Market participants are eagerly waiting to listen to Fed Chairman Jerome Powell’s lecture at Jackson Hole symposium in Wyoming today. Investors have been shaky ahead of the big event, looking to gauge the mood of the majority of the Fed officials regarding the central bank’s ultra-dovish monetary policies that it had adopted at the onset of the global outbreak of coronavirus in March 2020. They are likely to look for any signs about the tapering of the Fed’s ongoing quantitative easing program.
Whatever may be the Fed’s decision, we have identified a handful of stocks with a favorable Zacks Rank that are likely to be immune to the outcome of the Jackson Hole symposium. These stocks have provided double-digit returns in the past month and still have upside left for the rest of 2021.
Consumer Spending to Remain Robust
As the fiscal stimulus is gradually fading out, investors are looking for the next catalyst to drive the economy. At this stage, a closer look at the U.S. economy reveals that the driver is endogenous. It is rock-solid aggregate demand.
The U.S. GDP exceeded the pre-pandemic level in second-quarter 2021. This happened much earlier than market’s expectation, predominantly due to robust consumer spending that accounts for nearly 70% of the GDP.
U.S. businesses of all sizes are expanding their scale of operations and hiring more, despite soaring wages and salaries, to cater to robust demand. The personal savings of Americans are around an astonishing $2 trillion. The sky-high savings are allowing people to fulfil their pent-up wishes, thanks to the lockdowns, and in turn compelling businesses to expand their scale of operations.
Business Spending to Remain Solid
On Aug 25, the Department of Commerce released the durable goods orders report for July. New orders for core capital goods (non-defense capital goods excluding aircraft) remained the same in July after rising 1% in June. This metric is a closely watched proxy for business investment plan. Shipments of core capital goods rose 1% in July after rising 0.6% in June. This metric is used to calculate equipment spending in GDP measurement.
The above-mentioned data are very important at a time when market watchers are primarily concerned that the Delta variant together with the gradual fading out of the fiscal stimulus will affect consumer spending. A healthy business spending in the second half of 2021 should compensate for any material decline in consumer spending, if it happens at all.
Not All Stocks Will Succumb to Higher Interest Rate
A systematic termination of the Fed’s $120 billion per month bond-buy program will raise the yield of long-term government bonds, especially the 10-Year U.S. Treasury Note. Higher risk-free returns adversely impact the net present value of an investment in equities due to a higher discount rate. A hike in market’s risk-free interest rate will affect growth stocks as these companies depend on easy access to cheap credit for their business expansion.
However, not all stocks will succumb to higher interest rate. Even if the Fed changes its dovish monetary stance in the near future, pushing up the market's interest rate, corporate giants (market capital > $40 billion) are unlikely to bear the brunt of a rising interest rate.
These companies have a robust business model across the world and command globally acclaimed brand values. Their strong financial position will help them to cope with a higher interest rate.
Our Top Picks
We have narrowed down our search to five U.S. corporate bigwigs that have provided more than 10% returns in the past month compared with the market’s benchmark S&P 500 Index’s return of a mere 2.2%.
These stocks have strong growth potential for the rest of 2021 and have seen positive earnings estimate revisions within the past 30 days indicating that the market is currently expecting these companies to do good business in the rest of 2021.
Finally, each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). 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 month.
Image Source: Zacks Investment Research
American International Group Inc (NYSE:AIG). AIG has been streamlining its core insurance operations thereby enhancing capital allocation and operating leverage. It has acquired Ellipse, a specialist provider of group life risk protection in the UK, from Munich Re.
The transaction has strengthened the company's position in Life & Retirement businesses. The buyout of Validus Holdings, Ltd. and Glatfelter Insurance Group, has also strengthened its global General Insurance business.
This Zacks Rank #2 company has an expected earnings growth rate of 93.7% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 2.5% over the past seven days. The stock price has jumped 15% in the past month.
Moderna (NASDAQ:MRNA) Inc. MRNA is a biotechnology company, which develops therapeutics and vaccines based on messenger RNA for the treatment of infectious diseases, immuno-oncology, rare diseases, cardiovascular diseases, and auto-immune diseases.
The company’s COVID-19 vaccine demonstrated strong uptake in multiple countries where it received authorization for temporary use in the past few months. It expects more than $19 billion in vaccine sales in 2021. Advance purchase agreements with several countries worth $20 billion in aggregate for 2022 are already in place.
This Zacks Rank #2 company has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.3% over the past 30 days. The stock price has climbed 14.6% in the past month.
Regeneron Pharmaceuticals Inc (NASDAQ:REGN). REGN is benefiting from strong demand for Eylea and Dupixent. Continued growth in Eylea and Dupixent through further penetration in existing indications and a promising late-stage pipeline aid its prospects. The approval of Libtayo in the lucrative indication of NSCLC and BCC should also boost sales.
This Zacks Rank #1 company has an expected earnings growth rate of 72.1% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.4% over the past 30 days. The stock price has surged 13.5% in the past month.
NVIDIA Corp. NVDA is benefiting from the coronavirus-induced work-from-home and learn-at-home wave. It is also benefiting from strong growth in GeForce desktop and notebook GPUs, which are boosting gaming revenues.
Moreover, a surge in Hyperscale demand remains a tailwind for the company’s
Data Center business. Expansion of NVIDIA GeForce NOW is expected to drive user base. Further, a solid uptake of artificial intelligence-based smart cockpit infotainment solutions is a boon.
This Zacks Rank #2 company has an expected earnings growth rate of 68% for the current year (ending January 2022). The Zacks Consensus Estimate for current-year earnings has improved 6.1% over the past seven days. The stock price has appreciated 13.1% in the past month.
Carrier Global (NYSE:CARR) Corp. CARR is benefiting from Solid momentum across HVAC, refrigeration, and Fire and Security businesses. Rising demand in North America residential HVAC remained a positive.
Additionally, the company’s increasing traction in the transport refrigeration space was a positive. Moreover, Abound, which is performing well in the indoor environment, is likely to continue driving growth in recurring revenues. Also, improving order intake in the fire & safety segment is a tailwind.
This Zacks Rank #2 company has an expected earnings growth rate of 32.5% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 5.8% over the past 30 days. The stock price has advanced 11.2% in the past month.
5 Stocks Set to Double
Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2021. Previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.
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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