Wall Street has completed a mixed January after finishing a fabulous 2019. The first half of January continued the previous year’s rally. However, the second half was dampened by severe volatility stemming from the onslaught of the deadly coronavirus in China, which has now spread over 20 countries in the world. Per the government of China, more than 10,000 people are infected in that country of whom 361 have died.
However, despite severe market fluctuations, a closer look at the S&P 500 Index reveals that a bunch of of stocks provided double-digit returns in January. Moreover, a handful of those stocks popped in the second half of last month and still have strong upside left. Investment in those stocks with a favorable Zacks Rank may be lucrative at this juncture.
S&P 500 Ends in Red in January
On Jan 31, the S&P 500 Index sell 1.8% to close at 3,225.52. This marked the index’s worst daily performance since October 2019. The benchmark index is currently 3.4% below its all-time high of 3,329.62 recorded on Jan 17.
For the week ended Jan 31, the broad-market index dropped 2.1% and for the month, shedding 0.2%, reversing its winning streak of four consecutive months. Meanwhile, the Cboe Volatility Index (VIX), popularly known as the best fear gauge of Wall Street, skyrocketed 37% in January to close at 18.84.
As we begin the second month of this year, market participants are divided as to whether the recent downturn is a stock market correction or the beginning of a larger decline. Per research firm CFRA, after September and August, February is historically the third-worst performer since World War II.
Stock Market Meltdown May be Temporary
The recently signed phase-one trade deal between the United States and China has significantly cooled down the nearly two-year-old tariff war. The interim deal will at least help in restoring U.S. business confidence and global economic growth. Moreover, the U.S. Congress has approved the USMCA trade deal, a brainchild of President Donald Trump.
Fed chair JEROME Powell has reiterated his commitment to do whatever needed to support economic expansion and not raise interest rate until the inflation, which is currently at just 1.6%, crosses the central bank’s target level of 2%. Unemployment rate is currently at the lowest-level in 50 years. Moreover, U.S. GDP grew at 2.3% in 2019 despite facing trade-related tussles.
Finally, the earnings trend is improving much to the delight of corporate America and investors. As of Jan 31, 227 S&P 500 members reported fourth-quarter earnings results. Total earnings of these companies are up 2.9% from the same period last year on 3.4% higher revenues.
Notably, fourth-quarter 2019 earnings for the S&P 500 Index is currently projected at down 0.6% year over year on 4.9% higher revenues. This suggests a significant improvement from earnings decline of 3.2% year over year on 3.5% higher revenues, predicted at the beginning of the reporting cycle.
Our Top Picks
We have narrowed down our search to five S&P 500 stocks that provided double-digit returns in January. These stocks also advanced in the second half of January defying severe volatility and still have upside left. Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (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.
PulteGroup Inc. PHM is primarily engaged in the homebuilding business in the United States. It acquires and develops land primarily for residential purposes; and constructs housing on such land.
The Zacks Rank #1 company has an expected earnings growth rate of 17.2% for the current year. The Zacks Consensus Estimate for the current year has improved 5.4% over the past 30 days. The stock has rallied 15.1% year to date and 8.1% for the period of Jan 16 to Jan 31.
Rollins Inc. ROL provides pest and termite control services to residential and commercial customers. It offers protection against termite damage, rodents and insects to homes, hotels, food service establishments, food manufacturers, retailers and transporters.
The Zacks Rank #2 company has an expected earnings growth rate of 9.6% for the current year. The Zacks Consensus Estimate for the current year has improved 1.3% over the past 30 days. The stock has jumped 14.5% year to date and 7.7% for the period of Jan 16 to Jan 31.
D.R. Horton Inc. DHI operates as a homebuilding company in East, Midwest, Southeast, South Central, Southwest and West regions in the United States. The Zacks Rank #2 company has an expected earnings growth rate of 20.5% for the current year. The Zacks Consensus Estimate for the current year has improved 7.3% over the past 30 days. The stock has climbed 12.3% year to date and 7.8% for the period of Jan 16 to Jan 31.
L3Harris Technologies Inc. LHX provides technology-based solutions offering government and commercial customers' mission-critical challenges in the United States and internationally. It operates in three segments: Communication Systems, Electronic Systems and Space and Intelligence Systems.
The Zacks Rank #2 company has an expected earnings growth rate of 14.2% for the current year. The Zacks Consensus Estimate for the current year has improved 0.4% over the past 30 days. The stock has soared 11.9% year to date and 3.8% for the period of Jan 16 to Jan 31.
MSCI Inc. MSCI provides investment decision support tools for its clients to manage their investment processes worldwide. It operates through four segments: Index, Analytics, ESG and Real Estate.
The Zacks Rank #2 company has an expected earnings growth rate of 15.2% for the current year. The Zacks Consensus Estimate for the current year has improved 3.5% over the past 30 days. The stock has surged 10.7% year to date and 6% for the period of Jan 16 to Jan 31.
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MSCI Inc (MSCI) : Free Stock Analysis Report
Rollins, Inc. (ROL) : Free Stock Analysis Report
D.R. Horton, Inc. (DHI) : Free Stock Analysis Report
PulteGroup, Inc. (PHM) : Free Stock Analysis Report
Diamond Hill Investment Group, Inc. (DHIL) : Free Stock Analysis Report
L3Harris Technologies Inc (LHX) : Free Stock Analysis Report
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