By all measures, 2017 was a stellar year for U.S. stocks, with the Dow hitting several record highs and the S&P 500 closing at an eye-popping level of 2,700. But, will the smooth sail continue this year? Wall Street’s bulls believe that sweeping tax cuts by the Republican-led Congress will add up to bigger profits and larger stock gains this year. The market is also expected to continue its winning streak banking on a rise in wages and more confident consumers. Needless to say, the economy is on track to see the fastest expansion in decades. And it has successfully unloaded some of the baggage that had slowed it down since the Great Recession in 2009.
As many of the supportive conditions that boosted the market in 2017 are likely to stay in 2018, investing in multibaggers seems judicious. These stocks will make most of the bull run, courtesy of strong fundamentals and businesses that can multiply in a short span of time. After all, these stocks have seen their prices increase multiple times their initial investment values.
Markets Pin Hopes on Another Banner Year
In 2017, the Dow gained 25.1% after hitting 71 record closing highs, the highest since the blue-chip index’s creation in 1896. The S&P 500 added 19.4%, while the Nasdaq outperformed both with a 29% gain. The tech-heavy index moved north for the sixth straight year — its longest streak since the one that lasted from 1975 to 1980, per WSJ Market Data Group. In fact, all the three major bourses recorded the best year since 2013.
The most optimistic stock strategist further says that U.S. stocks will post sizeable returns this year as well. While some expect the Dow to hit 30,000, Tony Dwyer, the chief market strategist at New York financial firm Canaccord Genuity, raised 2018 year-end target for the S&P 500 to 3,100, up from an earlier projection of 2,800. This will mark a return of almost 16% higher than its current level of around 2,680.
So, what’s driving such bullish sentiments?
Landmark Tax Bill
President Trump’s tax cut had lifted optimism about corporate earnings, prompting many analysts to raise their forecast for business profits. The House of Representatives approved the biggest overhaul of the U.S. tax code in 30 years. Republicans successfully countered opposition from Democrats to pass the bill that will slash corporate taxes and provide temporary tax relief to both wealthy and middle-class Americans. The headline-grabbing move was that the corporate tax rate will be lowered from 35% to 21% and will be implemented next year, instead of being delayed until 2019.
Republicans also repealed the 20% corporate alternative minimum tax, while any income brought back from overseas will be taxed 8% to 15.5%, instead of the current 35%. Immediate offset of spending on short lived capital equipment is expected to further save U.S. companies around $32.5 billion in 2018, as per Congress’s joint committee on taxation (read more: GOP Passes Landmark Tax Bill: Best & Worst for Stocks).
Americans Upbeat About Economy
Consumers, in the meanwhile, have stepped into the new year with confidence. The minimum wage is poised to increase in 18 states and around 20 cities in the United States, according to an analysis by the National Employment Law Project. This will result in inching employees wage closer to $15 an hour, which is known as “living wage.” Jobless rate is already at its lowest since 2000 and job openings are abundant too.
A very strong job market fueled consumer confidence. As per the Conference Board, consumer confidence continues to hover near the 17-year high set in November. Lynn Franco, director of economic indicators at the Conference Board, added that “consumers’ expectations remain at historically strong levels, suggesting economic growth will continue well into 2018.” Diversified financial services company, Wells Fargo & Company WFC has predicted that the U.S. economy will expand an average 2.5% each quarter this year and the next.
5 Multibaggers to Watch Out For in 2018
The Republican tax-cut plan, recently signed into law by Trump, uptick in minimum wage, consumers planning to make big-ticket purchases and a strengthening economy call for investing in multibaggers. These stocks will cash in on such positive developments and give returns that are several times their cost. We have, thus, selected five such stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Madrigal Pharmaceuticals, Inc. MDGL, a clinical-stage biopharmaceutical company, focuses on the development and commercialization of therapeutic candidates for the treatment of cardiovascular, metabolic, and liver diseases. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings rose more than 100% in the last 60 days.
Madrigal Pharmaceuticals has yielded a return of more than 100% in 2017. Moreover, its expected growth rate for the current year is 49.3%, better than the industry’s expected gain of 7.9%.
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Boot Barn Holdings, Inc. BOOT — a Zacks Rank #2 company — is a lifestyle retail chain which operates specialty retail stores in the United States. The Zacks Consensus Estimate for its current-year earnings advanced 3.4% over the last 60 days.
Boot Barn yielded a return 32.3% last year. The stock is expected to grow at a rate of 10.6% in the current year, in contrast to the industry’s projected decline of 3.3%.
Famous Dave's of America, Inc. DAVE develops, owns, operates, and franchises restaurants under the Famous Daves name. The company sports a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings rose more than 100% in the last 60 days.
Famous Dave's of America gave a return 32.3% in 2017. Also, its expected growth rate for the current year is more than 100%, in contrast to the industry’s projected decline of 0.3%.
CVR Refining, LP CVRR operates as an independent petroleum refiner and marketer of transportation fuels in the United States. The stock has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings rose 16.9% in the last 90 days.
CVR Refining has yielded a return of 59.1% in 2017. Moreover, its expected growth rate for the current year is more than 100%, way higher than the industry’s expected gain of 9.2%.
eGain Corporation EGAN provides cloud-based customer engagement software solutions worldwide. The stock has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings climbed 13% in the last 60 days.
eGain has given a return of more than 100% last year. Further, its expected growth rate for the current year is 25%, higher than the industry’s projected gain of 12.8%.
Zacks Editor-in-Chief Goes ""All In"" on This Stock
Full disclosure, Kevin Matras now has more of his own money in one particular stock than in any other. He believes in its short-term profit potential and also in its prospects to more than double by 2019. Today he reveals and explains his surprising move in a new Special Report.
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Wells Fargo & Company (WFC) : Free Stock Analysis Report
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