5 Large-Cap Stocks Poised To Provide Big Returns

On Monday, all of the three benchmark indexes ended on record highs. This was the second such occurrence within a period lesser than a week. On this occasion, a jump in oil prices was the catalyst for the benchmarks to end on such a positive note. Another reason for the surge in stocks was news that Hillary Clinton was leading GOP nominee Donald Trump by a decisive margin.

However, the absence of fundamental reasons for these gains means that the cause for such a rally is difficult to identify. As a more than seven year long Bull Run continues, it is becoming increasingly difficult for investors to place their bets.

At the same time, it is important to remain invested in a market offering such strong gains. Picking large-cap stocks which promise considerable returns may be a good idea in such an environment.

“Sell in May and Go Away” Refuted

This old saying has been strongly refuted by markets this year. The logic behind this adage is that the summer vacation season hampers sales and negatively affects business. This in turn leads to weak earnings during the July to September quarter.

Following from this logic, the second half of October generally witnesses disappointing numbers, which in turn pulls down markets. This is why it may be a good idea to cash in on May Day and return to the bourses on Halloween (read: 4 Stocks to Avoid Sell-in-May Syndrome).

However, after traversing a relatively subdued May and ending mixed in June, markets performed strongly in July. Over the last month, the S&P 500, the Dow and the Nasdaq gained 3.6%, 2.8% and 6.6%, respectively.

As of now, the Dow is up nearly 0.8% month to date, while the S&P 500 and the Nasdaq have gained 1% and 3.2% over the same period. This may not seem to be much at first glance, but works out to be quite considerable when one extrapolates for the full year’s returns, well in excess of 20%.

Low Interest Rates, Absence of Alternatives Boosting Stocks

Analysts and market watchers believe that stocks are being driven higher by an old theme. This is essentially a regime of low interest rates where investors are constantly searching for higher returns. As of now, the Fed seems to be unwilling to hike rates higher. Meanwhile, the rest of the world’s central banks are intent on providing more and more monetary stimulus.

It is almost as if markets do not have any alternative but to keep on moving higher. Here, it is essential to understand that there is an absence of any strong positive or negative market related or economy driven developments. In such a situation, the rally feeds on itself and stocks create fresh records on a regular basis.

Our Choices

In an environment where stocks are creating fresh records every day, investors are being presented with an unusual dilemma. In the absence of a sell-off, they can only hold onto their positions or buy into an ever rising market.

This is why it is important to seek out relatively stable alternatives which hold out the promise of considerable returns. Large-cap stocks are relatively safer bets. At the same time, it is important to consider only those which offer the promise of short-term benefits and the prospect of good long-term performance. However, it may be difficult to pick winning stocks.

This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score.

We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM score.

The Goodyear Tire & Rubber Company (NASDAQ:GT) is one of the world’s largest tire manufacturing companies, selling under Goodyear, Dunlop and various other “house” brands as well as private-label brands.

Goodyear has a Zacks Rank #2 (Buy) and a VGM Score of A. The percentage of brokers giving it a Strong Buy or Buy rating is 60 and its Earnings ESP is +4.35%. The company has expected earnings growth of 18.1% for the current year. Its earnings estimate for the current year has improved by 1.6% over the last 30 days.

The Home Depot Inc. (NYSE:HD) is the world’s largest home improvement specialty retailer with over 2,200 retail stores across the globe.

Home Depot has a Zacks Rank #2 and a VGM Score of A. The percentage of brokers giving it a Strong Buy or Buy rating is 64.7 and its Earnings ESP is +1.3%. The company has expected earnings growth of 16.6% for the current year. Its earnings estimate for the current year has improved by 0.3% over the last 30 days.

Dollar Tree, Inc. (NASDAQ:DLTR) is an operator of discount variety stores offering merchandise at a fixed price point of $1.00.

Dollar Tree has a Zacks Rank #2 and a VGM Score of A. The percentage of brokers giving it a Strong Buy or Buy rating is 62.5 and its Earnings ESP is +4.11%. The company has expected earnings growth of 61.9% for the current year. Its earnings estimate for the current year has improved by 0.9% over the last 30 days.

Tahoe Resources Inc. (NYSE:TAHO) is engaged in the exploration and development of mineral properties in the U.S. for the mining of precious metals.

Tahoe Resources has a Zacks Rank #2 and a VGM Score of A. The percentage of brokers giving it a Strong Buy or Buy rating is 100 and its Earnings ESP is +18.75%. The company has expected earnings growth of 45.8% for the current year. Its earnings estimate for the current year has improved by 17% over the last 30 days.

Fortune Brands Home & Security, Inc. (NYSE:FBHS) is a provider of home and security products in the U.S.

Fortune Brands Home & Security has a Zacks Rank #2 and a VGM Score of B. The percentage of brokers giving it a Strong Buy or Buy rating is 57.1 and its Earnings ESP is +1.3%. The company has expected earnings growth of 32.1% for the current year. Its earnings estimate for the current year has improved by 6.6% over the last 30 days.