The Dow hit yet another landmark level on Tuesday, breaching the 23,000 barrier for the very first time to create a new intraday record. The blue-chip index ended the trading day marginally below this mark, closing at 22,998. But even so, it serves to illustrate that things haven’t been this good for blue-chips for quite some time.
The current administration’s tax reform and deregulation proposals and sustained strong earnings performance are the factors powering this ascent. Such factors are unlikely to disappear in the near term, which makes it imperative to pick up some solid Dow components which are also slated to outperform their earnings estimates.
Trump’s Tax, Deregulation Proposals Spark Enthusiasm
This is a crucial week for the Trump administration with the Senate poised to consider a budget resolution. Earlier this month, the House of Representatives passed a $4.1 trillion 2018 budget legislation, representing the first definitive move toward tax reforms. This was a big victory for Trump who unveiled his much touted tax plan at the end of September. Among its key proposals is a reduction in the rate of corporate tax rate from 35% to 20%. Several tax-related concessions are also targeted at individuals.
This is one of the primary factors driving markets higher at this point. Additionally, Trump has stated that he wants to do away with nearly 75% of all governmental regulations during this term as President. It is widely expected that the financial sector will be one of the major beneficiaries of such changes. Even sectors which have come up for criticism from a wide range of the political spectrum, such as healthcare, could benefit if some regulations are abolished.
Strong Earnings Streak Likely to Continue
Despite a slow but steady start to the third quarter earnings season, hopes remain high that the favorable momentum that has been on display over the last few quarters will get reconfirmed in this earnings season as well. Looking at the Q3 earnings season as a whole, as of Oct 16, we had received results from 33 S&P 500 index members that combined account for 10.6% of the index’s total market capitalization.
Total earnings for these 33 index members are up +13.1% from the same period last year on +6.4% higher revenues, with 81.8% beating EPS estimates and 75.8% beating revenue estimates. For Q3 as a whole, total earnings for the S&P 500 index are expected to be up +2.3% from the same period last year on +5% higher revenues. (Read: Will Q3 Earnings Help Drive the Market Higher?)
Our Choices
Blue chip stocks have been going from strength to strength recently, riding primarily on Trump’s reform proposals and a series of strong earnings performances. Given that both these factors are likely to remain constant in the near future, it makes good sense to invest in Dow stocks poised to beat earnings estimates.
Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising with their next earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
You could further narrow down the list of choices by looking at stocks that have a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.
Apple Inc. (NASDAQ:AAPL) has beaten the Zacks Consensus earnings estimate for the last four consecutive quarters with an average positive earnings surprise of 3.8%.
Powered with the right combination of the two key ingredients – an Earnings ESP of +0.27% and a Zacks Rank of 2 – our proven model shows that an earnings beat is expected for Apple in the to-be-reported quarter as well.
The company is expected to report fourth-quarter 2017 results on Nov 2.
Caterpillar Inc. (NYSE:CAT) has an excellent track record, having beaten the Zacks Consensus earnings estimate for the last four consecutive quarters with an average positive earnings surprise of 41.4%.
Powered with the right combination of the two key ingredients – an Earnings ESP of +1.27% and a Zacks Rank of 2 – our proven model shows that an earnings beat is expected for Caterpillar in the to-be-reported quarter as well.
The company is expected to report third-quarter 2017 results on Oct 24.
Visa Inc. (NYSE:V) has beaten the Zacks Consensus earnings estimate for the last four consecutive quarters with an average positive earnings surprise of 8.4%.
Powered with the right combination of the two key ingredients – an Earnings ESP of +0.37% and a Zacks Rank of 2 – our proven model shows that an earnings beat is expected for Visa in the to-be-reported quarter as well.
The company is expected to report fourth-quarter 2017 results on Oct 25.
Wal-Mart Stores, Inc. (NYSE:WMT) has beaten the Zacks Consensus earnings estimate for the last four consecutive quarters with an average positive earnings surprise of 2%.
Powered with the right combination of the two key ingredients – an Earnings ESP of +0.14% and a Zacks Rank of 2 – our proven model shows that an earnings beat is expected for Wal-Mart in the to-be-reported quarter as well.
The company is expected to report third-quarter 2017 results on Nov 16.
The Hottest Tech Mega-Trend of All
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See Zacks' 3 Best Stocks to Play This Trend >>
Apple Inc. (AAPL): Free Stock Analysis Report
Caterpillar, Inc. (CAT): Free Stock Analysis Report
Wal-Mart Stores, Inc. (WMT): Free Stock Analysis Report
Visa Inc. (V): Free Stock Analysis Report
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