U.S. stocks started off April on a strong note as better-than-expected manufacturing numbers from both the United States and China eased global growth concerns. The Fed’s accommodative measures coupled with a rise in oil prices added to the positive sentiments. Needless to say, the month of April has time and again proved to be favorable for stocks.
Thus, it’s time to invest in stocks that are likely to make the most of the favorable month.
April: Typically Strong
April, traditionally, has been a good month for stocks, especially, if the stocks gained in the first quarter. LPL Financial noted that since 1950, the broader S&P 500 moved north in 15 out of 19 years during the month, especially when January, February and March were all positive. In fact, the average gain for April in all those years was 2.6%.
And this time around, we can well expect April to be a solid one for investors since Wall Street just posted its strongest quarterly rise in a decade, with the broader S&P 500 index rising 13.1% in the first quarter and marking its best start to a year since 1998. The index also successfully notched its biggest one-quarter gain since 2009.
But, it’s just not the S&P 500 that started off well this year. Other major bourses, including the Dow Jones Industrial Average, Nasdaq Composite and the Russell 2000 index of small-cap stocks, rose more than 11%.
Marc Chaikin, founder of Chaikin Analytics, chipped in “April has been up 80% of the time over the past 20 years.” The Stock Trader's Almanac also added that April has historically been a strong month for stocks, going back to World War II. The Dow Jones, the S&P 500 and the
Nasdaq Composite gained an average of around 1.9%, 1.5% and 1.4%, respectively.
Latest Manufacturing Figures are Heartening
All three major U.S. stock market indexes, by the way, are already off to a good start boosted by reassuring factory data from both the United States and China. American manufacturing rebounded in March after slipping to a two-year low in the prior month. Per the Institute for Supply Management, the manufacturing index came in at 55.3% last month compared with 54.2% in February. An index number above 50 indicates expansion.
However, the latest reading can be termed as normal growth rather than unusually strong growth. After all, the 12-month average is still at the lowest since May 2017. Nonetheless, employment rebounded strongly, indicating that the manufacturing index’s comeback has been primarily backed by domestically-focused activities.
China’s official Purchasing Managers Index also made a stellar comeback in March, rising to a six-month high of 50.5 from 49.2 in February. Beijing took enough steps including cutting taxes to stimulate its manufacturing activities. China has already announced stimulus of about $250-$120 billion, which will be mostly used in infrastructure spending. China’s economic outlook is of utmost importance for global recovery, as the country has been responsible for weakness in global demand over the past three quarters.
Fed’s Dramatic Policy Shift
The Fed’s dovish stance adopted in January has convinced market pundits that there won’t be any rate hikes this year. Inflation has remained relatively contained. U.S. consumer prices increased marginally in February, supporting the case for the Fed to hold off further rates. The consumer price index increased 1.5% from year-ago levels, while core inflation that excludes volatile items like food and energy costs, rose 2.1%. The Fed stated that the central bank will stick to its patient stance on monetary policy as long as core inflation continues to be near 2%.
Such views were widely considered as accommodative measures, at least for the time being, and have been soothing for investors. After all, the Fed’s rate increase last year had taken a toll. This is because hike in rates increases the cost of lending money from financial institutions for small and medium business houses and in turn exerts more pressure on the U.S. economy.
Oil’s Epic Rally
Rise in oil prices, in the meantime, has eased worries about global economic growth. The U.S. oil price benchmark, West Texas Intermediate, climbed 32% during the first quarter to nearly $60 a barrel after Saudi Arabia-led OPEC cut supplies to prevent a glut.
Lest we forget, U.S. oil price is still down nearly 20% from last October’s high of more than $76 a barrel. This shows the extent of beating U.S. oil price had taken at the end of last year. Nevertheless, oil prices are widely expected to gain traction as OPEC’s output has again slipped in March for the fourth straight month, led by production cuts by Saudi Arabia.
5 Solid Choices
Courtesy of a positive historical trend, upbeat March figures on manufacturing from both the United States and China, Fed’s patient stance for interest rates hikes and rise in oil prices, we are set for a strong April rally. The U.S. economy, by the by, continues to expand at a steady pace with record-low levels of unemployment.
Hence, it will be prudent to invest in five of the best stocks that can make the most of this promising trend. Such stocks have a Zacks Rank #1 (Strong Buy) and a VGM Score of A. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.
CBRE Group, Inc. CBRE operates as a commercial real estate services and investment company. The Zacks Consensus Estimate for earnings has moved 5.6% north in the past 60 days. The company’s expected earnings growth rate for the current year is 8.8% compared with the Real Estate - Operations industry’s projected rise of 2.3%. The company has outperformed the broader industry so far this year (+25.7% vs +20.4%).
DXP Enterprises, Inc. DXPE engages in distributing maintenance, repair, and operating (MRO) products, equipment, and services to energy and industrial customers. The Zacks Consensus Estimate for earnings has moved up 2.2% in the past 60 days. The company’s expected earnings growth rate for the current year is 17.5% compared with the Manufacturing - General Industrial industry’s projected rise of 15.5%. The company has outperformed the broader industry on a year-to-date basis (+47.5% vs +19.1%).
EZCORP, Inc. EZPW provides pawn loans. The Zacks Consensus Estimate for earnings has risen 5.6% in the past 60 days. The company’s expected earnings growth rate for the current year is 20.3% compared with the Financial - Consumer Loans industry’s estimated rise of 12.6%. The company has outperformed the broader industry so far this year (+21.2% vs +15.9%). You can see the complete list of today’s Zacks #1 Rank stocks here.
G-III Apparel Group, Ltd. GIII designs, sources, and markets women’s and men’s apparel. The Zacks Consensus Estimate for earnings has increased 5.1% in the past 60 days. The company’s expected earnings growth rate for the current year is 15.4% compared with the Textile - Apparel industry’s expected rise of 13.7%. The company has outperformed the broader industry on a year-to-date basis (+46.8% vs +23.7%).
Heidrick & Struggles International, Inc. HSII provides executive search and consulting services to businesses and business leaders. The Zacks Consensus Estimate for earnings has climbed 6.6% in the past 60 days. The company’s expected earnings growth rate for the next quarter is 11.9% in contrast to the Staffing Firms industry’s projected decline of 15.1%. The company has outperformed the broader industry so far this year (+27.3% vs +18.5%).
In fact, CBRE Group, DXP Enterprises, EZCORP, G-III Apparel Group and Heidrick & Struggles have surpassed the broader S&P 500 on a year-to-date basis.
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