5 Top-Ranked Stocks That Ruled The Markets In Q1

Markets endured a particularly volatile start to the year, ultimately losing significantly in the first quarter. Key indexes touched record levels in January before encountering a correction in February. These losses were caused by a jump in wages which triggered fears of higher inflation and faster rate increases.

After a short recovery toward the end of February, markets encountered further losses in March. Fears of an impending trade war between the United States and China weighed on investor sentiment. Tech stock-related losses also acted as a drag on broader markets.

Most Volatile Quarter Since 2011

During the first quarter, the Dow and the S&P 500 declined 2.3% and 1.2%, respectively. The period also brought to a close a nine-quarter-long stretch of gains for both these benchmarks. These were the first quarterly losses for the S&P 500 since 2015. But despite tech induced losses in February and March, the Nasdaq closed the quarter 2.3% higher.

Additionally, it was the most volatile quarter in recent memory. Last year, markets experienced the lowest levels of volatility in decades, hitting an all-time low in November, 2017. But over the recently concluded first quarter, the market’s fear gauge, the VIX increased a staggering 81%. This is the highest advance recorded since the third quarter of 2011.

Blistering Gains in January, Correction in February

For the month of January, the Dow, the S&P 500 and the Nasdaq increased 5.8%, 5.6% and 7.4%, respectively. The passage of the Tax Cuts and Jobs Act of 2017 contributed heavily to January’s gains.

Moreover, during the month, the Senate gave its consent to pass a short-term spending Bill that ends the recent government shutdown. Additionally, upbeat fourth-quarter earnings season also contributed to strong market performance. (Read: 5 Best Performing Stocks of January)

However, an unexpected correction hit stocks in February. For the month, the Dow, the S&P 500 and the Nasdaq decreased 4.3%, 3.9% and 1.9%, respectively. Markets suffered huge losses during the month following concerns over the decline in attractiveness of equities compared to bonds. In February, all the key indexes declined more than 10% from the all-time highs achieved on Jan 26, to enter correction territory.

Strong Economic Outlook

Economic data released over the quarter remained largely encouraging. Over the fourth quarter, U.S. GDP advanced at a 2.9% annual rate of growth. The figure exceeded the second estimate of 2.5%, marked a marginal decline from the 3.2% pace recorded in the third quarter.

Personal consumption increased by 0.2% during both January and February. However, inflation cooled slightly in February, with PCE inflation increasing 0.2% after advancing 0.3% in January. However, core PCE inflation experienced a yearly advance of 1.6%, the highest increase since February 2017.

On the jobs front, average hourly earnings surged 0.3% in January, boosting the yearly average to 2.9% — the highest since June 2009. Monthly wage gains moderated to 0.1% in February but the unemployment rate remained unchanged at a 17-year low of 4.1%. Further, for the week ended Mar 24, jobless claims plunged to a 45-year low.

Yield Spike, Inflationary Concerns Worry Investors

On Feb 8, U.S. markets officially entered correction territory. During the second week of February, the 10-year Treasury yield moved above 2.85% twice. Both these instances were followed by widespread losses for stocks. Meanwhile, average year-on-year hourly earnings for January increased to 2.9%, the highest since June 2009.

The record increase in wages led to concerns that retail prices would increase. Such fears, taken together with soaring yields, led to speculation that the pace of rate hikes would likely quicken over the year. (Read: Brave the Market Correction With These 6 Defensive Stocks)

Ultimately on Mar 21, the Federal Reserve increased the federal funds rate by 0.25 percentage point following its first meeting under new Fed Chair Jerome Powell. At the same time, the Fed reiterated that it intends to raise rates only three times this year, sticking to a gradual path of increases. (Read: Fed Hikes Rates, Gives Strong Outlook: Grab These 5 Stocks)

Trump Triggers a Trade War

On Mar 1, President Donald Trump said in a meeting with executives of steel and aluminum companies at the White House, said he would levy a 25% tariff on steel imports and 10% tariff on aluminum imports. The tariff announcement stoked fears of an international trade war and sparked a selloff. Ultimately, on Mar 8, Trump signed off on these tariffs but exempted key trading partners Canada and Mexico.

