Wall Street has garnered some confidence lately, owing to the Federal Reserve’s optimism over the economy for the long term, the government’s continuing efforts to boost the economy and strong efforts by biotechnology companies to make a breakthrough with an effective vaccine against the novel coronavirus.
In such a scenario, one could take a closer look at value stocks, since it would be ideal to invest in companies that have strong balance sheets and a steady means of business. Let us consider how the markets have been doing lately and what factors make value stocks prudent investments right now.
Financial Markets Gathering Steam Alongside an Optimistic Fed
The three major indexes have come a long way from their Mar 23 lows. The Dow Jones Industrial Average has gained 32.3%, the broader S&P 500 has added 30.6% and the tech-laden Nasdaq has risen 34.6% since then.
Although the lowest point of the markets came a week after the Federal Reserve cut its benchmark rates to near-zero on Mar 15, things have taken a somewhat U-turn since then. The move came after U.S. markets fell into a bear market in the second week of March. The faster-than-expected rate cut by the Fed to support the economy during the pandemic was designed to avert any kind of credit crunch and financial market disturbances.
The rate cut to near-zero levels certainly put a floor under equities and helped them gain strength. The current Fed rates lie between 0% and 0.25%.
In addition Fed chief Powell was optimistic earlier this week, saying that the U.S. economy can start to recover from a devastating recession in the second half of 2020, assuming that the virus doesn’t lead to a second round of infections. Powell delivered a positive message, noting that the economy will recover in the long run.
Government’s Gigantic Economic Stimulus
Another measure that is also supporting the economy is the U.S. government’s massive stimulus package to boost businesses in the country that bore the brunt of the pandemic over the past few months.
Congress cleared as much as $3 trillion in rescue funds last week that are aimed at helping state and local governments, health systems and a wide range of other initiatives. The legislation has been dubbed as the Heroes Act.
The Health and Economic Recovery Omnibus Emergency Solutions Act (thus Heroes) allots nearly $1 trillion for state, local and tribal governments; a second round of direct payments to individuals, up to $6,000 per family, which will include payments to unauthorized immigrants; $200 billion for hazard pay for essential workers; $75 billion for coronavirus testing and tracing; more spending on food stamps; $175 billion on housing support; student loan forgiveness; and a new employee retention tax credit and extension of unemployment benefits.
According to the Internal Revenue Service (IRS), the Paycheck Protection Program is meant to cover about 150 million payments. The IRS began sending checks in mid-April, and by the beginning of May, it had already made 130 million payments.
3 Stocks to Pocket Today
We have handpicked three great value stocks that have gained since the beginning of this year. All of these stocks carry a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
AbbVie Inc. (ABBV - Free Report) is a research-based biopharmaceutical company. Shares of the company, which belongs to the Zacks Large Cap Pharmaceuticals industry, have gained 3% so far this year compared with the industry’s decline of 0.8%.
AbbVie has a Value Score of A and a price-to-earnings ratio (P/E) of 8.31, compared with 15.30 for the industry. The Zacks Consensus Estimate for the company’s current-year earnings has moved 17.4% north in the past 60 days.
United Natural Foods, Inc. (UNFI - Free Report) is a distributor of natural, organic, specialty, produce, and conventional grocery and non-food products. Shares of the company, which belongs to the Zacks Food - Miscellaneous industry, have gained 107.7% so far this year compared with the industry’s decline of 11%.
United Natural Foods has a Value Score of A and a price-to-earnings ratio (P/E) of 9.16, compared with 29.70 for the industry. The Zacks Consensus Estimate for the company’s current-year earnings has moved 64.5% north in the past 60 days.
GAIN Capital Holdings, Inc. (GCAP - Free Report) is a provider of trading services and solutions to the over-the-counter and exchange-traded markets. Shares of the company, which belongs to the Zacks Financial - Investment Bank industry, have gained 60.8% so far this year compared with the industry’s decline of 22%.
GAIN Capital has a Value Score of B and a price-to-earnings ratio of 2.56 compared with 14.70 for the industry. The Zacks Consensus Estimate for the company’s current-year earnings has moved more than 100% north in the past 60 days.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>