The Nasdaq Composite –-- one of the three major stock indexes of Wall Street --- has been performed impressively so far in 2019. On Nov 1, the tech-laden index closed at a fresh all-time high, surpassing its previous closing high on Jul 26.
A fundamentally stable U.S. economy, which is growing for the historically longest 11 years --- albeit with some loss in pace and a dovish Fed this year --- has strengthened investors’ confidence in risky assets like equities despite the U.S.-China trade conflict. Additionally, better-than-expected economic data and third-quarter earnings have strengthened sentiments of market participants.
Nasdaq Rally Continues
Last year was extremely disappointing for Nasdaq. The index plunged 3.9% recording its worst-ever yearly performance since 2008. However, the Nasdaq started 2019 on a strong note. The tech-heavy index is up an impressive 26.4% year to date. On Nov 1, the index closed at 8,386.40, recording a fresh closing high after Jul 26 when it closed at 8,330.21. The intraday high was 8,386.75, beating the previous high of 8,339.64 recorded on Jul 26.
The primary reason for Nasdaq’s turnaround is the rebound of the technology sector although several stocks from other sectors also performed impressively. The technology sector suffered a severe setback in 2018. Technology Select Sector SPDR (XLK), one of the 11 sectors of the S&P 500 Index, declined 2.9% last year. However, XLK is the best performer of the S&P 500 so far this year, having jumped 36.6%.
Next Major Catalyst
Signing of a partial trade deal between the United States and China will give a major boost to the Nasdaq Composite. According to President Trump, the first phase of the deal will address issues related to safeguarding of U.S. intellectual property rights, including force transfer or theft of technologies, reform of the China’s financial markets and its practice of arbitrarily setting foreign-exchange rate.
The U.S. government has decided to scrap its decision to raise tariff rates from 25% to 30% on $250 billon Chinese goods, effective Oct 15. Also, no decision has been taken on the planned new set of 15% tariff on $160 billion Chinese exports, effective Dec 15.
China is the largest trading partner of the United States. Moreover, China plays the role of a low-cost supplier of intermediary products and other inputs to high-tech U.S. industries. U.S. companies that rely on Chinese imports are unhappy about higher tariffs on Chinese intermediary goods, which raised prices of high-tech equipment and electronics products.
On the other hand, a trade spat with the United States resulted in a significant slowdown of China’s economy. However, a strong Chinese economy will give U.S. high-tech companies a solid boost as China is also the largest market for U.S. high-tech products.
A solution to the U.S.-China trade war is likely to restore Chinese and global economic growth, which in turn will create demand for high-tech U.S. products. Likewise, the repeal of tariffs on Chinese intermediary goods will raise the profit margin of U.S. tech giants.
Our Top Picks
At this stage, it will be prudent to invest in Nasdaq stocks. However, the selection may be difficult. Here our VGM Score will come in handy. We have narrowed down our search to five such stocks that have skyrocketed in 2019 and still have upside left. Each of our picks carries a Zacks Rank #1 (Strong Buy) and a VGM Score of A or B. 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.
Sterling Construction Co. Inc. STRL is a leading heavy civil construction company that specializes in the building and reconstruction of transportation and water infrastructure projects in the United States. The company has an expected earnings growth rate of 30.1% for the current year. The Zacks Consensus Estimate for the current year has improved 15.2% over the last 60 days. The stock has surged 51.2% year to date.
Universal Forest Products Inc. UFPI supplies wood, wood composite and other products in retail, industrial, and construction markets in North America, Europe, Asia, and Australia. The company has an expected earnings growth rate of 21.3% for the current year. The Zacks Consensus Estimate for the current year has improved 1.7% over the last 60 days. The stock has jumped 98.7% year to date.
Zumiez Inc. ZUMZ operates as a specialty retailer of apparel, footwear, accessories, and hardgoods for young men and women. Its hardgoods include skateboards, snowboards, bindings, components, and other equipment. The company has an expected earnings growth rate of 20.7% for the current year. The Zacks Consensus Estimate for the current year has improved 10.8% over the last 60 days. The stock has soared 66.6% year to date.
Insight Enterprises Inc. NSIT provides information technology, hardware, software and services solutions in the United States, Canada, Europe, the Middle East, Africa, and the Asia-Pacific. The company has an expected earnings growth rate of 7.6% for the current year. The Zacks Consensus Estimate for the current year has improved 2.7% over the last 60 days. The stock has surged 54.2% year to date.
Spartan Motors Inc. SPAR engineers, manufactures, assembles, and sells specialty and heavy-duty vehicles in the United States, Canada, South America, and Asia. It operates through three segments: Fleet Vehicles and Services, Emergency Response Vehicles, and Specialty Chassis and Vehicles. The company has an expected earnings growth rate of 54.2% for the current year. The Zacks Consensus Estimate for the current year has improved 1.4% over the last 60 days. The stock has jumped 155.4% year to date.
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