At present, the U.S. equity market is jittery over the possible outcome of the U.S-China trade war. The turmoil had begun when the world’s largest economy imposed import tariffs of 25% on steel and 10% on aluminium. Now, with many other goods/items included in the tariff bracket, affected foreign nations like Mexico, Canada, China and European Union are considering undertaking similar retaliatory measures.
The import tariff imposition, though aims at protecting the interest of U.S. domestic industries, have side effects. For instance, the tariff on import of steel and aluminium has resulted in many industries facing higher raw material costs and shrinking corporate margins. However, the move has been beneficial for the U.S. steel makers. Likewise, though any restriction on China’s investment in the U.S. telecom sector will benefit the U.S. telecom equipment manufacturers, it will hurt those that rely on Chinese imports.
Amid all the trade tensions, we believe that the U.S. economy still holds strong growth potential and some of its policy changes in the recent past have been wholeheartedly welcomed by the market. The most impressive was the implementation of the Tax Cut and Jobs Act in December 2017. This measure has helped in improving liquidity of the corporates, enabling them to make additional investment in growth projects.
On a broader aspect, accelerating growth of the global economy — from 3.2% in 2016 to 3.8% in 2017 and 3.9% projected for 2018 by the International Monetary Fund — will help in propelling the economy. This premier institution expects the economy to advance 2.9% in 2018, reflecting hike of 0.2% from its earlier forecasts.
Currently, the equity market offers many investment-friendly options. However, choosing the right sector and companies might be a daunting task.
At this juncture, our classifications of the country’s stocks under 16 broad sectors and ranking of each of these can be of help. Each sector’s rank is calculated on the basis of the average of Zacks Rank of all the companies within it. The Zacks Sector Rank of 1 is placed at the top, with the first eight sectors placed in the top half and the other eight in the bottom half. Over the last 10 years, using a one-week rebalance, the top half beat the bottom half by a factor of more than two. (To learn more visit: About Zacks Sector Rank)
Investors interested in gaining exposure in the U.S. equity universe can focus on stocks that belong to the top-ranked Zacks Conglomerates sector.
Top-Ranked Conglomerates Sector
Conglomerates currently occupy the first position in the Zacks sectors list. It is at the top position of the Zacks Sector heatmap for the second consecutive week. A brief on the sector’s past performance and growth projections is provided below.
In the past five years, the sector has yielded 17.3% return.
Prospects are bright in the years ahead, with these multi-sector companies collectively anticipated to record year-over-year earnings growth of 1.4% in 2018 on revenue expansion of 4.6%. Earnings and sales growth are forecasted higher than 9.3% fall and 2% gain recorded in 2017. Also, the sector’s earnings are projected to grow 8.7% in 2019 while the same will likely expand 6.7% in the next three to five years.
The growing need for technologically-advanced equipments in every stage of manufacturing across multiple industries will keep demand strong for many of the multi-sector companies. Also, strengthening industrial production of the country — evident from 2.8% year-over-year growth registered in January 2018 to 3.5% growth in May 2018 — and an improving housing market help in building favorable operating conditions. Furthermore, year-over-year growth of 7% in shipments and 9.9% in orders of U.S.-manufactured durable goods for the five-months ended May 2018 boost prospects of the conglomerates.
4 Suitable Investment Picks in the Sector
Using Zacks Stock Screener, we have zeroed in on four lucrative investment options from the Conglomerates sector that stand tall despite all the near-term uncertainties.
Hitachi Ltd. (HTHIY - Free Report) : The company is one of the leading manufacturers of electronic products of the world. Its product offerings include computers, industrial equipment, semiconductors and consumer products. It market capitalization is approximately $33.7 billion.
It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Also, the stock’s investment appeal is further accentuated by a favorable VGM Score of A. Earnings for the next three to five years are anticipated to grow 13%, higher than the projection for the sector. Also, the Zacks Consensus Estimate of $7.72 for the fiscal ending March 2019 and $8.58 for the next fiscal reflects year-over-year growth of 4.3% and 11.1%, respectively.
Honeywell International Inc. (HON - Free Report) : The company is a global diversified technology and manufacturing company with a wide range of aerospace products and services. Its market capitalization is approximately $106.9 billion.
It currently carries a Zacks Rank #2 (Buy) and has a favorable VGM Score of B.
Earnings in the next three to five years are anticipated to grow 9.4%. The stock’s Zacks Consensus Estimate of $8.02 for 2018 and $8.79 for 2019 reflects year-over-year growth of 12.8% and 9.6%, respectively.
Raven Industries, Inc. (RAVN - Free Report) : The company manufactures a variety of products for customers in the industrial, construction and military/aerospace markets. Its market capitalization is approximately $1.4 billion.
It currently carries a Zacks Rank #2.
Earnings in the next three to five years are anticipated to grow 10%. Also, the stock’s Zacks Consensus Estimate of $1.59 for fiscal ending January 2019 reflects year-over-year growth of 39.5%.
United Technologies Corporation (UTX - Free Report) : The company provides high-end technology products and services to the building systems and aerospace industries worldwide. Its market capitalization is approximately $99.7 billion.
It currently carries a Zacks Rank #2.
Earnings for the next three to five years are anticipated to grow 9.10%. The Zacks Consensus Estimate for the stock is pegged at $7.13 for 2018 and $7.85 for 2019, reflecting year-over-year growth of 7.2% and 10.2%, respectively.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Click for details >>