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5 Must-Buy Stocks Amid Exaggerated Economic Slowdown

Nalak Das

U.S. economic fundamentals are on a strong footing despite slowdown fears expressed by some industry watchers. The recently released three major economic data of March clearly indicated that the inherent strength of the economy is intact. Moreover, first-quarter earnings results are better-than-expected so far. And the slowdown in first-quarter GDP growth may not be as sharp as expected earlier.

Based on these positives, Wall Street’s bull run apparently has legs. Consequently, it will be prudent to invest in stocks with a favorable Zacks Rank, strong growth potential and positive Earnings ESP for the first quarter of 2019.

3 Major Economic Data of March

On Apr 1, the Institute for Supply Management (ISM) reported that U.S. manufacturing expanded in March for the 119th consecutive month. The March index came in at 55.3, easily surpassing the consensus estimate of 54.5. The new orders index rose to 57.4 from 55.5 in February. The ISM panel cited continued expansion of business activities supported by strong demand in the form of new orders and employment.

On Apr 5, the Department of Labor reported non-farm job additions of 196,000 for the month of March, signifying the 102th straight month of non-farm payroll growth. The figure was also above the consensus estimate of 184,000. First-quarter average job gains were a solid 180,000. The unemployment rate remained at a 50-year low of 3.8%.

On Apr 18, Department of Commerce reported that retail sales increased by a significant 1.6% in March outpacing the consensus estimate of 0.9%. March’s data reflect highest monthly increase since September 2017 and a massive turnaround from a 0.2% decline in February.

The ISM manufacturing data and retail sales data indicate that business investment and consumer spending remain firm. The labor market data indicates overall robustness of the U.S. economy.

Better-Than-Expected First-Quarter Earnings

As of Apr 18, 77 companies of the benchmark S&P 500 Index reported first-quarter 2019 earnings results. Total earnings of these companies were up 0.2% year over year on 2.5% higher revenues.

Total earnings for the S&P 500 Index are now expected to be down 3.2% from the same period last year on 4.6% higher revenues. This would be an improvement from an expected earnings decline of 3.9% estimated nearly three weeks ago. (Read More: 3 Trends Emerging from the Q1 Earnings Season)

First-Quarter 2019 GDP Growth

Although we are yet to get consensus estimates for first-quarter GDP, the general sentiment in the investor space is that the U.S. economy will grow at a modest rate of around 2%. Historically, first-quarter GDP remains weak due to seasonal factors. To add to this, the United States faced partial government shutdown for a record 35 days this year.

CNBC/Moody’s Analytics Rapid Update survey shows economists’ median forecast is now tracking at 2.4%, marking a significant improvement from 1% estimated in February. Atlanta Fed raised its first-quarter GDP forecast to 2.8% on Apr 18 from 1.7 on Mar 28.

Our Top Picks

At this stage, it will be prudent to invest in stocks with a favorable Zacks Rank, strong growth potential and positive Earnings ESP for the first quarter of 2019. We have narrowed down our search to five such stocks each carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows price performance of our five picks year to date.

CommScope Holding Co. Inc. COMM provides infrastructure solutions for communication networks worldwide. The stock has surged 58.6% year to date. The company has an expected earnings growth rate of 31.3% for the current year. It has an Earnings ESP of +1.89% for the quarter to be reported. The Zacks Consensus Estimate for the current quarter and year has improved 2.3% and 36.1%, respectively, over the last 30 days. CommScope is expected to release earnings results on May 7.

Ceridian HCM Holding Inc. CDAY operates as a human capital management software company in the United States and internationally. The stock has surged 44.6% year to date. The company has an expected earnings growth rate of 980% for the current year and an Earnings ESP of +31.65% for the quarter to be reported. The Zacks Consensus Estimate for the current quarter has improved 11.1% over the last 30 days. Ceridian HCM is expected to release earnings results on May 1.

Cabot Oil & Gas Corp. COG explores, exploits, develops, produces, and markets natural gas, oil, and natural gas liquids in the United States. The stock has jumped 16.9% year to date. The company has an expected earnings growth rate of 66.4% for the current year. It has an Earnings ESP of +4.43% for the upcoming quarterly release. The Zacks Consensus Estimate for both the to-be reported quarter and year has improved 1.5% over the last 30 days. Cabot Oil & Gas is expected to release earnings results on Apr 26.

Incyte Corp. INCY focuses on the discovery, development and commercialization of various therapeutics in the United States. The stock has surged 16.3% year to date. The company has an expected earnings growth rate of 102.9% for the current year. It has an Earnings ESP of +14.47% for the quarter to be reported. The Zacks Consensus Estimate for the current quarter and year has improved 5.3% and 3.4%, respectively, over the last 30 days. Incyte is expected to release earnings results on Apr 30.

Snap Inc. SNAP operates as a camera-application provider in the United States and internationally.  The stock has surged 111.7% year to date. The company has an expected earnings growth rate of 38.3% for the current year. It has an Earnings ESP of +1.94% for the to-be reported quarter. Snap is expected to release earnings results on Apr 23.

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