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Fed Chair Jay Powell said all the right things to ensure that the markets didn’t take off again on the hopes that this would be the last rate hike:
There’s too much optimism as it is. "Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated." Moreover, “economic activity has been expanding at a moderate pace.”
Therefore, “the process of getting inflation back down to 2% has a long way to go" and of course, it could “require a period of below-trend growth and some softening of labor market conditions.”
It follows that “the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments."
None of this is very different from what we’ve been hearing recently.
But then, during the conference, he also said that the Fed's staff economic forecasts are not baking in a U.S. recession any longer.
It matches the evolving earnings picture and management commentary, according to which we see that the total earnings of the 151 S&P 500 companies that have reported Q2 results are up 3.1% from last year on 6.9% higher revenues. Additionally, 81.5% of these companies surprised positively on the bottom line while 63.6% reported positive surprises on the top line. This is a pretty strong showing, and helped no doubt by robust earnings reports from big tech. Management commentary is weighted towards improvement through the rest of the year, which of course seems to rule out a recession.
With such a backdrop, this seems like a good time to jump into stocks. Here are three that look attractive today:
Dublin, Ireland-based Jazz is a biopharmaceutical company that develops and commercializes pharmaceutical products to address unmet medical needs. The company's focus areas include neuroscience, with products for sleep, movement disorders and oncology, targeting hematologic and solid tumors.
Key products in neuroscience include Xywav and Xyrem for treating cataplexy and excessive daytime sleepiness in patients with narcolepsy. In oncology, Jazz Pharmaceuticals offers Zepzelca, Rylaze, Vyxeos, and Defitelio for the treatment of various cancers and related conditions. The company has collaborations with several other pharmaceutical companies.
Zacks #1 (Strong Buy) ranked Jazz operates in the Medical – Drugs industry, which is in the top 41% of Zacks-classified industries.
Analysts expect the company to grow its revenue and earnings a respective 3.8% and 32.5% on average in 2023 and 7.4% and 11.4% in 2024. While estimates for the current year continue to trend up, 2024 estimates have seen some moderation in the last 30 days.
The company is expected to report on Aug 2, and its earnings Expected Surprise Prediction (ESP) of 0.45% seems to indicate a positive outcome. But we’ll know more next week.
Valuation is attractive. JAZZ shares 8.23X earnings, which trails the S&P 500’s multiple of 20.15X. Its price-to-earnings growth (PEG) ratio is 0.87 (a number below 1 shows that investors are undervaluing its earnings growth potential).
Oshkosh, WI-based Oshkosh designs, manufactures and markets specialty trucks and access equipment. Its Access Equipment segment focuses on aerial work platforms, telehandlers, and towing and recovery equipment. The Defense segment produces tactical wheeled vehicles and snow removal vehicles for the military. The Fire & Emergency segment offers firefighting equipment and emergency response vehicles. The Commercial segment manufactures refuse collection vehicles, concrete mixers and field service vehicles.
Oshkosh carries a Zacks #1 rank, which together with its industry (Automotive - Original Equipment) position of top 48% is an encouraging indication of its prospects.
Analysts also seem to be highly optimistic about this company’s prospects. Although there’s some moderation in the last 30 days, at current levels, the estimates represent 5.1% revenue growth and 75.4% earnings growth in 2023 followed by 5.4% revenue growth and 25.5% earnings growth in 2024.
The company, which is expected to report on Aug 1, has an earnings ESP of 3.2%, which along with the #1 rank, is an indication of a positive surprise.
OSK’s shares trade at a 36.8% discount to its industry and a 36.1% discount to the S&P 500. Their PEG value of 0.42 is also encouraging.
Based in George Town, the Cayman Islands, StoneCo is a financial technology company that offers software solutions to merchants and integrated partners for conducting electronic commerce in Brazil. Its services are distributed through proprietary Stone Hubs, providing hyper-local sales and services, and a sales team for brick-and-mortar and digital merchants. The company serves approximately 2.6 million clients, mainly small and medium-sized businesses, marketplaces, e-commerce platforms, and integrated software vendors.
The Zacks Rank #1 stock is part of the Internet – Software industry (top 25%).
StoneCo’s estimates haven’t moved much in the last 30 days. However, current levels indicate highly positive analyst expectations. In 2023, the company is expected to generate 4.4% revenue growth and 115.2% earnings growth. Revenue and earnings in the following year are expected to increase 7.8% and 18.3%, respectively.
Its ESP of 0.0% along with the Zacks Rank indicates an above average chance of beating estimates when it reports on Aug 16.
At 16.06X earnings, STNE shares trade at a 61.0% discount to the industry and a 20.3% discount to the S&P 500. Its PEG value of 0.34 is well below both Jazz and Oshkosh.
One-Month Price Performance
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3 Stocks to Buy as Recession Looks Unlikely
Fed Chair Jay Powell said all the right things to ensure that the markets didn’t take off again on the hopes that this would be the last rate hike:
There’s too much optimism as it is. "Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated." Moreover, “economic activity has been expanding at a moderate pace.”
