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Top 5 Growth Stocks to Gain From a Likely Year-End Rally

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Just 25 days of trading are left to complete 2022, which has been rather disappointing. Throughout the year, the inflation rate has stayed at a 40-year high due to the complete devastation of the global supply-chain system, which has been further complicated by the Russia-Ukraine geopolitical conflict. Year to date, the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — have tumbled 5.9%, 15.5% and 27.9%, respectively.

However, recently released several inflation data for October have shown that peak inflation may be behind us. The Fed’s November FOMC minutes revealed that the majority of officials prefer a relatively dovish-monetary stance going forward.

As the Fed is expected to lower the magnitude of its rate hike in the December FOMC meeting, we may witness a year-end rally in Wall Street, which is likely to boost growth stocks. To tap a possible gain, we have selected five growth stocks with a favorable Zacks Rank. These are — Archer-Daniels-Midland Co. (ADM - Free Report) , Lamb Weston Holdings Inc. (LW - Free Report) , LPL Financial Holdings Inc. (LPLA - Free Report) , HF Sinclair Corp. (DINO - Free Report) and Steel Dynamics Inc. (STLD - Free Report) .

Wall Street Likely to See a Year-End Rally

Although the Fed is yet to signal any shift from its ultra-hawkish monetary policies, a section of Fed officials has recently spoken in a relatively dovish tone. The minutes of the Fed’s November FOMC meeting revealed that a “substantial majority” of Fed officials favor reducing the magnitude of the interest rate hike going forward.

The FOMC minute stated "A number of participants observed that, as monetary policy approached a stance that was sufficiently restrictive to achieve the Committee's goals, it would become appropriate to slow the pace of increase in the target range for the federal funds rate."

The Fed has hiked the benchmark interest rate by 3.75% so far in 2022 with a 75 basis-point rise in the last four FOMC meetings. At present, the Fed fund rate is within the range of 3.75-4%. At present, per the CME FedWatch, there exists a 75.8% probability that the central bank will reduce the magnitude of rate hike to 50 basis points in December FOMC.

In his post-FOMC statement in November, Fed Chairman Jerome Powell warned that the terminal interest rate may go beyond 5% as estimated earlier and a soft landing of the economy may not be realized. However, with several important Fed officials recently expressing their dovish views, market participants are unsure of whether the terminal interest rate will cross the 5% threshold or stay below that.

Moreover,  U.S. GDP grew 2.6% in the third quarter, beating the consensus estimate of 2.2%. This is important because the economy contracted in the first two quarters of this year, compelling a large section of economists and financial experts to warn of a recession. Additionally, despite several major headwinds, the overall management guidance in the third-quarter 2022 earnings season was fairly good.

Off late, Wall Street has seen a strong rally since mid-October. We believe, that supported by above-mentioned positives, the rally will is likely to strengthen and extend throughout the rest of this year.

Our Top Picks

We have narrowed our search to five large-cap (market capital > $10 billion) growth stocks that have solid upside left for the rest of 2022. These stocks have also witnessed positive earnings estimate revisions in the last 60 days. Each of our picks carries a Zacks Rank #1 (Strong Buy) and has a Growth Score 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 Research
Image Source: Zacks Investment Research

Archer-Daniels-Midland has been gaining from solid demand, improved productivity and product innovations. Persistent growth in the Nutrition segment of ADM, aided by significant gains in the Human and Animal Nutrition units, remains the key growth driver.

Archer-Daniels-Midland expects the nutrition segment to record operating profit growth of 20% in 2022. The company has been significantly progressing on its three strategic pillars — optimize, drive and growth.

Archer-Daniels-Midland has an expected earnings growth rate of 42.6% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 7.4% over the last 30 days.

Lamb Weston produces, distributes, and markets value-added frozen potato products worldwide. LW’s top line has been benefiting from robust price/mix, as witnessed during the first quarter of fiscal 2023. The price/mix increased 19%, reflecting gains from pricing actions in the core business segments to counter input, manufacturing and transportation cost inflation.

Lamb Weston’s top and bottom lines increased year over year in the quarter. LW saw net sales growth across all three reporting segments. While the macro environment remains volatile, management is on track to deliver results at the high end of the sales and earnings target in fiscal 2023. In addition, Lamb Weston has been keen on boosting production capacity to fuel long-term growth.

Lamb Weston has an expected earnings growth rate of 45.7% for the current year (ending May 2023). The Zacks Consensus Estimate for current-year earnings has improved 8.6% over the last 60 days.

LPL Financial Holdings has been benefiting from strategic acquisitions, including the buyout of Waddell & Reed's wealth management business. Solid advisor productivity and recruiting efforts are expected to keep aiding the advisory revenues of LPLA. Moreover, LPL Financial's efficient capital deployment activities reflect a solid balance sheet position.

LPL Financial has an expected earnings growth rate of 61.3% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 5.8% over the last 30 days.

HF Sinclair operates as an independent energy company. DINO produces and markets gasoline, diesel fuel, jet fuel, renewable diesel, specialty lubricant products, specialty chemicals, specialty and modified asphalt, and others.

HF Sinclair also owns and operates refineries located in Kansas, Oklahoma, New Mexico, Utah, Washington, and Wyoming. DINO markets its refined products principally in the Southwest United States and the Rocky Mountains, Pacific Northwest, and other neighboring Plains states.

HF Sinclair has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 10.8% over the last 30 days.

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 36.1% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 7.5% over the last 60 days.

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