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A Golden Opportunity to Enter U.S. Stock Markets: 5 Top Picks
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The 15-month bull run of U.S. stock markets suffered a surprise setback in April. The Dow plunged 5%, marking its worst monthly performance since September 2022. The S&P 500 slid 4.2% and the Nasdaq Composite tumbled 4.4%. All three major stock indexes terminated a five-month winning streak. April is historically known as being favorable to Wall Street investors.
We believe, April’s meltdown is nothing but a bull market correction and this time a welcome one. After a disappointing month, May opens a golden opportunity to enter the equity market for those investors suffering from the FOMO (fear of missing out) syndrome. Finally, recently released economic data boosted market participants’ confidence in equities.
Resilient Labor Market Shows Signs of Softness
The Department of Labor reported that the U.S. economy added 175,000 jobs in April, missing the consensus estimate of 200,000. Job additions in March were revised upward by 12,000 while those of February were revised downward by 34,000.
The unemployment rate increased to 3.9% in April, compared with the consensus estimate and March’s data of 3.8%. April marked the highest level since January 2022. Moreover, real unemployment rate (including discouraged workers and those holding part-time jobs for economic reasons) edged up to 7.4%, its highest level since November 2021. The labor force participation rate was unchanged at 62.7% in April.
Month over month, the average hourly earnings rate dropped to 0.2% in April, compared with the consensus estimate and March’s data of 0.3%. Year over year, the wage rate increased 3.9% in April, below the consensus estimate of 4%. The average workweek decreased to 34.3.
U.S. Economy is Cooling
The Department of Commerce reported that U.S. GDP grew at a 1.6% annualized rate in first-quarter 2024, well below the consensus estimate of 2.5%. Moreover, the Institute of Supply Management (ISM) reported that both manufacturing and services PMIs (purchasing managers’ index) contracted in April.
The manufacturing PMI for April came in at 49.2% and that of services PMI was 49.4%. Any reading below 50% indicates contraction in activities. The manufacturing PMI expanded in March after 16 consecutive months of contraction. It again contracted in April. The services PMI contracted in April after 15 successive months of expansion.
Expectations of Interest Rate Cut Rise
Following the release of the April’s nonfarm payrolls, the CME FedWatch shows a 67.4% probability that the central bank will cut the benchmark lending rate by 25 basis points in the September FOMC meeting. The interest rate futures tool also shows a massive 91.5% probability that the Fed will cut rate by 50 basis points. Notably, the Fed fund rate currently stays within the range of 5.25-5.5% since July 2023.
On May 1, Fed Chairman Jerome Powell categorically denied the resumption of the interest rate hike regime in his post-FOMC meeting statement. Moreover, the FOMC voted to ease the pace at which it is reducing bond holdings on the central bank’s gigantic balance sheet. The Fed started this program in June 2022, which was known as “quantitative tightening.” Its latest decision could be viewed as an incremental loosening of monetary policy.
A Goldilocks Environment?
A Goldilocks scenario is characterized as continuous economic growth but not as much a rapid pace to inflate the aggregate price level to such an extent that the central bank is compelled to tighten monetary policies.
The U.S. economy has cooled but is growing at a pace similar to that of the pre-pandemic level. The labor market shown the signs of crack but not at an alarming pace. The peak inflation rate is far behind us. Finally, there are no signs of any near-term recession. Consequently, this is a golden opportunity to enter U.S. stock markets.
Our Top Picks
We have narrowed our search to five U.S. corporate behemoths (market capital > $100 billion) that have strong growth potential for 2024. These stocks have seen positive earnings estimate revisions in the last 30 days.
The chart below shows the price performance of our five picks in the past three months.
Image Source: Zacks Investment Research
Alphabet Inc.’s (GOOGL - Free Report) first-quarter results were driven by solid momentum in the cloud business. Further, improving Search performance on the back of major Search updates, was a positive. Also, the strength in YouTube favored the stock. Notably, a robust cloud division remains the key catalyst for GOOGL.
Expanding data centers will continue to bolster GOOGL’s presence in the cloud space. Strengthening generative AI capabilities should aid business growth in the long term. GOOGL’s deepening focus on the wearables category remains a tailwind. Expanding presence in the autonomous driving space is a plus.
Zacks Rank #1 Alphabet has an expected revenue and earnings growth rate of 15.1% and 30.5%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 11.5% over the last seven days. The average price target represents an increase of 12.6% from the last closing price of $167.24.
Netflix Inc. (NFLX - Free Report) added 9.33 million paid subscribers globally in first-quarter 2024, with a rise of 1% in average revenue per subscription. NFLX attributed the robust top-line growth to its paid subscription-sharing offering (part of its password-sharing crackdown), recent price changes and the strength of its business in general.
NFLX is expected to continue dominating the streaming space, courtesy of its diversified content portfolio, which is attributable to heavy investments in the production and distribution of localized and foreign-language content.