Therefore, “the process of getting inflation back down to 2% has a long way to go" and of course, it could “require a period of below-trend growth and some softening of labor market conditions.”
It follows that “the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments."
None of this is very different from what we’ve been hearing recently.
But then, during the conference, he also said that the Fed's staff economic forecasts are not baking in a U.S. recession any longer.
It matches the evolving earnings picture and management commentary, according to which we see that the total earnings of the 151 S&P 500 companies that have reported Q2 results are up 3.1% from last year on 6.9% higher revenues. Additionally, 81.5% of these companies surprised positively on the bottom line while 63.6% reported positive surprises on the top line. This is a pretty strong showing, and helped no doubt by robust earnings reports from big tech. Management commentary is weighted towards improvement through the rest of the year, which of course seems to rule out a recession.
With such a backdrop, this seems like a good time to jump into stocks. Here are three that look attractive today:
Jazz Pharmaceuticals plc (JAZZ - Free Report)
Dublin, Ireland-based Jazz is a biopharmaceutical company that develops and commercializes pharmaceutical products to address unmet medical needs. The company's focus areas include neuroscience, with products for sleep, movement disorders and oncology, targeting hematologic and solid tumors.
Key products in neuroscience include Xywav and Xyrem for treating cataplexy and excessive daytime sleepiness in patients with narcolepsy. In oncology, Jazz Pharmaceuticals offers Zepzelca, Rylaze, Vyxeos, and Defitelio for the treatment of various cancers and related conditions. The company has collaborations with several other pharmaceutical companies.
Zacks #1 (Strong Buy) ranked Jazz operates in the Medical – Drugs industry, which is in the top 41% of Zacks-classified industries.
Analysts expect the company to grow its revenue and earnings a respective 3.8% and 32.5% on average in 2023 and 7.4% and 11.4% in 2024. While estimates for the current year continue to trend up, 2024 estimates have seen some moderation in the last 30 days.
The company is expected to report on Aug 2, and its earnings Expected Surprise Prediction (ESP) of 0.45% seems to indicate a positive outcome. But we’ll know more next week.
Valuation is attractive. JAZZ shares 8.23X earnings, which trails the S&P 500’s multiple of 20.15X. Its price-to-earnings growth (PEG) ratio is 0.87 (a number below 1 shows that investors are undervaluing its earnings growth potential).
Oshkosh Corp. (OSK - Free Report)
Oshkosh, WI-based Oshkosh designs, manufactures and markets specialty trucks and access equipment. Its Access Equipment segment focuses on aerial work platforms, telehandlers, and towing and recovery equipment. The Defense segment produces tactical wheeled vehicles and snow removal vehicles for the military. The Fire & Emergency segment offers firefighting equipment and emergency response vehicles. The Commercial segment manufactures refuse collection vehicles, concrete mixers and field service vehicles.
Oshkosh carries a Zacks #1 rank, which together with its industry (Automotive - Original Equipment) position of top 48% is an encouraging indication of its prospects.
Analysts also seem to be highly optimistic about this company’s prospects. Although there’s some moderation in the last 30 days, at current levels, the estimates represent 5.1% revenue growth and 75.4% earnings growth in 2023 followed by 5.4% revenue growth and 25.5% earnings growth in 2024.
The company, which is expected to report on Aug 1, has an earnings ESP of 3.2%, which along with the #1 rank, is an indication of a positive surprise.
OSK’s shares trade at a 36.8% discount to its industry and a 36.1% discount to the S&P 500. Their PEG value of 0.42 is also encouraging.
StoneCo Ltd. (STNE - Free Report)
Based in George Town, the Cayman Islands, StoneCo is a financial technology company that offers software solutions to merchants and integrated partners for conducting electronic commerce in Brazil. Its services are distributed through proprietary Stone Hubs, providing hyper-local sales and services, and a sales team for brick-and-mortar and digital merchants. The company serves approximately 2.6 million clients, mainly small and medium-sized businesses, marketplaces, e-commerce platforms, and integrated software vendors.
The Zacks Rank #1 stock is part of the Internet – Software industry (top 25%).
StoneCo’s estimates haven’t moved much in the last 30 days. However, current levels indicate highly positive analyst expectations. In 2023, the company is expected to generate 4.4% revenue growth and 115.2% earnings growth. Revenue and earnings in the following year are expected to increase 7.8% and 18.3%, respectively.
Its ESP of 0.0% along with the Zacks Rank indicates an above average chance of beating estimates when it reports on Aug 16.
At 16.06X earnings, STNE shares trade at a 61.0% discount to the industry and a 20.3% discount to the S&P 500. Its PEG value of 0.34 is well below both Jazz and Oshkosh.
One-Month Price Performance
Image Source: Zacks Investment Research