The coronavirus outbreak is turning out to be major threat to U.S. and global economic growth. After an impressive 2019, investors anticipated the strong momentum of Wall Street to continue fueled by the signing of an interim trade deal between the United States and China.
However, volatility resulting from the coronavirus outbreak played a spoilsport and Wall Street has been gradually losing momentum since mid-January. On Feb 12, China confirmed 15,152 new cases of coronavirus with 254 deaths recorded in a single day.
Possible Impact of Coronavirus
At present, economists are uncertain regarding as to how the coronavirus outbreak will impact the global economy. However, majority of them are of the view that coronavirus will be a much larger pandemic than the outbreak of SARS in 2002-2003, which was estimated to have reduced roughly 0.8% of the Chinese economy.
Several economists are of the opinion that the impact of coronavirus may be much larger. During 2002-2003, China commanded around 4% of the global economy. However, the Asian economic powerhouse now commands more than 16% of the global economy.
In fact, China has become the backbone of global supply-chain system. Its low-cost intermediary products are used as inputs to several high-tech corporate behemoths. Similarly, the cheap Chinese electrical and electronics final goods are immensely popular worldwide.
The Chinese authorities have already confirmed that as many as 1,367 people have died due to coronavirus and the total number of confirmed cases in the country has risen to nearly 60,000. The government of China has been forced to lockdown 10 cities with a total population of over 33 million. This measure will certainly jeopardize normal economic activities of a large number of people.
China is already under considerable strain from a nearly two-year long tariff war with the United States. The recently signed interim trade deal was viewed as an opportunity to revive the sagging economy of the Asian giant. Notably, deterioration of the Chinese economy will significantly affect global export demand and consequently delay global economic recovery.
It is to be noted, several U.S. industries like airlines, shipping, travel and tourism, hotel and casino, restaurants, luxury consumer products and high-tech products are suffering due lack of Chinese demand and supply or inputs. In fact, various corporate giants have already reduced their first-quarter 2020 financial guidance thanks to the coronavirus outbreak.
U.S. Economy Remains Strong
Despite the outbreak of coronavirus, several financial reports released in January reaffirmed the strength of the U.S. economy. This is evident from robust labor market with historically low-level of unemployment and growing wage rate, continuous growth of service-centric industries and likely rebound of manufacturing industries. Further, soaring consumer confidence, indicating strong consumer spending, which constitutes 70% of the U.S. GDP, only reinforces the claim.
Additionally, Fed Chairman Jerome Powell stated in his recent congressional testimony that the central bank is closely monitoring the impact of coronavirus and will do whatever necessary to sustain U.S. economic expansion, including pursuing government bond purchase — popularly known as quantitative easing program.
How to Select Right Stocks
At present, no one is certain about the potential impact of the coronavirus on the United States, China and global economy. Investors should be prepared for both northbound movement of the market as well as the return of severe volatility. At this stage, it will be prudent to invest in growth stocks which also provide lucrative dividends. In case of downturn, dividends will cushion the portfolio.
We have narrowed down our search to five stocks that popped in the past year and still have momentum left with strong EPS estimate revisions. Each of our picks carry a Zacks Rank #1 (Strong Buy) and a Growth Score of A or B. You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our five picks in the past year.
Artisan Partners Asset Management Inc. (APAM - Free Report) provides services to pension and profit sharing plans, trusts, endowments, foundations, charitable organizations, government entities, private funds and non-U.S. funds, as well as mutual funds, non-U.S. funds and collective trusts. The company has an expected earnings growth rate of 13.5% for the current year. The Zacks Consensus Estimate for the current year has improved 4.1% over the last 30 days. The stock has a dividend yield of 6.9%. It has rallied 39.2% in the past year.
Ralph Lauren Corp. (RL - Free Report) is a major designer, marketer and distributor of premium lifestyle products in North America, Europe, Asia and internationally. The company has an expected earnings growth rate of 12.9% for the current year (ending March 2020). The Zacks Consensus Estimate for the current year has improved 5.6% over the last 30 days. The stock has a dividend yield of 2.3%. It has jumped 32.4% in the past year.
T. Rowe Price Group Inc. (TROW - Free Report) is a publicly owned investment manager. It provides services to individuals, institutional investors, retirement plans, financial intermediaries and institutions. The company has an expected earnings growth rate of 9.4% for the current year. The Zacks Consensus Estimate for the current year has improved 4.7% over the last 30 days. The stock has a dividend yield of 2.2%. It has appreciated 27.5% in the past year.
M.D.C. Holdings Inc. (MDC - Free Report) is engaged in homebuilding and financial service businesses in the United States. The company has an expected earnings growth rate of 17.2% for the current year. The Zacks Consensus Estimate for the current year has improved 3.6% over the last 30 days. The stock has a dividend yield of 3%. It has climbed 20.9% in the past year.
Federated Hermes Inc. (FHI - Free Report) is a leading provider of investment management and related financial services in the United States. The company has an expected earnings growth rate of 15.6% for the current year. The Zacks Consensus Estimate for the current year has improved 7.2% over the last 30 days. The stock has a dividend yield of 3%. It has advanced 10.3% in the past year.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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