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5 Top-Ranked Value Stocks to Brave Decline in U.S. GDP
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On Apr 28, the Bureau of Economic Analysis released the first advanced estimate of the first-quarter 2018 U.S. GDP growth rate. While the U.S. economy fared better than the first-quarter consensus, the growth rate was significantly lower than the last nine months of 2017. Lackluster consumer spending, which constitutes nearly 70% of the U.S, GDP, was the primary reason for slowdown in first-quarter 2018 GDP.
Considering recent history, U.S. GDP growth rate remains weakest in the first quarter of any year. Despite weak GDP growth, personal disposable income and private domestic investment have increased significantly in the first quarter. Moreover, full effect of massive reduction on both personal and corporate tax rate are yet to be derived as people received those benefits only in January.
The above mentioned positives are likely to push the U.S. economy on a strong growth trajectory in the second quarter and there on. At this stage, investing in good value stocks with favorable Zacks Ranks is a lucrative option.
First-Quarter GDP Declines
Per the Bureau of Economic Analysis, the U.S. GDP expanded at 2.3% in first-quarter 2018, better-than the consensus estimate of 2%. However, this rate of growth is significantly lower than the average GDP growth rate of 2.9% in the last three quarters of 2017 and well below President Trump’s targeted GDP growth rate of 3%.
Personal consumer spending grew at 1.1% in first-quarter 2018. This was the slowest pace of growth experienced in nearly five years and significantly below the fourth-quarter 2017 pace of 4%.
Moreover, business spending on equipment slowed to 4.7% following double-digit growth in the second half of 2017. Further, investments in homebuilding have declined in the first quarter after rebounding in the fourth quarter of 2017. Government spending has also dipped after witnessing growth in the last two straight quarters.
Economy Likely to Bounce Back in Q2
The first quarter GDP estimate generally remains weak due to seasonality. First-quarter U.S. GDP tends to be soft because of a seasonal quirk. Consequently, the BEA’s tepid first-quarter growth outlook may not be a true reflection of the U.S. economy.
The full benefit of massive personal and corporate tax cut is yet to be realized. The $1.5 trillion tax cut measures is yet to be reflected as it has implemented only in January 2018.
Moreover, U.S. private-sector workers experienced their highest increase in income in 11 years during the first three months of 2018. The latest Labor Department data revealed that employment cost index for wages and salaries in the private sector rose 1% in the first quarter compared with the previous quarter. Notably, this was the biggest gain since the first quarter of 2007.
Meanwhile, disposable personal income has increased 6.2% in the first quarter compared with 3.8% in the previous quarter. More wealth, in the hands of consumers will likely bolster personal spending going forward.
Our Top Picks
The fundamentals of the U.S. economy remain strong despite a slowdown in the GDP growth rate. A healthy labor market, strong hike in wages and salaries, increase in personal disposable income and proposed fiscal stimulus by the government will bolster consumer’s income and spending in the rest of the year.
At this juncture, it will be a prudent decision to buy value stocks on the dip that could prove to be valuable finds once the rally resumes. Our selection is also backed by a good Zacks Value Score and a Zacks Rank #1 (Strong Buy). You can seethe complete list of today's Zacks #1 Rank stocks here.
Our research shows that stocks with a Value Style Score of A or B when combined with a Zacks Rank #1 or 2 (Buy) offer the best opportunities in the value-investing space. We have handpicked five stocks with a Zacks Rank #1 and a Value Score of A.
Chart below shows price performance of our five picks year to date.
Lam Research Corp. (LRCX - Free Report) enables its customers to shape the future of technology by providing market-leading equipment and services for semiconductor wafer processing.
Lam Research's forward price-to-earnings ratio (P/E) for the current financial year (F1) is 10.67x, lower than the industry average of 12.74x. It has a PEG ratio of 0.60, lower than the industry average of 0.86.
Western Digital Corp. (WDC - Free Report) provides a full portfolio of compelling, high-quality storage solutions with customer-focused innovation, high efficiency, flexibility and speed.
Western Digital’s forward price-to-earnings ratio (P/E) for the current financial year (F1) is 6.34x, lower than the industry average of 13.07x. It has a PEG ratio of 0.33, lower than the industry average of 0.93.
United States Steel Corp. (X - Free Report) is an integrated steel producer with major production operations in the United States and Central Europe.
United States Steel’s forward price-to-earnings ratio (P/E) for the current financial year (F1) is 6.12x, lower than the industry average of 10.49x. It has a PEG ratio of 0.77, lower than the industry average of 0.88.
Seagate Technology plc (STX - Free Report) offers a portfolio of hard disc drives, solid state drives and solid state hybrid drives. It offers a range of disk drive products for the enterprise, client compute and client non-compute market applications.
Seagate’s forward price-to-earnings ratio (P/E) for the current financial year (F1) is 11.93x, lower than the industry average of 13.07x. It has a PEG ratio of 0.76, lower than the industry average of 0.93.
HB Home (KBH - Free Report) constructs and sells a variety of new homes designed primarily for first-time, move-up and active adult homebuyers, including attached and detached single-family residential homes, townhomes and condominiums.
