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Wall Street Outperforms Global Markets in 2018: 5 Top Picks

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Wall Street has witnessed its monthly worst performance this year in October. All three major stock indexes – the Dow, S&P 500 and Nasdaq Composite – are in the red this month. However, a closer look at global stock markets’ performance paints a different picture. Despite October stock market rout, U.S. stock markets are still providing positive returns year-to-date while all major international stock markets are witnessing significant downtrend.

A robust U.S. economy, strong consumer and business confidences and soaring corporate earnings driven by massive tax cut will act as near-term catalysts for Wall Street’s bull-run to continue in the rest of 2018. Consequently, it will be a prudent move to invest in stocks with favorable Zacks Rank and strong growth potential.

Wall Street Still Remains the Best Market to Invest

On Oct 30, the Wall Street recovered slightly from the slump it suffered in October. The Dow, S&P 500 and Nasdaq Composite advanced 1.8%, 1.6% and 1.6%, respectively. In fact, all three major stock indexes returned to positive territory year to date on Oct 30. So far in 2018, the Dow, S&P 500 and Nasdaq Composite returned 0.6%, 0.3% and 3.7%, respectively.

In comparison with U.S. stock indexes, internationally recognized stock indexes have performed rather poorly. Year to date, Stoxx Europe 600, UK: FTSE 100, Japan: Nikkei 225 and China: Shanghai Composite is down 7.3%, 7.2%, 3.7% and 23.3%, respectively.  

Robust U.S. Economic Fundamentals

The U.S. GDP’s recorded growth of 3.3% in the first nine months of 2018, surpassing the target of 3% set by President Trump. On Oct 29, the Department of Commerce reported that U.S. consumer spending increased $53 billion or 0.4% in September, marking the seventh consecutive month of gain by this margin. Notably, consumer spending constitutes nearly 70% of the U.S. GDP.

On Oct 30, the Conference Board reported that U.S. consumer confidence for the month of October was pegged at 137.9, the highest reading since September 2000. The future expectations index — reflecting what Americans think the economy will look like in the next six months — increased to 114.6 from 112.5, indicating strong growth at least up to first quarter of 2019.

Current unemployment rate of 3.7% is at its lowest since December 1969. Core PCE inflation – the Fed’s favorite gauge of inflation – rose 0.2% but its year-over-year growth rate remains flat at 2%.

Healthy Earnings Data

U.S. corporates earned record high profits in the first two quarters of 2018. As of Oct 30, 279 S&P 500 members have reported third quarter earnings. Total earnings for these companies are up 22.3% year over year on 8.4% higher revenues. For the third quarter, total earnings of S&P 500 companies are likely to be up by 22.4% on 7.5% higher revenues. (Read More: Has Earnings Growth Peaked Already?)

Our Top Picks

At this stage, investment in stocks which are member of any of these three indexes having strong growth potential and providing solid year to date return despite severe volatility, will be lucrative. We have narrowed down our search to four such stocks each carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows price performance of our five picks year to date.

Twitter Inc. (TWTR - Free Report) offers various products and services, including Twitter that enables users to consume, create, distribute, and discover content and Periscope, a mobile application that enables user to broadcast and watch video live with others. The company has expected earnings growth of 70.5% for the current year. The Zacks Consensus Estimate for the current year has improved 5.6% over the past 30 days.

CSX Corp. (CSX - Free Report) is a premier transportation company providing rail, intermodal and rail-to-truck trans-load services and solutions to customers. The company has expected earnings growth of 65.2% for the current year. The Zacks Consensus Estimate for the current year has improved by 5.2% over the last 30 days.

NetApp Inc. (NTAP - Free Report) provides a full range of hybrid cloud data services that simplify management of applications and data across cloud and on-premises environments. The company has expected earnings growth of 27.7% for the current year. The Zacks Consensus Estimate for the current year has improved 1.6% over the past 30 days.

Core-Mark Holding Co. Inc. (CORE - Free Report) is one of the largest marketers of fresh and broad-line supply solutions to the convenience retail industry in North America. The company has expected earnings growth of 28% for the current year. The Zacks Consensus Estimate for the current year has improved 2.4% over the past 30 days.

Viavi Solutions Inc. (VIAV - Free Report) provides network test, monitoring, and assurance solutions to communications service providers, enterprises, network equipment manufacturers, civil government, military and avionics customers worldwide. The company has expected earnings growth of 28.3% for the current year. The Zacks Consensus Estimate for the current year has improved 3.5% over the past 30 days.

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