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5 Must-Buy Stocks on Sector Rotation Away From Technology

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Nalak Das
·6 min read
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Wall Street is firing on all cylinders supported by U.S. economic stability despite the global outbreak of coronavirus and the resultant devastations. The unprecedented health hazard put the global economy at a complete standstill from March to May.

The predominant force, behind Wall Street's impressive recovery from the short coronavirus-induced bear market  was the technology sector. However, recently, market participants' choices are gradually shifting toward the cyclical sectors from the growth-oriented technology sector due to three reasons — injection of a new fiscal stimulus by the U.S. government, FDA's approval of two COVID-19 vaccines and expectations of growing corporate profit in 2021.

At this stage, it will be prudent to invest in stocks from cyclical sectors that will benefit from the economy's reopening. These include consumer discretionary, transportation, industrials, financials, energy and materials with a favorable Zacks Rank and strong potential for 2021.

Injection of a Fresh Round of Fiscal Stimulus

After more than four months of failed negotiations, the U.S. Congress has reached an agreement on the second round of fiscal stimulus for pandemic-led devastations. President Donald Trump signed the bill into law on Dec 27.

The $900 billion package is expected to include a direct payment of $600 for every adult and child. Moreover, the deal is likely to provide $300 weekly unemployment payments for 11 weeks and extend two other unemployment programs until they begin phasing out in mid-March and end in early April.

The other expected provisions in the deal include approximately $300 billion for the small business paycheck protection program, $15 billion for airline payroll support, $82 billion to schools, $10 billion toward childcare, $25 billion for rental assistance, $13 billion for food-stamp and child-nutrition and $30 billion for the procurement and distribution of vaccine.

Approval of Vaccine and Its Implications

The FDA has authorized two COVID-19 vaccines this year, which means that the economy will reopen and gradually operate at the pre-pandemic level. Since the lockdowns imposed in March, the U.S. economy is operating at a significant sub-optimal level. Approval of vaccines will have a strong impact on the stock market.

Moreover, strong pent-up demand is likely to drive the U.S. economy in 2021. Personal savings rate is high in 2020 due to concerns over coronavirus-led economic uncertainties. Consumers were restrained or restricted by the government to spend on those items that were closed during lockdowns. Reopening of the economy with the easing of the pandemic will significantly boost personal spending, the largest component of the U.S. GDP.

Economic Fundamentals Remain Stable

In its latest estimation on Dec 23, the Atlanta Fed projected that fourth-quarter 2020 GDP will increase 10.4% after increasing a record 33.4% in the third quarter. Projections for corporate earnings are also growing since last July. At present, the consensus estimate is that the 2021 earrings of the S&P 500 Index will increase 22% on 7.7% higher revenues after it declined 16.9% in earnings on 3.9% lower revenues in 2020.

Our Top Picks

We have narrowed down our search to five reopening stocks that have popped in 2020 and still have strong upside left for 2021. These stocks have also witnessed robust earnings estimation revisions within the last 60 days. Each of our picks sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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

 

Deere & Co. DE manufactures and distributes farm equipment worldwide. It operates through three segments: Agriculture and Turf, Construction and Forestry, and Financial Services.

The company has an expected earnings growth rate of 47.9% for the current year (ending October 2021). The Zacks Consensus Estimate for its current-year earnings has improved 0.5% over the last 7 days. The stock price has climbed 55.4% year to date.

FedEx Corp. FDX is the leader in global express delivery services. It provides a broad portfolio of transportation, e-commerce and business services through companies competing collectively, operating independently and managed collaboratively, under the FedEx brand.

The company has an expected earnings growth rate of 79.2% for the current year (ending May 2021). The Zacks Consensus Estimate for the current year has improved 5.9% over the last 7 days. The stock price has jumped 77.8% year to date.

L Brands Inc. LB operates as a specialty retailer of women's intimate and other apparel, personal care, and beauty and home fragrance products. It operates in three segments: Victoria's Secret, Bath & Body Works, and Victoria's Secret and Bath & Body Works International.

The company has an expected earnings growth rate of 22.5% for next year (ending January 2022). The Zacks Consensus Estimate for its next-year earnings has improved 33.2% over the last 60 days. The stock price has soared 115% year to date.

Liberty Broadband Corp. LBRDA is a cable TV operator that provides video, Internet and voice services to residential and small and medium business customers in the United States. It operates through the Skyhook and Charter segments

The company has an expected earnings growth rate of 48.6% for next year. The Zacks Consensus Estimate for its earnings next year has improved more than 100% over the last 30 days. The stock price has surged 27.4% year to date.

Packaging Corporation of America PKG manufactures and sells containerboard and corrugated packaging products in the United States. It operates through the Packaging and Paper segments.

The company has an expected earnings growth rate of 18.3% for next year. The Zacks Consensus Estimate for its next-year earnings has improved 0.7% over the last 7 days. The stock price has advanced 21.5% year to date.

Zacks Top 10 Stocks for 2021

In addition to the stocks discussed above, would you like to know about our 10 top tickers for the entirety of 2021?

These 10 are painstakingly hand-picked from over 4,000 companies covered by the Zacks Rank. They are our primary picks to buy and hold.

Start Your Access to the New Zacks Top 10 Stocks >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Deere & Company (DE) : Free Stock Analysis Report
 
Packaging Corporation of America (PKG) : Free Stock Analysis Report
 
FedEx Corporation (FDX) : Free Stock Analysis Report
 
Liberty Broadband Corporation (LBRDA) : Free Stock Analysis Report
 
L Brands, Inc. (LB) : Free Stock Analysis Report
 
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