KB Home’s forward price-to-earnings ratio (P/E) for the current financial year (F1) is 9.55x, lower than the industry average of 9.75x. It has a PEG ratio of 0.60, lower than the industry average of 0.75.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
5 Top-Ranked Value Stocks to Brave Decline in U.S. GDP
On Apr 28, the Bureau of Economic Analysis released the first advanced estimate of the first-quarter 2018 U.S. GDP growth rate. While the U.S. economy fared better than the first-quarter consensus, the growth rate was significantly lower than the last nine months of 2017. Lackluster consumer spending, which constitutes nearly 70% of the U.S, GDP, was the primary reason for slowdown in first-quarter 2018 GDP.
Considering recent history, U.S. GDP growth rate remains weakest in the first quarter of any year. Despite weak GDP growth, personal disposable income and private domestic investment have increased significantly in the first quarter. Moreover, full effect of massive reduction on both personal and corporate tax rate are yet to be derived as people received those benefits only in January.
The above mentioned positives are likely to push the U.S. economy on a strong growth trajectory in the second quarter and there on. At this stage, investing in good value stocks with favorable Zacks Ranks is a lucrative option.
First-Quarter GDP Declines
Per the Bureau of Economic Analysis, the U.S. GDP expanded at 2.3% in first-quarter 2018, better-than the consensus estimate of 2%. However, this rate of growth is significantly lower than the average GDP growth rate of 2.9% in the last three quarters of 2017 and well below President Trump’s targeted GDP growth rate of 3%.
Personal consumer spending grew at 1.1% in first-quarter 2018. This was the slowest pace of growth experienced in nearly five years and significantly below the fourth-quarter 2017 pace of 4%.
Moreover, business spending on equipment slowed to 4.7% following double-digit growth in the second half of 2017. Further, investments in homebuilding have declined in the first quarter after rebounding in the fourth quarter of 2017. Government spending has also dipped after witnessing growth in the last two straight quarters.
Economy Likely to Bounce Back in Q2
The first quarter GDP estimate generally remains weak due to seasonality. First-quarter U.S. GDP tends to be soft because of a seasonal quirk. Consequently, the BEA’s tepid first-quarter growth outlook may not be a true reflection of the U.S. economy.
The full benefit of massive personal and corporate tax cut is yet to be realized. The $1.5 trillion tax cut measures is yet to be reflected as it has implemented only in January 2018.
Moreover, U.S. private-sector workers experienced their highest increase in income in 11 years during the first three months of 2018. The latest Labor Department data revealed that employment cost index for wages and salaries in the private sector rose 1% in the first quarter compared with the previous quarter. Notably, this was the biggest gain since the first quarter of 2007.
Meanwhile, disposable personal income has increased 6.2% in the first quarter compared with 3.8% in the previous quarter. More wealth, in the hands of consumers will likely bolster personal spending going forward.
Our Top Picks
The fundamentals of the U.S. economy remain strong despite a slowdown in the GDP growth rate. A healthy labor market, strong hike in wages and salaries, increase in personal disposable income and proposed fiscal stimulus by the government will bolster consumer’s income and spending in the rest of the year.
At this juncture, it will be a prudent decision to buy value stocks on the dip that could prove to be valuable finds once the rally resumes. Our selection is also backed by a good Zacks Value Score and a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
Our research shows that stocks with a Value Style Score of A or B when combined with a Zacks Rank #1 or 2 (Buy) offer the best opportunities in the value-investing space. We have handpicked five stocks with a Zacks Rank #1 and a Value Score of A.
Chart below shows price performance of our five picks year to date.
Lam Research Corp. (LRCX - Free Report) enables its customers to shape the future of technology by providing market-leading equipment and services for semiconductor wafer processing.
Lam Research's forward price-to-earnings ratio (P/E) for the current financial year (F1) is 10.67x, lower than the industry average of 12.74x. It has a PEG ratio of 0.60, lower than the industry average of 0.86.
Western Digital Corp. (WDC - Free Report) provides a full portfolio of compelling, high-quality storage solutions with customer-focused innovation, high efficiency, flexibility and speed.
Western Digital’s forward price-to-earnings ratio (P/E) for the current financial year (F1) is 6.34x, lower than the industry average of 13.07x. It has a PEG ratio of 0.33, lower than the industry average of 0.93.
United States Steel Corp. (X - Free Report) is an integrated steel producer with major production operations in the United States and Central Europe.
United States Steel’s forward price-to-earnings ratio (P/E) for the current financial year (F1) is 6.12x, lower than the industry average of 10.49x. It has a PEG ratio of 0.77, lower than the industry average of 0.88.
Seagate Technology plc (STX - Free Report) offers a portfolio of hard disc drives, solid state drives and solid state hybrid drives. It offers a range of disk drive products for the enterprise, client compute and client non-compute market applications.
Seagate’s forward price-to-earnings ratio (P/E) for the current financial year (F1) is 11.93x, lower than the industry average of 13.07x. It has a PEG ratio of 0.76, lower than the industry average of 0.93.
HB Home (KBH - Free Report) constructs and sells a variety of new homes designed primarily for first-time, move-up and active adult homebuyers, including attached and detached single-family residential homes, townhomes and condominiums.
KB Home’s forward price-to-earnings ratio (P/E) for the current financial year (F1) is 9.55x, lower than the industry average of 9.75x. It has a PEG ratio of 0.60, lower than the industry average of 0.75.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>