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Wall Street Bulls to Flourish in Q4: 5 Solid Growth Picks

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The Wall Street bull-run, which entered its longest ever expansionary phase on Aug 22, is showing no signs of abatement. Despite trade war concerns, a robust U.S. economy and strong earnings results boosted investors’ confidence in the stock markets.

Strong economic fundamentals have once again aided market participants’ appetite for relatively risky assets like equities. Such factors are likely to pave the way for further upside in the fourth quarter. Consequently, it makes sense to invest in good growth stocks with a favorable Zacks Rank to maximize returns.

Broader Market Northbound

MonthDow 30S&P 500Nasdaq
January5.8%5.6%7.4%
February-4.3%-3.9%-1.9%
March-3.5%-2.7%-2.9%
April0.3%0.3%0.1%
May1.1%2.2%5.3%
June-0.6%0.5%0.9%
July4.7%3.6%2.0%
August2.2%3.0%5.7%
September1.9%0.4%-0.8%

The table clearly shows that stock market fluctuations which pushed all the three major indexes into the negative territory in February and March gradually diminished in the last six months. Barring a minor fluctuation of the Dow in June and Nasdaq Composite in September, all three indexes have provided positive returns in every month up to September.

 

Major Indexes Near Record High

The Dow – the 30 stock blue-chip index – is up 7.8% year to date. The index is just 0.4% away from the all-time high of 26,769.15 recorded on Sep 21.

The benchmark S&P 500 index – generally utilized by market participants as the barometer of the broad market movement – is up 9.4% year to date. The index is just 0.2% below the all-time high of 2,930.75 that it set on Sep 20.

The tech-laden Nasdaq Composite is up 16.4% year to date. The index is currently 1.2% away from its record high level of 8,133.30 registered on Aug 30.

Robust U.S. Economic Fundamentals

On average, in the first half of 2018, the U.S. economy grew 3.2%, higher than 3% annual GDP growth that the Trump administration desired. Moreover, unemployment rate in July fell 0.1% from June to 3.9%, its lowest level in nearly 50 years.

The Fed raised the forecast for 2018 GDP growth from 2.8% stated in June to 3.1% in September. Fed’s new estimate also indicates that economic growth will remain stable throughout this year. The primary catalyst behind these positive revisions is the direct impact of tax cuts.

Strong Earnings Data

U.S. corporates earned record high profits in the first two quarters of 2018. In the first quarter, total earnings of S&P 500 companies were up 24.7% on 8.7% higher revenues. In the second quarter, total earnings of S&P 500 companies were up 25.2% on 8.7% higher revenues. For the third quarter, total earnings of S&P 500 companies are likely to be up 17.9% on 7.3% higher revenues. (Read More: Has the Earnings Picture Started Weakening?)

Our Top Picks

Solid macro-economic fundamentals, government’s tax reform and deregulation policies are major tailwinds for the U.S. economy. At this stage, investment in stocks with strong growth potential will be lucrative. However, picking winning stocks can be a difficult task.

We have selected five stocks with Growth Score of A 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 Growth Style Score of A or B when combined with a Zacks Rank #1 or 2 (Buy) offer the best opportunities in the Growth-investing space.

The chart below depicts price performance of our five picks in the last three months.



Champions Oncology Inc. (CSBR - Free Report) engages in the development of advanced technology solutions to personalize the development and use of oncology drugs. The company has expected earnings growth of 440% for the current year. The Zacks Consensus Estimate for the current year has improved 240% over the past 60 days.

General Finance Corp. (GFN - Free Report) provides mobile storage, liquid containment and modular space solutions. The company has expected earnings growth of 283.3% for the current year. The Zacks Consensus Estimate for the current year has improved 91.7% over the past 60 days.

Tilly's Inc. (TLYS - Free Report) is a specialty retailer in the action sports industry selling clothing, shoes and accessories. The company has expected earnings growth of 38.5% for the current year. The Zacks Consensus Estimate for the current year has improved 11.1% over the past 60 days.

Armstrong Flooring Inc. (AFI - Free Report) is engaged in the design and manufacture of flooring solutions primarily in North America. The company has expected earnings growth of 104.8% for the current year. The Zacks Consensus Estimate for the current year has improved 79.2% over the past 60 days.

Medifast Inc. (MED - Free Report) is a leading manufacturer and distributor of clinically proven healthy living products and programs. The company has expected earnings growth of 96.5% for the current year. The Zacks Consensus Estimate for the current year has improved 23.3% over the past 60 days.

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