The month of July, quite successfully, has lived up to its promise of high returns. Equities recorded their highest monthly gains in July since the beginning of this year, mostly on strong corporate earnings and positive economic data. The United States and China seeking discussions to deescalate trade conflict between the countries also helped stocks climb north.
Given such bullishness, it’s worth considering stocks that have gained the most last month. Thankfully, these stocks are fundamentally sound enough to maintain the momentum in the near term.
How the Benchmarks Performed in July
All the major indices booked encouraging returns in the month. The Dow Jones Industrial Average added 4.7% in July, its largest monthly gain since January, while the tech-rich Nasdaq Composite rose 2.2% marking the fourth consecutive monthly gain.
The broader S&P 500 also booked 3.6% over the month, its fourth positive monthly gain in a row. Thus, it’s almost certain that stocks will finish the year on a high note, per analysts at Bespoke Investment Group.
And why not? Since 1928, there have been 12 years when the stock market gained during the April-to-July period and every time, stocks finished higher by the end of the year. During those years, the large-cap index registered average annual gains of 1.8%.
What Has Driven Markets?
Double-digit earnings growth in the second quarter and a slew of healthy economic data have gone a long way in bolstering investors’ confidence last month. At the same time, headline news on trade continued to drive markets. Stocks recently gained strength on news that the United States and China are holding talks to diffuse the trade war.
Q2 Earnings Gain Momentum
U.S. companies are expected to see one of the strongest second-quarter earnings seasons in almost a decade, with gains likely to be broad-based. Second-quarter earnings for the S&P 500 companies are estimated to improve 23.6% from the same period last year on 8.8% higher revenues.
The earnings season, thus, has undoubtedly started on a solid note with decent performances across the table. Total earnings for the 265 S&P 500 members that have reported so far are up 23.6% on 10.1% higher revenues, with 80.8% beating EPS estimates and 72.1% trumping the revenue mark.
These 265 companies have, in fact, put up a better show compared to other recent periods. EPS estimates and revenue surprises, in particular, have been far better than the average of the prior four quarter and last 12 quarters as well (read more: Earnings Season Shows Strong Revenue Momentum).
Robust Economic Reports
The economy, by the way, is in good shape with the simulative fiscal policies such as tax cuts providing the much-needed wherewithal to corporates. Wages and salaries grew in the second quarter at the fastest pace in almost a decade, while the overall economic output expanded at a 4.1% annual rate in the said quarter, its fastest in almost four years.
Personal consumption powered second-quarter economic growth, with consumer spending accelerating to a 4% annual pace after a sharp pullback in the first quarter. Government spending also improved both at the federal and state level, while the trade gap narrowed. Still, perhaps a better reading of economic strength that excludes trade and inventories rose a solid 3.9% in the second quarter.
And as Americans grew more upbeat about the economy and the labor market, the measure of consumer confidence continues to hover around a 17-year high. The Conference Board’s confidence index increased to 127.4 in July from 127.1 in June.
Ongoing trade issues, in the meantime, have always been a dampener. After all, a full-fledged trade war could hurt business growth, spending and sentiments. The United States had levied 25% tariff on $34 billion in Chinese goods and China had pledged to retaliate against U.S. tariffs in “equal scale and equal strength.” In fact, some of Trump’s advisors recently urged him to apply tariffs as high as 25% on $200 billion of Chinese imports, way more than the original proposal for 10%.
But, representatives of Treasury Secretary Steve Mnuchin and Chinese Vice Premier Liu He continue to talk behind the scenes to avert a trade war, according to a Bloomberg News report. Such talks bolstered investors’ confidence at least for the time being. Needless to say, the Trump administration had already sorted its trade issues with the European Union with a tentative accord.
5 Top Performing Stocks of July
Given the aforesaid factors, the month of July ended on a high note. Let us, thus, take a look at five stocks that made the most of this positive trend. These stocks flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score of A or B. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.
AK Steel Holding Corporation (AKS - Free Report) manufactures flat-rolled carbon, stainless, and electrical steels, and tubular products in the United States and internationally. Currently, the company has a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings climbed 11.8% over the last 60 days.
The company’s projected growth rate for the current year is 145.2%, while the Steel - Producers industry is expected to gain only 17%. The stock gained a solid 20.5% in July.
AudioCodes Ltd. (AUDC - Free Report) designs, develops, and sells voice over IP (VoIP), converged VoIP, and data networking products. The company has a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings jumped 15.6% in the last 60 days.
The company’s projected growth rate for the current year is 40.5%, while the Communication - Components industry is expected to gain only 8.3%. The stock soared 23.5% last month.
AVX Corporation (AVX - Free Report) manufactures, supplies, and resells various electronic components, interconnect devices, sensing and control devices, and related products. Currently, the company has a Zacks Rank #1 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings surged 72% over the last 60 days.
The company’s projected growth rate for the current year is 61.3%, while the Electronics - Miscellaneous Components industry is likely to gain only 23%. The stock gained 28.9% in July. You can see the complete list of today’s Zacks #1 Rank stocks here.
PCM, Inc. (PCMI - Free Report) operates as a multi-vendor provider of technology products and solutions. The company currently sports a Zacks Rank #1 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings climbed 12.9% in the last 60 days.
The company’s projected growth rate for the current year is 82.5%, while the Consumer Products - Discretionary industry is expected to gain only 12.1%. The stock jumped 35.4% last month.
FTI Consulting, Inc. (FCN - Free Report) provides business advisory services to manage change, mitigate risk, and resolve disputes. Currently, the company has a Zacks Rank #1 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings improved 12.5% over the last 60 days.
The company’s projected growth rate for the current year is 28.5%, more than the Consulting Services industry’s expected gain of 18.3%. The stock rose a promising 24% in July.
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