Markets with strong earnings and economic data: Top 5 picks


Wall Street rebounded in the first half of October after a devastating September in which major stock indexes experienced the biggest drop in a decade. October is also known for its fluctuating business model.

Despite this, since the start of the month, the three major stock indexes – the Dow, the S&P 500 and the Nasdaq Composite – have gained 4.3%, 3.8% and 3.1% respectively. The S&P 400 index focused on mid caps rose 4.1%. The Russell 2000 and S&P 600, specific to small caps, gained 2.8% and 2.4% respectively.

An impressive start to the third quarter 2021 earnings season and some solid economic data released in October confirmed the unhindered recovery of the U.S. economy amid protracted supply chain disruptions and labor shortages. ‘artwork.

Strong economic data

Several economists and financial experts raised eyebrows over the continued recovery in the United States after non-farm payrolls fell short of consensus estimates in two consecutive months of August and September. Despite this, the unemployment rate fell sharply to 4.8% in September from 5.2% in August.

However, weekly jobless claims have remained at the lowest of the pandemic era for the past three months. The first jobless claims stood at 293,000 for the week ending October 9. This is the best level since March 14, 2020. For the first time, the metric has fallen below 300,000 since the early days of the Covid-19 epidemic. In addition, continuing claims fell from 134,000 to 2.59 million, marking another low in the pandemic era.

The Institute of Supply Management reported that the manufacturing and services PMIs posted exceptional results in September. Strong data for the manufacturing and service sectors will ultimately lead to strong economic growth. Notably, the service sector accounts for 70% of US GDP while the manufacturing sector controls around 12% of economic activity.

Retail sales in September rose 0.7%, contrary to the consensus estimate of a decline of 0.1%. In addition, data for August has been revised upwards to 0.9% from 0.7% reported earlier. Year over year, retail sales climbed 13.9% in September.

Core retail sales (excluding autos) in September rose 0.8%, beating the consensus estimate of 0.5%. In addition, data for August has been revised up to 2% from 1.8% reported earlier. Year over year, core retail sales jumped 15.6% in September.

Retail sales have risen steadily despite the end of weekly unemployment benefits on September 6. This is important because retail sales represent a significant portion of consumer spending, the main driver of the US economy. A sharp drop in cases of the Delta variant of COVID-19 infection was the main reason for the strong retail data.

Robust start to third quarter earnings season

As of October 15, 41 S&P 500 companies have released their third quarter results. The total profits of these companies are up 40.4% year-over-year with revenues higher by 13.4%, 85.4% exceeding EPS estimates and 70.7% exceeding estimates of income.

Third-quarter total profits of the market’s benchmark – the S&P 500 Index – are expected to jump 29.4% from the same period last year with earnings 14.1% higher, after a 95% year-over-year profit growth on 25.3% top revenue in second quarter profit growth and 49.3% year-over-year on 10% top revenue , 3% in the first quarter of 2021. (Read more: At the heart of the third quarter earnings season)

The first two quarters of this year were favorably affected as the corresponding quarters of last year were affected by lockdowns and restrictions related to the pandemic. Nonetheless, the US economy has started to partially reopen, albeit at a very slow pace since the third quarter of 2020. Despite favorable comparisons with last year, earnings estimates for the third quarter of 2021 reflect real growth, in 20% increase from the third quarter before the pandemic. .

Our top picks

We restricted our search to five US giants (market capital> $ 100 billion) as these companies have a well-established business model, strong financial position and globally recognized brand value.

These companies will release their third quarter 2021 results this month. Each of our picks carries either a Zacks Rank # 1 (Strong Buy) or 2 (Buy) and a positive earnings ESP. You can see The full list of Zacks # 1 Rank (Strong Buy) stocks today here.

Our research shows that for stocks with the combination of Zacks Rank # 3 (Hold) or better and positive ESP on earnings, the probability of beating earnings can be as high as 70%. These actions should appreciate after the publication of the results. You can discover the best stocks to buy or sell before they are flagged with our ESP Earnings Filter.

The chart below shows the price performance of our five picks over the past quarter.