Zacks Rank #1 Netflix has an expected revenue and earnings growth rate of 14.7% and 52.1%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.9% over the last seven days. The average price target represents an increase of 13.6% from the last closing price of $579.34.
Amazon.com Inc. (AMZN - Free Report) is gaining on solid Prime momentum owing to ultrafast delivery services and a strong content portfolio. Strengthening relationship with third-party sellers is a positive. Additionally, the strong adoption rate of AWS is aiding AMZN’s cloud dominance. An expanding AWS services portfolio is continuously helping AMZN in gaining momentum among customers.
AMZN’s strong global presence and solid momentum among the small and medium businesses remain tailwinds. Growing capabilities in grocery, pharmacy, healthcare and autonomous driving are the other positives. Deepening focus on generative AI is a major plus.
Zacks Rank #2 Amazon.com has an expected revenue and earnings growth rate of 11% and 56.6%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 10.7% over the last seven days. The average price target represents an increase of 16% from the last closing price of $186.21.
ServiceNow Inc. (NOW - Free Report) has been benefiting from the rising adoption of its workflows by enterprises undergoing digital transformation. NOW had 1933 total customers with more than $1 million in annual contract value at the end of the first quarter. NOW had eight deals greater than $5 million in net new ACV, and four deals of more than $10 million.
NOW closed 59 deals greater than $1 million net new ACV. The number of customers contributing more than $20 million or more grew 50% year over year. Generative AI deals continued to gain traction with record-breaking net new ACV for Pro Plus, making it the fastest-selling product in NOW’s history.
Zacks Rank #2 ServiceNow has an expected revenue and earnings growth rate of 21.3% and 25.4%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.9% over the last 30 days. The average price target represents an increase of 19% from the last closing price of $716.65.
Boston Scientific Corp. (BSX - Free Report) is seeing strength across target markets despite macroeconomic concerns, currency headwinds and related cost inflation. Strong worldwide demand for BSX’s GI and pulmonary treatment options, traction in Europe for its next generation WATCHMAN FLX, as well as contribution from accretive acquisitions are important drivers.
The Pain and Brain franchisees of BSX are expected to gain solid traction in 2024 banking on the strong execution of core growth strategies. The EP arm received a strong boost on the FDA approval for FARAPULSE.
Zacks Rank #2 Boston Scientific has an expected revenue and earnings growth rate of 12.3% and 13.2%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 3.1% over the last 30 days. The average price target represents an increase of 12.2% from the last closing price of $72.85.
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A Golden Opportunity to Enter U.S. Stock Markets: 5 Top Picks
The 15-month bull run of U.S. stock markets suffered a surprise setback in April. The Dow plunged 5%, marking its worst monthly performance since September 2022. The S&P 500 slid 4.2% and the Nasdaq Composite tumbled 4.4%. All three major stock indexes terminated a five-month winning streak. April is historically known as being favorable to Wall Street investors.
We believe, April’s meltdown is nothing but a bull market correction and this time a welcome one. After a disappointing month, May opens a golden opportunity to enter the equity market for those investors suffering from the FOMO (fear of missing out) syndrome. Finally, recently released economic data boosted market participants’ confidence in equities.
Resilient Labor Market Shows Signs of Softness
The Department of Labor reported that the U.S. economy added 175,000 jobs in April, missing the consensus estimate of 200,000. Job additions in March were revised upward by 12,000 while those of February were revised downward by 34,000.
The unemployment rate increased to 3.9% in April, compared with the consensus estimate and March’s data of 3.8%. April marked the highest level since January 2022. Moreover, real unemployment rate (including discouraged workers and those holding part-time jobs for economic reasons) edged up to 7.4%, its highest level since November 2021. The labor force participation rate was unchanged at 62.7% in April.
Month over month, the average hourly earnings rate dropped to 0.2% in April, compared with the consensus estimate and March’s data of 0.3%. Year over year, the wage rate increased 3.9% in April, below the consensus estimate of 4%. The average workweek decreased to 34.3.
U.S. Economy is Cooling
The Department of Commerce reported that U.S. GDP grew at a 1.6% annualized rate in first-quarter 2024, well below the consensus estimate of 2.5%. Moreover, the Institute of Supply Management (ISM) reported that both manufacturing and services PMIs (purchasing managers’ index) contracted in April.
The manufacturing PMI for April came in at 49.2% and that of services PMI was 49.4%. Any reading below 50% indicates contraction in activities. The manufacturing PMI expanded in March after 16 consecutive months of contraction. It again contracted in April. The services PMI contracted in April after 15 successive months of expansion.
Expectations of Interest Rate Cut Rise
Following the release of the April’s nonfarm payrolls, the CME FedWatch shows a 67.4% probability that the central bank will cut the benchmark lending rate by 25 basis points in the September FOMC meeting. The interest rate futures tool also shows a massive 91.5% probability that the Fed will cut rate by 50 basis points. Notably, the Fed fund rate currently stays within the range of 5.25-5.5% since July 2023.
