It’s time to celebrate President Trump’s second year in office. After all, in two out of every three times, the second years of presidential terms have favored stock investors,.
Wall Street, by the way, has shown enough confidence even as concerns about trade war loom large. As a matter of fact, solid job additions last month and an economy poised for growth that could come teasingly close to a milestone achieved in 2005 have instilled confidence among investors.
Given the bullishness, investing in stocks with solid growth potential doesn’t seem to be a bad proposition.
Wall Street Usually Rises in 2nd Year of Presidential Terms
There is always a 67% chance that the U.S. stock market will scale north during the second years of presidential terms. The Dow Jones Industrial Average, since its inception in 1896, has risen in two out of three times on average during the said period. And when the stock market rises less than 2% in the first half, you can be assured that it’s a done deal. Needless to say, the broader S&P 500 index rose less than 2% in the first half of this year.
Even when the markets are fraught with concerns about geopolitical tensions or pending U.S. mid-term elections, you can pin your hopes on the success of the second year of a presidential term. And why not? The stock market is always forward looking and has already discounted such issues. Further, these odds won’t get hampered even if it is an aging bull market. This is why, there is a saying that bull markets don’t die of old age.
% of time DJIA rises during the 2nd years of presidential terms (Data: Since 1896)
Underlying Fundamentals Point the Way Higher
Stocks, by the way, have remained resilient to potential threats such U.S.-China trade skirmish after the White House imposed tariffs on $34 billion worth of Chinese goods, compelling Beijing to retaliate (read more: Think Small As U.S.-China Trade War Breaks Out! 5 Top Picks).
Bulls also have solid faith in the underlying strengths of the U.S. economy and perhaps that points the way higher. The United States has been able to create 213,000 jobs in June; a healthy sign that show corporates are finding ways to fill open jobs despite lack of skilled workers. Such hiring figures easily topped analysts’ estimates of 200,000 job additions.
Job gains were pretty broad based, with white-collar jobs leading the way with 50,000 job additions. From manufacturers, health-care providers to construction companies, all hired workers, a clear sign of a burgeoning economy.
The unemployment rate rose to 4% last month, but for a good reason. The jobless rate went up mostly because of around 600,000 people entering the labor force. This showed that more Americans are searching for jobs as they are easier to find.
Companies, in the meanwhile, are raising pay and benefits. Hourly wages rose 5 cents to $26.98. The yearly rate of pay hikes remained unchanged at 2.7%.
Ramped up business investments, in a way, is expected to help the economy gain traction. The U.S. economy is projected to expand in the second quarter at an annual pace of nearly 4% after a 2.2% gain in the first three months of this year, economists say. This would put the economy in a solid position this year to meet or even beat 3% growth in gross domestic product (GDP), one of the primary aims of the government (read more: US GDP to Hit Elusive 3% Annual Growth in 13 Years: 5 Picks).
Pundits Remain Sanguine About the U.S. Equity Outlook
A number of market pundits remain upbeat about the outlook for U.S. equities. They have looked beyond potential headwinds that have been hurting the markets so far this year. In fact, analysts at JPMorgan Chase & Co. (JPM - Free Report) have said that upbeat economic data coupled with pro-business policies will help companies register double-digit growth and accelerate buybacks in the near term.
Dubravko Lakos-Bujas, the firm’s head of equity strategy, raised his year-end target for the S&P to 3,000 (8.7% upside potential from the current level).
Tobias Levkovich, Citigroup’s (C - Free Report) chief U.S. strategist, is also upbeat, upgrading his rating to overweight from neutral and setting a price a price target of 2,865 for the S&P (3.8% upside potential from the current level).
Andrew Adams, a strategist at Raymond James, in the meantime said that even though this year has seen a more torrid run than last year, he is yet to see red flags that indicate that the bull run is near its end. In fact, he has urged investors to look at the long-term trend and remain bullish.
5 Stocks With Solid Upside Potential in the Second half
Wall Street is gaining traction despite headlines flashing warnings about trade war. At the same time, statistical evidence shows that Trump’s second year in office will be fruitful for the stock market. Thus, investing in stocks that can make the most of these bullish trends seems judicious.
We have, hence, selected five stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a Growth Score of A or B, as it offers the best investment opportunities in the growth investing space.
Apache Corporation (APA - Free Report) is an independent energy company. The stock currently has a Zacks Rank #2 and a Growth Score of A. In the last 60 days, seven earnings estimates moved north, while one moved south for the current year. The Zacks Consensus Estimate for earnings rose 29.6% in the same period. The company’s expected earnings growth rate for the current year is 629.2% compared with the Oil and Gas - Exploration and Production - United States industry’s projected rally of 20.1%.
Continental Resources, Inc. (CLR - Free Report) explores for, develops, and produces crude oil and natural gas properties in the north, south, and east regions of the United States. The stock currently has a Zacks Rank #1 and a Growth Score of B. In the last 60 days, 11 earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings increased 20.4% in the same period. The company’s expected earnings growth rate for the current year is 535.3% compared with the Oil and Gas - Exploration and Production - United States industry’s expected gain of 20.1%.
KMG Chemicals, Inc. manufactures, formulates, and distributes specialty chemicals and performance materials worldwide. The stock currently has a Zacks Rank #1 and a Growth Score of B. In the last 60 days, three earnings estimates moved up, while none moved down for the current year. The Zacks Consensus Estimate for earnings increased nearly 13% in the same period. The company’s expected earnings growth rate for the current year is 76.2% compared with the Chemical - Specialty industry’s estimated rally of 18.9%. You can see the complete list of today’s Zacks #1 Rank stocks here.
ZAGG Inc (ZAGG - Free Report) designs, manufactures, and distributes mobile tech accessories for smartphones and tablets in the United States and internationally. The stock currently has a Zacks Rank #1 and a Growth Score of B. In the last 60 days, one earnings estimate moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings advanced 1.4% in the same period. The company’s expected earnings growth rate for the current year is 44.3% compared with the Electronics - Miscellaneous Components industry’s projected rally of 21.1%.
AbbVie Inc. (ABBV - Free Report) discovers, develops, manufactures, and sells pharmaceutical products worldwide. The stock currently has a Zacks Rank #2 and a Growth Score of B. In the last 60 days, two earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings rose 0.3% in the same period. The company’s expected earnings growth rate for the current year is 39.3% compared with the Large Cap Pharmaceuticals industry’s estimated growth of 7.4%.
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