New coronavirus cases in the country continue to emerge at an alarming rate, with the number of cases doubling in a span of just a week and a half. Several states have taken to rolling back some business activities to limit the virus outbreak. But despite these setbacks, investors have become quite optimistic.
A major reason behind this optimism lies in the data reported by some leading economic indicators as well as the low-interest rate environment in the country. Financial markets are merely reflecting this optimism.
However, given the risk the virus still poses, it would be wise to invest in companies that possess strong balance sheets and a steady means of business. Another reason to invest in value stocks right now is that these are trading far lower than what they are worth, as markets continue to recover. Therefore investing in these stocks at present makes sense.
Wall Street Moves Ahead Despite Rising COVID-19 Cases
The number of infected people in the country was reported at 2.91 million as of Jul 6, with the United States resurfacing as a global hotspot. In addition, several business restrictions were also put in place by state and local authorities over the past few days in a bid to contain the spread of the virus.
However, these appeared to have little impact on U.S. equities, which continued to climb on Jul 6. In fact, taking at look at the three major U.S. indexes, one may note that equities have gained strength over the past three months, which comprise the period during which all 50 states started to reopen their economies.
In the said timeframe, the Dow Jones Industrial Average, the broader S&P 500 and the tech-laden Nasdaq Composite gained 13.9%, 19.4% and 29% respectively.
In addition, key economic data such as consumer spending, new job additions, factory activity and housing data have reported very encouraging figures lately, indicating a strong recovery.
Economic Indicators Pointing at Recovery
Recent economic data has been quite encouraging, in particular at a time when coronavirus infections around the country fail to decline. Since all 50 states reopened their economies slowly around April-end, both consumer and business activity have gathered steam.
First, consumer spending in the United States jumped 8.2%, marking a strong rebound, per the Commerce Department. May’s rise was the largest since the government started tracking the series in 1959. The data is quite remarkable; considering that consumer spending had declined by a historic 12.6% just the month before.
Second, an impressive number of new jobs were added in May and June. The country added 2.5 million new jobs in the month of May followed by a striking 4.8 million new job additions in June, according to data by the Labor Department.
Third, after three consecutive months of contraction, manufacturing activity in the country also rebounded strongly last month. According to the Institute for Supply Management (ISM), manufacturing activity hit its highest level in more than a year as the economy reopened. The ISM’s index of national factory activity hit a reading of 52.6 in June from 43.1 in May. June’s reading was the strongest since April 2019.
Finally, according to the U.S. Census Bureau and Department of Housing and Urban Development, new residential sales for May (reported at 676,000) were 16.6% higher than the revised April rate of 580,000. In addition, the said figure is 12.7% higher than the year-ago period’s estimate of 600,000.
Low-Rate Environment is Ideal for Economic Revival
The Federal Reserve’s near-zero rates are also giving companies enough scope to recover from the pandemic-led rout. The current federal fund rates lie in a range of 0% to 0.25%.
The central bank had decided on these rates in mid-March in a bid to revive the economy. At the Federal Open Market Committee’s meeting in June, the central bank decided to keep the rates unchanged. The rates are expected to stay at this level for the next two and a half years.
4 Stocks to Buy
We have, therefore, chosen four value stocks that are ideal to buy in a pandemic-hit economy. All these stocks carry a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Big Lots, Inc. BIG is a retailer that offers products under numerous merchandising categories. Shares of Big Lots, which belongs to the Zacks Retail - Discount Stores industry, have gained more than 100% over the past three months compared to the industry’s decline of 6% during the same period.
The Zacks Consensus Estimate for the company’s current-year earnings has moved more than 100% north in the past 60 days. Big Lots has a price-to-earnings ratio (P/E) of 6.62, compared with 10.10 for the industry. The company possesses a Value Score of A.
United Natural Foods, Inc. UNFI is a distributor of natural, organic, specialty, produce and conventional grocery and non-food products. Shares of United Natural Foods, which belongs to the Zacks Food - Miscellaneous industry, have gained 93.3% over the past three months compared to the industry’s rise of 8.4% during the same period.
The Zacks Consensus Estimate for the company’s current-year earnings has moved more than 100% north in the past 60 days. United Natural Foods has a price-to-earnings ratio (P/E) of 7.57 compared with 32.20 for the industry. The company possesses a Value Score of A.
BrightSphere Investment Group Inc. BSIG is an asset management holding company. Shares of BrightSphere Investment Group, which belongs to the Zacks Financial - Investment Management industry, have gained more than 100% over the past three months compared to the industry’s rise of 20.4% during the same period.
The Zacks Consensus Estimate for the company’s current-year earnings has moved 21.7% north in the past 60 days. BrightSphere Investment Group has a price-to-earnings ratio (P/E) of 8.73 compared with 11.80 for the industry. The company possesses a Value Score of A.
AbbVie Inc. ABBV is a developer and manufacturer of pharmaceuticals. Shares of AbbVie, which belongs to the Zacks Large Cap Pharmaceuticals industry, have gained 26.1% over the past three months compared to the industry’s growth of 6.1% during the same period.
The Zacks Consensus Estimate for the company’s current-year earnings has moved 4.9% north in the past 60 days. AbbVie has a price-to-earnings ratio (P/E) of 9.38, compared with 15.40 for the industry. The company possesses a Value Score of B.
Zacks’ Single Best Pick to Double
From thousands of stocks, 5 Zacks experts each picked their favorite to gain +100% or more in months to come. From those 5, Zacks Director of Research, Sheraz Mian hand-picks one to have the most explosive upside of all.
This young company’s gigantic growth was hidden by low-volume trading, then cut short by the coronavirus. But its digital products stand out in a region where the internet economy has tripled since 2015 and looks to triple again by 2025.
Its stock price is already starting to resume its upward arc. The sky’s the limit! And the earlier you get in, the greater your potential gain.
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