Investors usually look out for a strategy to earn above-market returns. But, if the company is growing on par with the broader market’s expected growth rate, the stock’s performance will be in line with market returns.
Therefore, in order to get better returns than the market, investors should consider stocks that have the potential to post solid earnings growth in the near term.
Over the last month, the S&P 500 and the Nasdaq Composite Index have gained more than 2% each, buoyed by the following underlying factors.
Encouraging Economic Data
Industrial output rebounded in August and registered its largest increase in a year. The Federal Reserve recently said that industrial production, a measure of factory, mining and utility output increased at a seasonally adjusted rate of 0.6% in August compared to the prior month. The reading was well above analysts’ expectation of a 0.2% increase.
Buoyed by a resilient labor market and solid income gains, consumers remain the primary source of firepower for economic growth. According to the Commerce Department, sales at U.S. retailers rose 0.4% last month, mostly led by motor vehicle and online purchases. Retail sales climbed north after an upwardly revised 0.8% increase in July. By the way, the measure that excludes car dealers, food services, building materials, stores and gasoline stations rose 0.3%, on par with projections. Needless to say, this core retail sales measure is predominantly viewed as a more reliable gauge of underlying consumer demand.
What’s more, U.S. consumer sentiment rebounded modestly this month. Per the University of Michigan, its consumer sentiment index came in at 92 in September, up from 89.8 in late August. Analysts had expected sentiment to rebound to 91.4. To top it, the current conditions index rose to 106.9 in September from 105.3 in the prior month. The index of expectations too rose to 82.4 from 79.9 in August.
Fed Rate Cut Optimism
The ECB has launched fresh stimulus packages in an attempt to prevent a sluggish Eurozone economy from grinding to a halt. The ECB confirmed that it would trim its deposit rate (the interest paid to commercial banks when they place funds with the central bank) by 0.1 percentage points to an all-time low of -0.5%.
At the same time, the ECB has announced a massive new-bond buying program. The central bank’s quantitative easing (QE) program will involve 20 billion euros ($21.9 billion) per month of net asset purchases for as long as required.
And as the ECB adds more stimuli, the pressure is mounting on the Fed to do the same. President Trump has already called for the Fed to cut rates to boost the U.S. economy.
Trade War Fears Ebb
Beijing has lifted tariffs on some U.S. products amid trade tensions. As a show of goodwill, Trump too delayed tariff hikes against China. Per South China Morning Post citing the Customs Tariff Commission of the State Council, the exemptions on U.S. goods will take effect on Sep 17. The products don’t include big ticket items like agricultural products, but it does include items such as alfalfa pellets, fish feed and medical linear accelerators, to name a few.
Trump reciprocated by announcing a delay in implementation of higher tariffs on $250 billion of Chinese goods. Trump tweeted that tariff hikes from 25% to 30% will now go into effect on Oct 15, rather than the previously scheduled Oct 1.
5 Growth Stocks to Buy
Hence, we believe that such strong domestic economic data, expectations of a Fed rate cut and trade optimism will continue to act as strong catalysts for the U.S. stock market. Thus, to outdo market returns as well as take advantage of the aforesaid factors, we have used the Zacks Stock Screener to narrow down on stocks with solid prospects, sporting a Zacks Rank #1 (Strong Buy) along with Growth Score and VGM Score of A.
Crocs, Inc. CROX designs, develops, manufactures, markets, and distributes casual lifestyle footwear and accessories for men, women, and children worldwide.
Analysts have become increasingly bullish on the company over the past month, leading to an increase of 1.4% and 1.3% in the Zacks Consensus Estimate for 2019 and 2020 earnings, respectively. Additionally, for 2019, EPS is likely to jump 65.1%, further underlining the stock’s potential.
Kinross Gold Corporation KGC engages in the acquisition, exploration and development of gold properties in the United States.
Over the past 30 days, the Zacks Consensus Estimate for its earnings has increased 4% and 3.1%, respectively, for 2019 and 2020. Meanwhile, for 2019, EPS is likely to grow 160%.
MasTec, Inc. MTZ, an infrastructure construction company, provides engineering, building, installation, maintenance, and upgrade services for communications, energy, utility, and other infrastructure, primarily in the United States.
The company has been witnessing an upward trend in earnings estimate revision. Notably, over the past 30 days, the Zacks Consensus Estimate for 2019 and 2020 earnings has increased 1.4% and 0.2%, respectively. Further, for 2019, earnings are likely to improve 34.2%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Quanex Building Products Corporation NX, which provides components for the fenestration industry, flaunts an earnings growth projection of 46.2% for the current year.
Moreover, analysts are quite bullish on the stock, leading to an 11.8% and 8.1% increase in the Zacks Consensus Estimate for 2019 and 2020 earnings over the past 30 days.
Rent-A-Center, Inc. RCII leases household durable goods to customers on a rent-to-own basis. The company operates through four segments: Core U.S., Acceptance Now, Mexico, and Franchising.
The Zacks Consensus Estimate for 2019 earnings has advanced 2.7% over the last 30 days. Moreover, 2019 EPS growth projection is pegged at 113.2%.
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Quanex Building Products Corporation (NX) : Free Stock Analysis Report
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