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Dow Recovers More Than 900 Points in 3 Days: 5 Top Picks

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Wall Street has endured a difficult October, its worst monthly performance this year. As a result of stock market rout, the Dow shed more than 1,342 points or 5.1% in October, its biggest monthly drop since January 2016.

However, the blue-chip index recovered nearly 938 points in the last two trading days of October and the first day of November. Clearly, the meltdown of the 30-stock index was transitory in nature and can provide a good entry point for investors. Consequently, it will be a prudent move to invest in Dow stocks with a favorable Zacks Rank.

Dow Stages Considerable Recovery  

In the three trading sessions from Oct 30 to Nov 1, the Dow 30 gained 431.72, 241.12 and 264.98 points, respectively. The three-day recovery has once again placed the index in positive territory year to date with a return of 2.7%.

Unlike other two major stock market indexes – the S&P 500 and Nasdaq Composite – the Dow is the only index which did not drop into correction territory for even a day. Moreover, 10 components of its 30 stock portfolio have so far provided remarkable double-digit return year to date.

US-China Trade Tensions Eases

On Nov 1, President Trump tweeted that he had a “long and very good conversation” with his Chinese counterpart Xi Jinping. The conversation between the two leaders focused primarily on lingering tariff related conflicts and other trade-related policy matters.

Although the material impact of that conversation is yet to be realized, Trump did tweet that “those discussions are moving along nicely”. Notably, the two leaders are expected to meet each other in the upcoming G-20 summit in Argentina, later this month.  

Further, Larry Kudlow, top economic advisor of the Trump administration, was optimistic about a positive outcome from the upcoming negotiation between the two leaders. A positive outcome will enable China to avoid a new set of tariffs worth $267 billion which the United States has threatened to impose on the country in December if negotiations fail.

Robust U.S. Economic Fundamentals

The U.S. GDP’s increased 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.

Our Top Picks

At this stage, investment in Dow stocks having strong growth potential and providing solid year-to-date returns despite severe volatility will be lucrative. We have narrowed down our search to five such stock each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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

The Boeing Co. (BA - Free Report) : The company generated positive earnings surprise of 28% in the last four quarters. It has expected earnings growth of 24.5% for current year. The Zacks Consensus Estimate for the current year has improved by 2.7% over the last 30 days.

Merck & Co. Inc. (MRK - Free Report) : The company generated positive earnings surprise of 4% in the last four quarters. It has expected earnings growth of 9.1% for current year. The Zacks Consensus Estimate for the current year has improved by 1.6% over the last 30 days.

Microsoft Corp. (MSFT - Free Report) : The company generated positive earnings surprise of 11.9% in the last four quarters. It has expected earnings growth of 13.1% for current year. The Zacks Consensus Estimate for the current year has improved by 3.3% over the last 30 days.

UnitedHealth Group Inc. (UNH - Free Report) : The company generated positive earnings surprise of 3.7% in the last four quarters. It has expected earnings growth of 27.2% for current year. The Zacks Consensus Estimate for the current year has improved by 0.7% over the last 30 days.

Walgreens Boots Alliance Inc. (WBA - Free Report) : The company generated positive earnings surprise of 4.8% in the last four quarters. It has expected earnings growth of 8.6% for current year. The Zacks Consensus Estimate for the current year has improved by 8.8% over the last 30 days.

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