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6 Top Picks as S&P 500 Dashes Toward New Record-High

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The S&P 500 has shown immense strength after months of a volatile ride, gaining for five consecutive weeks. In fact, the index is on the verge of hitting new highs anytime soon, being just 0.5% away from the peak it set on Jan 26.

Inside the Bull Run

The dual tailwinds of strong corporate earnings and an improving economy have been fueling optimism in the stocks, offsetting concerns over global trade. Total earnings from 82.7% of the index’s total market capitalization that have reported so far are up 25% from the same period last year on 10.4% higher revenues, with 80.1% of the companies beating EPS estimates and 73.8% surpassing revenue estimates. Earnings and revenue growth as well as the proportion of companies beating EPS estimates are tracking above other recent periods.

If this earnings beat rate continues in the coming releases, it will be the highest on record, dating back to the first quarter of 1994, according to Thomson Reuters. Per Factset, the S&P 500 earnings beat is poised to be the highest, since it began tracking the metric in 2008.

Overall, Q2 earnings and revenues are expected to grow 23.9% and 9.3%, respectively, representing the third quarter in a row of double-digit earnings growth for the index, a trend that is expected to continue in the second half of the year as well.

The American economy has been on a solid growth path with GDP growth expanding 4.1% annually in the second quarter, representing the fastest pace of growth in nearly four years. The number is almost double the revised Q1 growth rate of 2.2%. With this, GDP grew 3.1% in the first half of the year and is poised to hit 3% annual growth for this year buoyed by historic tax cuts, infrastructure investment, higher government spending, deregulation, rising wages and record unemployment. Per Trump, “the United States is on track to hit the highest annual growth rate in over 13 years".

Further, an impressive labor market, increase in wages, rise in consumer confidence and higher consumer spending are driving the economic activities higher. A rising rate scenario is also signaling a strengthening economy, which will spur further growth in the stock market. Moreover, the CBOE Volatility index, also known as fear gauge, fell to the lowest level since Jan. 16 at 10.52. This indicates strong complacency in the market and that fears levels are running very low.

However, escalating trade dispute between the two largest economies will continue to show up volatility, providing a solid entry point for investors.

Given this, investors should tap the opportune moment by investing in the S&P 500 stocks that have a solid Zacks Rank #1 (Strong Buy) or 2 (Buy), Momentum Score of A or B, top-ranked industry, this year double-digit estimated earnings growth and positive estimate revisions over the past 30 days. You can see the complete list of today’s Zacks #1 Rank stocks here.

Nucor Corporation (NUE - Free Report)

This North Carolina-based company manufactures and sells steel and steel products in the United States and internationally.

Zacks Rank: #2
Momentum Score: A
Industry Rank: Top 25%
This Year’s Estimated Earnings Growth: 114.81%
Positive Earnings Estimate Revision: 15.5%

Caterpillar Inc. (CAT - Free Report)

This Illinois-based company is a manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives.

Zacks Rank: #1
Momentum Score: B
Industry Rank: Top 14%
This Year’s Estimated Earnings Growth: 66.86%
Positive Earnings Estimate Revision: 6.9%

International Paper Company (IP - Free Report)

This Tennessee-based company is a leading global producer of renewable fiber-based packaging, pulp and paper products.

Zacks Rank: #2
Momentum Score: B
Industry Rank: Top 7%
This Year’s Estimated Earnings Growth: 49.86%
Positive Earnings Estimate Revision: 2%

AMETEK Inc. (AME - Free Report)

This Pennsylvania-based company is a leading global manufacturer of electronic instruments and electromechanical devices.

Zacks Rank: #2
Momentum Score: B
Industry Rank: Top 9%
This Year’s Estimated Earnings Growth: 22.61%
Positive Earnings Estimate Revision: 2.2%

Berkshire Hathaway Inc. (BRK.B - Free Report)

This Nebraska-based company is engaged in insurance, freight rail transportation and utility businesses. It provides property and casualty insurance and reinsurance, as well as life, accident, and health reinsurance; and operates railroad systems in North America.

Zacks Rank: #2
Momentum Score: A
Industry Rank: Top 47%
This Year’s Estimated Earnings Growth: 53.41%
Positive Earnings Estimate Revision: 2.2%

Norfolk Southern Corporation (NSC - Free Report)

This Virginia-based company is one of the nation's premier transportation companies.

Zacks Rank: #2
Momentum Score: A
Industry Rank: Top 8%
This Year’s Estimated Earnings Growth: 36.31%
Positive Earnings Estimate Revision: 4.9%

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