nucor’s position as a low-cost producer.

NUE is also seeing strong momentum in the non-residential construction market and strong demand in the heavy equipment market. NUE remains focused on achieving greater penetration of the automotive market because of the segment’s long-term growth opportunities. Higher steel prices due to tight supply and higher end-market demand should also drive Nucor’s margins.

Nucor has an expected earnings growth rate of 27.9% for the current-year. The Zacks Consensus Estimate for current-year earnings improved 42.8% over the last 30 days. NUE has a current dividend yield of 1.55%.

Marathon Petroleum is poised for further price gains based on a slew of positives. MPC’s $21 billion sales of its Speedway retail business provided it with a much-needed cash infusion. The deal also comes with a 15-year fuel supply agreement under which Marathon Petroleum will supply 7.7 billion gallons of gasoline per year to 7-Eleven, thus ensuring a steady revenue stream.

MPC’s exposure to more stable cash flows from the logistics segment diversifies the earnings stream and offers a buffer against the volatile refining business. Consequently, Marathon Petroleum is primed for significant capital appreciation and is viewed as a preferred downstream operator to own now.

Marathon Petroleum has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 15.5% over the last 30 days. MPC has a current dividend yield of 2.20%.

Steel Dynamics is expected to gain from acquisitions as well as strong liquidity and efforts to expand capacity. The acquisitions of Heartland and United Steel Supply have boosted Steel Dynamics' shipping capabilities. Moreover, the buyout of Zimmer should support the raw material procurement strategy at its new Texas flat roll steel mill.

STLD is also expected to gain from its investments to beef up capacity and upgrade facilities. Steel Dynamics is executing several projects that should add to capacity and boost profitability. The electric-arc-furnace flat roll steel mill should strengthen its steelmaking capacity and value-added product capability.

Steel Dynamics has an expected earnings growth rate of 33.8% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 12.8% over the last 30 days. STLD has a current dividend yield of 1.64%.

Valero Energy is the largest independent refiner and marketer of petroleum products in the United States. VLO offers the most diversified refinery base with a capacity of 3.2 million barrels per day in its 15 refineries located throughout the United States, Canada and the Caribbean.

The majority of Valero Energy’s refining plants are situated in the Gulf coast area from where there is easy access to the export facilities. VLO’s Gulf coast presence helped it to expand export volumes over the past years and gain from high distillate margins.

Moreover, Valero Energy intends to quadruple renewable diesel production capacity by 2023. With low-carbon fuel policies being adopted by economies around the globe, demand for renewable fuel is expected to rise in the coming days. Also, VLO is expected to capitalize on the increasing demand for distillate fuel.

Valero Energy has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 12.2% over the last 30 days. VLO has a current dividend of 2.89%.

Packaging Corporation manufactures and sells containerboard and corrugated packaging products in the United States. PKG continues to benefit from robust packaging demand backed by e-commerce and rising requirement for the packaging of food, beverages and medicines.

PKG’s Packaging segment will benefit from higher corrugated products shipments with three additional shipping days. For the Paper segment, the company expects higher prices and mix. Packaging Corporation continues to implement price hikes that will help offset the impact of high operating costs, freight expenses and supply chain issues on margins.

Packaging Corporation has an expected earnings growth rate of 24.2% for the current year. The Zacks Consensus Estimate for current-year earnings improved 10.3% over the last 30 days. PKG has a current dividend yield of 2.51%.