On May 1, Fed Chairman Jerome Powell categorically denied the resumption of the interest rate hike regime in his post-FOMC meeting statement. Moreover, the FOMC voted to ease the pace at which it is reducing bond holdings on the central bank’s gigantic balance sheet. The Fed started this program in June 2022, which was known as “quantitative tightening.” Its latest decision could be viewed as an incremental loosening of monetary policy.
A Goldilocks Environment?
A Goldilocks scenario is characterized as continuous economic growth but not as much a rapid pace to inflate the aggregate price level to such an extent that the central bank is compelled to tighten monetary policies.
The U.S. economy has cooled but is growing at a pace similar to that of the pre-pandemic level. The labor market shown the signs of crack but not at an alarming pace. The peak inflation rate is far behind us. Finally, there are no signs of any near-term recession. Consequently, this is a golden opportunity to enter U.S. stock markets.
Our Top Picks
We have narrowed our search to five U.S. corporate behemoths (market capital > $100 billion) that have strong growth potential for 2024. These stocks have seen positive earnings estimate revisions in the last 30 days.
Further, stock prices of these companies have double-digit upside potential in the near-term. Finally, each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The chart below shows the price performance of our five picks in the past three months.
Image Source: Zacks Investment Research
Alphabet Inc.’s (GOOGL - Free Report) first-quarter results were driven by solid momentum in the cloud business. Further, improving Search performance on the back of major Search updates, was a positive. Also, the strength in YouTube favored the stock. Notably, a robust cloud division remains the key catalyst for GOOGL.
Expanding data centers will continue to bolster GOOGL’s presence in the cloud space. Strengthening generative AI capabilities should aid business growth in the long term. GOOGL’s deepening focus on the wearables category remains a tailwind. Expanding presence in the autonomous driving space is a plus.
Zacks Rank #1 Alphabet has an expected revenue and earnings growth rate of 15.1% and 30.5%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 11.5% over the last seven days. The average price target represents an increase of 12.6% from the last closing price of $167.24.
Netflix Inc. (NFLX - Free Report) added 9.33 million paid subscribers globally in first-quarter 2024, with a rise of 1% in average revenue per subscription. NFLX attributed the robust top-line growth to its paid subscription-sharing offering (part of its password-sharing crackdown), recent price changes and the strength of its business in general.
NFLX is expected to continue dominating the streaming space, courtesy of its diversified content portfolio, which is attributable to heavy investments in the production and distribution of localized and foreign-language content.
Zacks Rank #1 Netflix has an expected revenue and earnings growth rate of 14.7% and 52.1%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.9% over the last seven days. The average price target represents an increase of 13.6% from the last closing price of $579.34.
Amazon.com Inc. (AMZN - Free Report) is gaining on solid Prime momentum owing to ultrafast delivery services and a strong content portfolio. Strengthening relationship with third-party sellers is a positive. Additionally, the strong adoption rate of AWS is aiding AMZN’s cloud dominance. An expanding AWS services portfolio is continuously helping AMZN in gaining momentum among customers.
AMZN’s strong global presence and solid momentum among the small and medium businesses remain tailwinds. Growing capabilities in grocery, pharmacy, healthcare and autonomous driving are the other positives. Deepening focus on generative AI is a major plus.
Zacks Rank #2 Amazon.com has an expected revenue and earnings growth rate of 11% and 56.6%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 10.7% over the last seven days. The average price target represents an increase of 16% from the last closing price of $186.21.
ServiceNow Inc. (NOW - Free Report) has been benefiting from the rising adoption of its workflows by enterprises undergoing digital transformation. NOW had 1933 total customers with more than $1 million in annual contract value at the end of the first quarter. NOW had eight deals greater than $5 million in net new ACV, and four deals of more than $10 million.
NOW closed 59 deals greater than $1 million net new ACV. The number of customers contributing more than $20 million or more grew 50% year over year. Generative AI deals continued to gain traction with record-breaking net new ACV for Pro Plus, making it the fastest-selling product in NOW’s history.
Zacks Rank #2 ServiceNow has an expected revenue and earnings growth rate of 21.3% and 25.4%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.9% over the last 30 days. The average price target represents an increase of 19% from the last closing price of $716.65.
Boston Scientific Corp. (BSX - Free Report) is seeing strength across target markets despite macroeconomic concerns, currency headwinds and related cost inflation. Strong worldwide demand for BSX’s GI and pulmonary treatment options, traction in Europe for its next generation WATCHMAN FLX, as well as contribution from accretive acquisitions are important drivers.
The Pain and Brain franchisees of BSX are expected to gain solid traction in 2024 banking on the strong execution of core growth strategies. The EP arm received a strong boost on the FDA approval for FARAPULSE.
Zacks Rank #2 Boston Scientific has an expected revenue and earnings growth rate of 12.3% and 13.2%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 3.1% over the last 30 days. The average price target represents an increase of 12.2% from the last closing price of $72.85.