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Fundamentals of U.S. Economy Remain Rock Solid: 5 Picks
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On Oct 6, the Department of Labor reported strong nonfarm payroll data for September, which eliminates the fear of a large section of market participants that the U.S. economy may succumb to a recession in the near future.
The economy added 336,000 jobs last month, well above the consensus estimate of 200,000, marking the highest monthly recruitment since January. Moreover, the combined job additions for August and July have been revised upward by 119,000 from the previous estimates.
The labor force participation rate remained steady at 62.8%, just 0.5% lower than the pre-pandemic period. Earlier this month, the Job Opening and Labor Turnover Survey of the Labor Department showed that job openings in August reached the highest level since May. Recently released weekly jobless data also revealed a resilient labor market.
Wall Street Rebounds
Just after the release of the September job data, U.S. stock markets took a sharp downturn owing to investors’ concerns that a resilient labor market will compel the Fed to opt for more hikes in interest rate, which will ultimately push the economy into a recession.
However, Wall Street took a dramatic upturn in the second half of trading. The Dow closed at 288 points higher after dropping 272 points at its intraday low. Both the S&P 500 and the Nasdaq Composite were down nearly 0.9% at their intraday lows.
However, the S&P gained 1.2% while the tech-heavy Nasdaq Composite advanced 1.6% to close the session. Buoyed by a broad-based rally, the broad-market index — the S&P 500 — finished above the crucial 4,300 level for the first time since Sep 25.
Reasons for a Significant Turnaround
The financial research circle is ripe with several reasons for this massive turnaround. Despite the strong jobs data, the unemployment rate stayed the same month over month at 3.8% in September, higher than the consensus estimate of 3.7%.
Furthermore, the increase in wage rate also remained flat month over month at 0.2% and missed the consensus estimate of 0.3%. Year over year, the wage rate increased 4.2% in September but missed the consensus estimate of 4.3%. A lower-than-expected wage rate will help inflation to cool more.
A section of market participants is hopeful that a low wage rate, a higher unemployment rate, softness in consumer spending and cautious business activities will cool down the U.S. economy enabling the Fed to relax an extremely tight monetary control seen over the past one and a half years.
Equities Have Corrected to a Good Extent
Another reason for this dramatic turnaround was that the U.S. stock markets were oversold. The three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — tumbled 3.5%, 4.9% and 5.8%, respectively, in September after sliding 2.4%, 1.8% and 2.2%, respectively, in August.
Stocks of several corporate giants with a well-established business model internationally, a robust financial position and globally acclaimed brand recognition are currently available at attractive valuations.
Our Top Picks
We have narrowed our search to five U.S. corporate behemoth (market capital > $50 billion) providing more than 40% returns year to date with more upside left. These stocks have seen positive earnings estimate revisions in the last 60 days. Each of our picks currently sports 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
NVIDIA Corp. (NVDA - Free Report) is gaining from the strong growth of artificial intelligence and high-performance computing and accelerated computing, which is boosting its Compute & Networking revenues. The datacenter end-market business is likely to benefit from the growing demand for generative AI and large language models using GPUs based on NVIDIA Hopper and Ampere architectures.
A surge in Hyperscale demand and a solid uptake of AI-based smart cockpit infotainment solutions are acting as tailwinds for NVDA. Collaboration with Mercedes-Benz and Audi is likely to advance NVDA’s presence in autonomous vehicles and other automotive electronics space.
NVIDIA has an expected revenue and earnings growth rate of more than 100% each for the current year (ending January 2024). The Zacks Consensus Estimate for current-year earnings has improved 2% over the last 30 days.
Amazon.com Inc. (AMZN - Free Report) has been benefiting from a strengthening AWS services portfolio and its growing adoption rate has contributed well. Ultrafast delivery services and an expanding content portfolio are positives for AMZN. The strengthening relationship with third-party sellers is also encouraging. Its advertising business is also making a robust contribution. Improving Alexa skills along with robust smart home product offerings are tailwinds for AMZN.
Amazon has an expected revenue and earnings growth rate of 11.1% and more than 100%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 43.9% over the last 60 days.
Uber Technologies Inc.’s (UBER - Free Report) Delivery business benefits from rising online order volumes. UBER’s efforts to expand its delivery operations through successive acquisitions are encouraging. Continued recovery in Mobility operations is aiding the company. UBER’s efforts to expand its presence across the globe are impressive.
Uber Technologies has an expected revenue and earnings growth rate of 17.4% and more than 100%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 2.4% over the last 30 days.
Synopsys Inc. (SNPS - Free Report) is benefiting from strong design wins owing to a robust product portfolio. Growth in the hybrid working trend is driving demand for bandwidth. Strong traction for SNPS’ Fusion Compiler product boosted the top line. Growing demand for advanced technology, design, IP and security solutions is also creating solid prospects for SNPS.
Synopsys has an expected revenue and earnings growth rate of 14.7% and 24.6%, respectively, for the current year (ending October 2023). The Zacks Consensus Estimate for current-year earnings has improved 2.75% over the last 60 days.
Applied Materials Inc. (AMAT - Free Report) is benefiting from strength in the Applied Global Services segment. The growing adoption of 200-mm systems and strengthening subscription business remain tailwinds. AMAT remains optimistic about its strategies and investments in IoT and AI. Additionally, AMAT’s strength in IoT, Communications, Auto, Power and Sensors is likely to continue aiding its position in the semiconductor industry in the days ahead.
Applied Materials has an expected revenue and earnings growth rate of 2.1% and 2.6%, respectively, for the current year (ending October 2023). The Zacks Consensus Estimate for current-year earnings has improved 12.7% over the last 60 days.
