As the curtains roll down on an eventful 2018, investors aim to take stock of their portfolio to identify stocks and sectors that appear bruised and battered, but hold solid potential for 2019. Before we try to simulate this exercise ourselves, let us delve a little deep into the overall performance of the outgoing year.
What Went Wrong in 2018?
In the first half of 2018, the overall U.S. equity markets witnessed an uptrend as the Trump administration announced corporate tax cuts that boosted the cash flow and infused confidence for healthy capital investments. However, as the year progressed, the markets seemed to wipe out all the initial gains and went downhill in the second half due to a combination of several factors. These include volatility in oil prices, trade war with China, geopolitical conflict with North Korea and Iran, three interest hikes by Fed that make loans costlier for capital-intensive sectors, imposition of tariffs on various foreign countries to improve the U.S. balance of trade and a soft global economy.
Consequently, sectors that were more exposed to the vagaries of the market witnessed a roller-coaster ride and recorded an unconvincing performance in 2018. Notable among them were oil, semiconductors, automobile, tobacco and finance sectors.
We have used the Zacks Stock Screener to identify a stock from each from these sectors. These stocks have declined in excess of 25% in 2018, yet possess either a Zacks Rank #1 (Strong Buy) or 2 (Buy) and have a VGM Score of B or better for a likely healthy ROI in 2019. You can see the complete list of today’s Zacks #1 Rank stocks here.
5 Possible Outperformers of 2019
Approach Resources, Inc. (AREX - Free Report) : Headquartered in Fort Worth, TX, shares of this unconventional oil explorer and producer of gas reserves have tanked 60.1% year to date. The Oil and Gas industry witnessed intense price volatility with an upsurge for most of the year followed by a sharp decline in the later half of the year on global woes and oversupply concerns. As the initial fears related to tough U.S. sanctions on Iran subsided with certain waivers, the industry faces a demand-supply imbalance with supply far exceeding the demand curve. The issue is likely to settle down in 2019 as OPEC has decided to cut down on its production, and the stock is expected to script a steady turnaround in its fortunes with a VGM Score of B. Earnings for fiscal 2019 for this Zacks Rank #2 stock are expected to increase 41.7% year over year as it aims to focus on creating shareholder value than drill additional wells.
ASE Technology Holding Co., Ltd. (ASX - Free Report) : Based in Kaohsiung, Taiwan, this semiconductors manufacturer bore the brunt of the U.S. trade war with China. The stock has fallen 26.1% year to date as growing U.S. protectionism dampened investor sentiment toward the Electronics – Semiconductors industry and affected the supply chain. However, as both the warring countries aim to resolve their differences with a 90-day truce to the trade war and resume negotiations, the stock looks poised to benefit from the improving market fundamentals. The industry is benefiting from an increasing need of advanced electronic equipment, including high-volume consumer electronic devices, efficient packaging and cost-effective process technologies. Further, the increasing use of graphics processors and graphics solutions in Internet of Things devices and machine learning remain key catalysts. With a VGM Score of B, this Zacks Rank #2 stock seems a solid bet for 2019.
Vector Group Ltd. (VGR - Free Report) : Based in Miami, FL, shares of this tobacco manufacturer have declined 51.3% year to date as the industry grapples with the global shift away from smoking cigarettes due to health concerns. Increased mass awareness about the health hazards due to prolonged smoking has led most consumers to shun cigarettes in favor of alternatives such as e-cigarettes. In order to capitalize on this trend, Vector Group has entered the United States e-cigarette market in limited retail distribution outlets in 2013. Earnings for fiscal 2019 for this Zacks Rank #2 stock are expected to increase 30.8% year over year. The stock has a VGM Score of A.
Lithia Motors, Inc. (LAD - Free Report) : Headquartered in Medford, OR, Lithia Motors is one of the leading automotive retailers of new and used vehicles, and related services in the United States. This Zacks Rank #2 stock has declined 39.1% year to date. The auto industry is reeling under constant threats from President Trump to impose tariffs as high as 30% on vehicles imported in the country after a series of tariffs on steel and aluminum. This has already increased the cost of production and reduced margins, prompting several firms to pass on the costs to consumers or shift their production bases. However, as trade deals are likely to be reached with Europe, Mexico and Canada to avoid any future setbacks, the industry is expected to turn the tables in 2019. With a VGM Score of A, the stock has long-term EPS growth expectations of 12.4%, while earnings for fiscal 2019 are expected to be up a modest 4.9%.
Manning & Napier, Inc. (MN - Free Report) : Based in Fairport, NY, shares of this asset management firm have tanked 50.6% year to date due to growing customer demand for passive products. As investors shift to low-cost investment strategies, margins for investment managers have been on a downtrend. Further, investment managers’ compliance costs have been escalating with tightening regulations to increase transparency. Also, as these wealth managers are trying to upgrade technology to keep up with the evolving customer needs, technology costs have increased significantly. However, healthy sector fundamentals should help the industry continue generating positive returns in the near future. With a VGM Score of B, this Zacks Rank #2 stock will likely push its boundaries to seek growth through diligent execution of operational plans, innovative pricing models and delivery of superior customer experience.
As the equity markets aim to shake off the demons of 2018 driven by a resilient economy, a sneak peek at some possible outperformers backed by a solid Zacks Rank and a healthy return could be a great idea for investors. These stocks seem to hold great promise for the future and are likely to reward shareholders generously.
In addition to the stocks discussed above, would you like to know about our 10 top tickers to buy and hold for the entirety of 2019?
These 10 are painstakingly handpicked from over 4,000 companies covered by the Zacks Rank. They are our primary picks poised to outperform in the year ahead. Be among the first to see the new Zacks Top 10 Stocks >>