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5 Must-Buy Stocks as Fed Sets the Stage for a Year-End Rally
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In its November FOMC meeting, the Fed kept the benchmark lending interest rate unchanged in the range of 5.25-5.5%. Although the range is the highest since 2001, the FOMC refrained from hiking interest rate in two consecutive meetings of September and November. The FOMC also upgraded its overall assessment of the economy.
In his post-FOMC statement, Fed Chairman Jerome Powell said “economic activity expanded at a strong pace in the third quarter,” compared with the September statement that said the economy had expanded at a “solid pace.” According to Powell, “employment gains have moderated since earlier in the year but remain strong.”
Powell, however, said that there is still a long way for the central bank to reach the 2% target inflation rate. He acknowledged that a higher interest rate regime is getting the desired results. The Fed remains open for another round of 25 basis points of interest rate hike in December depending on economic data. However, CME FedWatch has currently assigned a mere 5% chance of another round of rate hike.
The Department of Labor reported that the U.S. economy added 150,000 jobs in October, missing the consensus estimate of 173,000. The metric for September was also revised downward to 297,000 from 336,000 reported earlier.
The unemployment rate rose to 3.9% in October, the highest since January 2022. The consensus estimates and the previous month’s data was 3.8%. The average wage rate rose 0.2% month over month in October, lagging the consensus estimate of 0.3%. Year over year, the wage rate increased 4.1% in October.
The ISM manufacturing index for October came in at 46.7% compared with the consensus estimate of 49.3% and September’s data of 49%. Any reading below 50% means a contraction in manufacturing activities and October marked the 1th consecutive months of contraction. The ISM services index for October came in at 51.8% compared with the consensus estimate of 53% and September’s data of 53.6%.
The unit labor cost decreased 0.8% in Q3 2023 compared with the consensus estimate of an increase of 0.7%. The metric for Q2 2023 was revised upward to 3.2% from 2.2% reported earlier. As several key economic data are gradually cooling, a large section of market researchers and economists expect the Fed to be already through with this round of the interest rate hike cycle. This will pave the way for a year-end rally.
Our Top Picks
We have narrowed our search to five U.S. corporate behemoth (market capital > $50 billion) that have strong growth potential for the rest of 2023. These stocks have seen positive earnings estimates revisions in the last 60 days. Each of our picks 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, 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 the 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 2.7% over the last 60 days.
JPMorgan Chase & Co.'s (JPM - Free Report) second-quarter 2023 results show the impacts of the First Republic Bank buyout, higher rates and a worsening economic outlook. High rates, global expansion efforts and decent loan demand should support the net interest income (NII) of JPM. Our estimates for NII (managed) indicate a CAGR of 5.8% by 2025. With green shoots visible in the investment banking (IB) business, IB fees are likely to see a turnaround soon.
JPMorgan Chase has an expected revenue and earnings growth rate of 22.6% and 37.6%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.8% over the last seven 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 12% and 12.9%, respectively, for the current year (ending October 2024). The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last 30 days.
Emerson Electric Co. (EMR - Free Report) has been benefiting from healthy demand across end markets. Strong demand across the process and hybrid markets are driving EMR’s underlying sales. The successive deals to acquire Afag and Flexim spark optimism. Emerson Electric’s $8.2 billion deal to acquire National Instruments holds promise. EMR’s bullish guidance for fiscal 2023 is encouraging.
Emerson Electric has an expected revenue and earnings growth rate of 7.7% and 11.9%, respectively, for the current year (ending September 2024). The Zacks Consensus Estimate for current-year earnings has improved 1.4% over the last 30 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 10.8% over the last 60 days.
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5 Must-Buy Stocks as Fed Sets the Stage for a Year-End Rally
In its November FOMC meeting, the Fed kept the benchmark lending interest rate unchanged in the range of 5.25-5.5%. Although the range is the highest since 2001, the FOMC refrained from hiking interest rate in two consecutive meetings of September and November. The FOMC also upgraded its overall assessment of the economy.
In his post-FOMC statement, Fed Chairman Jerome Powell said “economic activity expanded at a strong pace in the third quarter,” compared with the September statement that said the economy had expanded at a “solid pace.” According to Powell, “employment gains have moderated since earlier in the year but remain strong.”
Powell, however, said that there is still a long way for the central bank to reach the 2% target inflation rate. He acknowledged that a higher interest rate regime is getting the desired results. The Fed remains open for another round of 25 basis points of interest rate hike in December depending on economic data. However, CME FedWatch has currently assigned a mere 5% chance of another round of rate hike.
The Department of Labor reported that the U.S. economy added 150,000 jobs in October, missing the consensus estimate of 173,000. The metric for September was also revised downward to 297,000 from 336,000 reported earlier.
The unemployment rate rose to 3.9% in October, the highest since January 2022. The consensus estimates and the previous month’s data was 3.8%. The average wage rate rose 0.2% month over month in October, lagging the consensus estimate of 0.3%. Year over year, the wage rate increased 4.1% in October.
The ISM manufacturing index for October came in at 46.7% compared with the consensus estimate of 49.3% and September’s data of 49%. Any reading below 50% means a contraction in manufacturing activities and October marked the 1th consecutive months of contraction. The ISM services index for October came in at 51.8% compared with the consensus estimate of 53% and September’s data of 53.6%.
The unit labor cost decreased 0.8% in Q3 2023 compared with the consensus estimate of an increase of 0.7%. The metric for Q2 2023 was revised upward to 3.2% from 2.2% reported earlier. As several key economic data are gradually cooling, a large section of market researchers and economists expect the Fed to be already through with this round of the interest rate hike cycle. This will pave the way for a year-end rally.
Our Top Picks
We have narrowed our search to five U.S. corporate behemoth (market capital > $50 billion) that have strong growth potential for the rest of 2023. These stocks have seen positive earnings estimates revisions in the last 60 days. Each of our picks 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, 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 the 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 2.7% over the last 60 days.
JPMorgan Chase & Co.'s (JPM - Free Report) second-quarter 2023 results show the impacts of the First Republic Bank buyout, higher rates and a worsening economic outlook. High rates, global expansion efforts and decent loan demand should support the net interest income (NII) of JPM. Our estimates for NII (managed) indicate a CAGR of 5.8% by 2025. With green shoots visible in the investment banking (IB) business, IB fees are likely to see a turnaround soon.
JPMorgan Chase has an expected revenue and earnings growth rate of 22.6% and 37.6%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.8% over the last seven 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 12% and 12.9%, respectively, for the current year (ending October 2024). The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last 30 days.
Emerson Electric Co. (EMR - Free Report) has been benefiting from healthy demand across end markets. Strong demand across the process and hybrid markets are driving EMR’s underlying sales. The successive deals to acquire Afag and Flexim spark optimism. Emerson Electric’s $8.2 billion deal to acquire National Instruments holds promise. EMR’s bullish guidance for fiscal 2023 is encouraging.
Emerson Electric has an expected revenue and earnings growth rate of 7.7% and 11.9%, respectively, for the current year (ending September 2024). The Zacks Consensus Estimate for current-year earnings has improved 1.4% over the last 30 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 10.8% over the last 60 days.