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5 Stocks to Buy as Q3 GDP Rises

Swarup Gupta

Third quarter growth increased at a fastest pace than earlier expected in the latest sign that the slow but steady economic recovery was set to continue. Continual improvement in consumer expenditure, the bulwark of the economy, continues to be the primary engine of growth. Meanwhile, business investment also rose at a stronger pace than earlier expected.

Another factor leading to this upward revision was a spurt in exports. Among the more specific factors boosting growth has been an increase in consumer spending on services and higher investment in intellectual property and non residential construction. Since a solid reading for the fourth quarter is also expected, it makes good sense to pick up stocks gaining from these trends.

Fastest Growth in Two Years

The U.S. economy expanded at a much faster than expected pace between July and September, its best performance in two years. The “third” estimate by the Bureau of Economic Analysis showed that third quarter output of goods and services increased at an annual rate of 3.5%, higher than the consensus estimate of 3.3% increase, buoyed by stronger consumer spending. 

Consumers are doing their part to keep the economy growing, with outlays increasing at a 3% annual rate, up from the prior estimate of 2.8%. Additionally, fixed nonresidential investment, a gauge of business investment increased at a revised 1.4% rate, much stronger than the previous estimate of a 0.1% rise.

Spending on Services, Intellectual Property Boosts Growth

Delving into the details, while consumer expenditure on goods increased, the highlight of this particular estimate was an increase in spending on services. However, taken together, consumer spending did come in below second quarter’s pace of 4.3%.

 Meanwhile, expenditure on nonresidential structures, a measure which incorporates spending on gas and oil wells, surged by 12%. This was the sharpest pace recorded since the first quarter of 2014. According to the earlier estimate, nonresidential structural expenditure had increased by 10.1%.

Another major factor boosting the estimate was an increase in exports. Even though export growth was revised marginally downward, from 10.1% to 10%, it remains the sharpest rate recorded since the fourth quarter of 2013. The jump in exports was primarily due to growth in soybean shipments following a poor harvest of soy in Brazil and Argentina.

Our Choices

The final reading of third quarter GDP indicates that the economy is in fine and fettle and is slated to grow further in the quarters ahead. Factors supporting this phenomenon are the strength in areas such as services targeted at consumers, nonresidential construction and intellectual property rights.

This is why it makes good sense to add stocks from these sectors to your portfolios. However, picking winning stocks may prove to be difficult.

This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score. 

Acacia Research Corporation ACTG through its subsidiaries, develops, acquires, and licenses patented technologies.

Acacia Research has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. The company has expected earnings growth of more than 100% for the current year. The forward price-to-earnings (P/E) ratio for the current financial year (F1) is 14.02, lower than the industry average of 14.07.

Liberty Media Corporation LMCA owns interests in a broad range of businesses, including media, communications and entertainment. The company has ownership interest in SIRIUS XM Radio Inc. and Live Nation.

Liberty Media has a VGM Score of A. The company has expected earnings growth of more than 100% for the current year. The stock has a P/E (F1) of 10.79, lower than the industry average of 12.90. The stock has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

NCI Building Systems, Inc. NCS is one of the major integrated manufacturers of metal products for the North American non-residential construction industry.

NCI Building Systems has a Zacks Rank #2 (Buy) and a VGM Score of A. The company has expected earnings growth of 26.8% for the current year. Its earnings estimate for the current year has improved by 1.1% over the last 30 days.

Town Sports International Holdings, Inc. CLUB is an owner and operator of fitness clubs across the Mid-Atlantic and North Eastern regions of the U.S.

Town Sports International has a Zacks Rank #2 and a VGM Score of A. The company has expected earnings growth of 57% for the current year.

EMCOR Group Inc. EME is one of the leading providers of mechanical and electrical construction, industrial and energy infrastructure, and building services for a diverse range of businesses.

EMCOR Group has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of 17.5% for the current year.

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