Growth increased at a faster than expected pace in the third quarter, confirming expectations of a pickup in the U.S. economy. Strength in consumption expenditure and higher business investment powered this unexpectedly high increase in GDP. A rise in spending on nonresidential construction and soybean exports were other major factors responsible for the increase.
Further, there is evidence to suggest that growth will retain its momentum into the fourth quarter. Stocks related to the consumer discretionary and nonresidential fixed construction sectors make for good investment options at this point.
Strongest Showing in Two Years
According to the Commerce Department’s second estimate, GDP increased by 3.2% in the third quarter. This is a considerable improvement over the advance estimate of 2.9% and higher than the expected pace of 3%. In the second quarter, GDP increased by 1.4%. Currently, third quarter GDP is expected to have increased at the fastest pace since the third quarter of 2014.
Additionally, this was the strongest year-over-year increase experienced since 2012’s fourth quarter. Gross domestic income increased by 5.2%, lifted by an increase in household incomes and a rebound in corporate profits. GDI has increased at its sharpest pace since 2014’s second quarter.
Consumption, Non-Residential Structural Spending Rise
Consumer expenditure, the powerhouse of GDP growth, increased by 2.8% during the third quarter. This was significantly higher than the pace of 2.1% estimated earlier. However, analysts were quick to point out that it is still lower than the pace of 4.3% experienced during the second quarter.
Additionally, investments on nonresidential construction surged, increasing by 10.1%. This is the sharpest pace witnessed since 2014’s first quarter. According to the advance estimate, the metric had increased by 5.4%. Another highlight of the report was an increase in corporate profits which advanced by 7.6%. This is markedly better than the 1.9% decline witnessed in the second quarter.
An unexpected increase comes at an opportune time since the economy’s pace is widely expected to pick up toward the end of the year. This report lends further weight to the argument that the economy has improved significantly.
Picking consumer discretionary and nonresidential construction stocks make for a smart move now, considering that these sectors have been some of the standout features of this report. However, picking winning stocks may prove to be difficult.
This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score.
We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM score.
Willdan Group, Inc. (WLDN - Free Report) is a provider of professional technical and consulting services to utilities, private industry, and public agencies at all levels of government.
Willdan Group has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. The company has expected earnings growth of 82.7% for the current year. Its earnings estimate for the current year has improved by 11.8% over the last 30 days.
Gibraltar Industries, Inc. (ROCK - Free Report) is a leading manufacturer and distributor of building products across Europe, Asia and North America
Gibraltar Industries has a Zacks Rank #1 and a VGM Score of B. The company has expected earnings growth of 45% for the current year. Its earnings estimate for the current year has improved by 0.3% over the last 30 days.
Monarch Casino & Resort, Inc. (MCRI - Free Report) is the owner and operator of the Monarch Casino Black Hawk in Black Hawk, Colorado and the Atlantis Casino Resort in Reno, Nevada.
Monarch Casino & Resort has a VGM Score of B. The company has expected earnings growth of 14.3% for the current year. The forward price-to-earnings (P/E) ratio for the current financial year (F1) is 19.05, lower than the industry average of 21.39. The stock has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
MasTec, Inc. (MTZ - Free Report) is a leading infrastructure construction company operating throughout the U.S.
MasTec has a Zacks Rank #2 (Buy) and a VGM Score of A. The company has expected earnings growth of more than 100% for the current year. Its earnings estimate for the current year has improved by 8.9% over the last 30 days.
Weight Watchers International, Inc. (WTW - Free Report) is the largest provider of weight control programs in the world.
Weight Watchers International has a Zacks Rank #2 and a VGM Score of A. The company has expected earnings growth of 41.8% for the current year. Its earnings estimate for the current year has improved by 2.2% over the last 30 days.
The Container Store Group, Inc. (TCS - Free Report) operates as a specialty retailer of storage and organization products in the U.S.
Container Store Group has a Zacks Rank #2 and a VGM Score of A. The company has expected earnings growth of more than 100% for the current year. Its earnings estimate for the current year has improved by 20% over the last 30 days.
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