But the drama on the trade front was far from over. On Mar 22, Trump finally set in motion tariffs on as much as up to $60 billion in Chinese imports. Consequently, China announced plans for reciprocal tariffs on $3 billion of imports from the United States, giving rise to fears of an ensuing trade war.

Overall, China has said that it will impose tariffs on 128 U.S. products, including fruit and pork. Meanwhile, Trump is slated to reveal details of his tariffs on Chinese goods later this week. The focus is expected to be primarily on "high-technology" products. Naturally, markets have not taken kindly to these developments and have sustained severe losses on more than one occasion.

Tech Stocks Continue to Plunge

While investors had hoped that tech stocks would firm up after February’s correction, the sector incurred heavy losses in the closing weeks of March. During the fourth week of last month, shares of Facebook Inc. (NASDAQ:FB) took a massive hit in the wake of a data misuse scandal.

The carnage for tech stocks continued during the last week of the month Even as Facebook continued to plunge, shares of Nvidia Corporation (NASDAQ:NVDA) and Tesla, Inc. (NASDAQ:TSLA) were plagued by incidents and investigations related to the self-driving arena. Though tech stocks managed to recover somewhat during the last trading day of the quarter, the Technology Select Sector SPDR (XLK) still ended March 4% lower.

5 Star Performers for Q1

I ran a screen on Research Wizard for companies with the following parameters:

(Click here to sign up for a free trial to the Research Wizard today):

1. Percentage price change over the last 12 weeks greater than or equal to 20%
2. Forward price-to-earnings ratio (P/E) for the current financial year (F1) less than or equal to 20. This picks out stocks that are good value choices
3. Expected earnings growth for the current financial year greater than or equal to 20%
4. Zacks Rank equal to 1: This ascertains stocks that have shown above-average returns over the last 26 years. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

(See the performance of Zacks’ portfolios and strategies here: About Zacks Performance).

Here are the top 5 stocks that made it through this screen:

Mammoth Energy Services, Inc. (NASDAQ:TUSK) is an integrated oilfield service company.

Price gain over the last 4 weeks = 45.5%

Mammoth Energy Services’ expected earnings growth for the current year is more than 100%. The forward price-to-earnings ratio (P/E) for the current financial year (F1) is 7.59.

SMART Global Holdings Inc. (NASDAQ:SGH) is a designer, manufacturer and supplier of electronic subsystems to OEMs.

Price gain over the last 4 weeks = 41.4%

SMART Global Holdings’ expected earnings growth for the current year is more than 100%. The stock has a P/E (F1) of 8.03x.

SolarEdge Technologies, Inc. (NASDAQ:SEDG) provides innovative solar power harvesting and monitoring solutions for residential, commercial, and utility-scale solar PV installations.

Price gain over the last 4 weeks = 40.8%
Expected earnings growth for current year = 21.4%

SolarEdge Technologies has a P/E (F1) of 17.83x.

Dillard's Inc. (NYSE:DDS) is a large departmental store chain featuring fashion apparel and home furnishings.

Price gain over the last 4 weeks = 40.3%
Expected earnings growth for current year = 21.2%

Dillard's has a P/E (F1) of 13.81x.

Veritiv Corporation (NYSE:VRTV) engages in offering North American business-to-business distribution solutions. It provides packaging, print and print management, publishing, supply chain, facility and logistics solutions that span the entire lifecycle of core business operations

Price gain over the last 4 weeks = 38.5%

Veritiv’s expected earnings growth for the current year is more than 100%. The stock has a P/E (F1) of 10.23x.

What’s in Store for Stocks in Q2?

With new announcements related to tariffs coming in recently, markets will continue to grapple with fears of a trade war. Moreover, tech stocks seem set for a reckoning with several incidents weighing on big players from the sector. While economic data remains largely encouraging, markets will likely have to encounter more volatility as they look ahead to the second quarter.

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