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Image source: Zacks Investment Research

NextEra Energy Inc. NEE generates, transmits, distributes and sells electricity to retail and wholesale customers in North America through its wind, solar, nuclear and natural gas-fired facilities. It has a well-defined $ 60 billion capital investment plan, which will strengthen infrastructure and add more clean power generation assets to its portfolio.

Despite the pandemic, NextEra Energy, with strong organic project execution, pipeline expansion and strategic acquisitions, is on track to meet its long-term growth goals. It currently has many renewable projects in its order book.

This Zacks Rank # 2 company has a revenue ESP of + 0.70%. It has an expected profit growth rate of 9.1% for the current year. It recorded profit surprises in the last four published quarters, with an average beat of 5.2%. The company is expected to release its results on October 20, before the opening bell.

Tesla Inc. TSLA has acquired a substantial market share in the electric car segment. The increased delivery of the Model 3, which is a significant part of the company’s overall deliveries, is helping its revenue. With Model 3, Model Y contributes to its income.

In addition to increasing automotive revenue, Tesla’s energy production and storage revenue improves its earnings outlook. The automaker said its overall deliveries jumped 20% in the third quarter from its previous high in the second quarter, marking the sixth consecutive quarter-over-quarter gain.

This Zacks Rank # 1 company has a revenue ESP of + 15.68%. It has an expected profit growth rate of over 100% for the current year. Zacks’ consensus estimate for current year earnings has improved 4.1% in the past 30 days. It posted surprise profits in the last four published quarters, with an average beat of 26.5%. The company is expected to release its results on October 20, after the closing bell.

Advanced Micro Devices Inc. AMD relies on the robust performance of the IT and Graphics, and Embedded and Semi-Personalized Enterprise segments. It is benefiting from strong sales of its Ryzen and EPYC server processors, due to the growing proliferation of AI and machine learning in industries such as cloud gaming and the field of supercomputers.

In addition, the growing weight of 7 nanometer products in the vertical data center industry, driven by trends in work from home and e-learning, is a key enabler. Management has raised its revenue and gross margin guidance for 2021 due to strong growth across all businesses.

This Zacks Rank # 2 company has a revenue ESP of + 2.31%. It has an expected earnings growth rate of 94.6% for the current year. Zacks’ consensus estimate for current year earnings has improved 0.4% in the past 7 days. It posted surprise profits in the last four published quarters, with an average beat of 14.9%. The company is expected to release its results on October 26, after the closing bell.

Alphabet Inc. GOOGL has shown an increased appetite in the Home Assistant space. The company is focused on innovation, launching products and services for multiple industries. Alphabet’s strong cloud division contributes substantial revenue growth.

In addition, the expansion of data centers will continue to strengthen its presence in the cloud space. In addition, major updates in its search segment improve search results. In addition, Google’s mobile search is gaining momentum. In addition, the focus on innovation of AI techniques and the home automation space is expected to foster long-term business growth. In addition, its increased focus on the wearable clothing category remains a tailwind.

This Zacks Rank # 2 company has a revenue ESP of + 7.71%. It has an expected profit growth rate of 73.8% for the current year. Zacks’ consensus estimate for current year earnings has improved 0.01% in the past 7 days. It recorded profit surprises in the last four published quarters, with an average beat of 47.2%. The company is expected to release its results on October 26, after the closing bell.

Texas Instruments Inc. TXN is benefiting from the growth of the personal electronics market due to the growing trend of working from home induced by the coronavirus. In addition, the strong momentum in the analog segment through a robust signal chain and electrical product lines is boosting revenue.

The continued rebound in the automotive market is a positive wind for the company. Another positive element is the solid growth of the industrial market. Strategic investments in new growth avenues and competitive advantages should also pay off in the long term. Its long-life product portfolio and efficient manufacturing strategies are the other tailwinds.

This Zacks Rank # 2 company has a revenue ESP of + 9.22%. It has an expected profit growth rate of 32.7% for the current year. Zacks’ consensus estimate for current year earnings has improved 0.8% over the past 30 days. It recorded profit surprises in the last four published quarters, with an average beat of 20.3%. The company is expected to release its results on October 26, after the closing bell.

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NextEra Energy, Inc. (NEE): Free Stock Analysis Report

Texas Instruments Incorporated (TXN): Free Stock Analysis Report

Advanced Micro Devices, Inc. (AMD): Free Stock Analysis Report

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