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Fundamentals of U.S. Economy Remain Rock Solid: 5 Picks
On Oct 6, the Department of Labor reported strong nonfarm payroll data for September, which eliminates the fear of a large section of market participants that the U.S. economy may succumb to a recession in the near future.
The economy added 336,000 jobs last month, well above the consensus estimate of 200,000, marking the highest monthly recruitment since January. Moreover, the combined job additions for August and July have been revised upward by 119,000 from the previous estimates.
The labor force participation rate remained steady at 62.8%, just 0.5% lower than the pre-pandemic period. Earlier this month, the Job Opening and Labor Turnover Survey of the Labor Department showed that job openings in August reached the highest level since May. Recently released weekly jobless data also revealed a resilient labor market.
Wall Street Rebounds
Just after the release of the September job data, U.S. stock markets took a sharp downturn owing to investors’ concerns that a resilient labor market will compel the Fed to opt for more hikes in interest rate, which will ultimately push the economy into a recession.
However, Wall Street took a dramatic upturn in the second half of trading. The Dow closed at 288 points higher after dropping 272 points at its intraday low. Both the S&P 500 and the Nasdaq Composite were down nearly 0.9% at their intraday lows.
However, the S&P gained 1.2% while the tech-heavy Nasdaq Composite advanced 1.6% to close the session. Buoyed by a broad-based rally, the broad-market index — the S&P 500 — finished above the crucial 4,300 level for the first time since Sep 25.
Reasons for a Significant Turnaround
The financial research circle is ripe with several reasons for this massive turnaround. Despite the strong jobs data, the unemployment rate stayed the same month over month at 3.8% in September, higher than the consensus estimate of 3.7%.
Furthermore, the increase in wage rate also remained flat month over month at 0.2% and missed the consensus estimate of 0.3%. Year over year, the wage rate increased 4.2% in September but missed the consensus estimate of 4.3%. A lower-than-expected wage rate will help inflation to cool more.
A section of market participants is hopeful that a low wage rate, a higher unemployment rate, softness in consumer spending and cautious business activities will cool down the U.S. economy enabling the Fed to relax an extremely tight monetary control seen over the past one and a half years.
Equities Have Corrected to a Good Extent
Another reason for this dramatic turnaround was that the U.S. stock markets were oversold. The three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — tumbled 3.5%, 4.9% and 5.8%, respectively, in September after sliding 2.4%, 1.8% and 2.2%, respectively, in August.
Stocks of several corporate giants with a well-established business model internationally, a robust financial position and globally acclaimed brand recognition are currently available at attractive valuations.
Our Top Picks
We have narrowed our search to five U.S. corporate behemoth (market capital > $50 billion) providing more than 40% returns year to date with more upside left. These stocks have seen positive earnings estimate revisions in the last 60 days. Each of our picks currently sports 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
NVIDIA Corp. (NVDA - Free Report) is gaining from the strong growth of artificial intelligence and high-performance computing and accelerated computing, which is boosting its Compute & Networking revenues. The datacenter end-market business is likely to benefit from the growing demand for generative AI and large language models using GPUs based on NVIDIA Hopper and Ampere architectures.
A surge in Hyperscale demand and a solid uptake of AI-based smart cockpit infotainment solutions are acting as tailwinds for NVDA. Collaboration with Mercedes-Benz and Audi is likely to advance NVDA’s presence in autonomous vehicles and other automotive electronics space.
NVIDIA has an expected revenue and earnings growth rate of more than 100% each for the current year (ending January 2024). The Zacks Consensus Estimate for current-year earnings has improved 2% over the last 30 days.
Amazon.com Inc. (AMZN - Free Report) has been benefiting from a strengthening AWS services portfolio and its growing adoption rate has contributed well. Ultrafast delivery services and an expanding content portfolio are positives for AMZN. The strengthening relationship with third-party sellers is also encouraging. Its advertising business is also making a robust contribution. Improving Alexa skills along with robust smart home product offerings are tailwinds for AMZN.
Amazon has an expected revenue and earnings growth rate of 11.1% and more than 100%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 43.9% over the last 60 days.
Uber Technologies Inc.’s (UBER - Free Report) Delivery business benefits from rising online order volumes. UBER’s efforts to expand its delivery operations through successive acquisitions are encouraging. Continued recovery in Mobility operations is aiding the company. UBER’s efforts to expand its presence across the globe are impressive.
Uber Technologies has an expected revenue and earnings growth rate of 17.4% and more than 100%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 2.4% over the last 30 days.
Synopsys Inc. (SNPS - Free Report) is benefiting from strong design wins owing to a robust product portfolio. Growth in the hybrid working trend is driving demand for bandwidth. Strong traction for SNPS’ Fusion Compiler product boosted the top line. Growing demand for advanced technology, design, IP and security solutions is also creating solid prospects for SNPS.
Synopsys has an expected revenue and earnings growth rate of 14.7% and 24.6%, respectively, for the current year (ending October 2023). The Zacks Consensus Estimate for current-year earnings has improved 2.75% over the last 60 days.
Applied Materials Inc. (AMAT - Free Report) is benefiting from strength in the Applied Global Services segment. The growing adoption of 200-mm systems and strengthening subscription business remain tailwinds. AMAT remains optimistic about its strategies and investments in IoT and AI. Additionally, AMAT’s strength in IoT, Communications, Auto, Power and Sensors is likely to continue aiding its position in the semiconductor industry in the days ahead.
Applied Materials has an expected revenue and earnings growth rate of 2.1% and 2.6%, respectively, for the current year (ending October 2023). The Zacks Consensus Estimate for current-year earnings has improved 12.7% over the last 60 days.