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After a Brutal Q1, Q2 Gives a Ray of Hope: 5 Must Buys

Tirthankar Chakraborty

The first three months of 2020 ended with a whimper, with the Dow logging its worst first quarter ever. In the quarter, the blue-chip index shed 23%, its steepest first-quarter decline on record and overall, its worst quarterly loss since the fourth quarter of 1987.

 

The S&P 500 also lost 20% in the first quarter, which marked the broader index’s sharpest decline since the 2008 financial crisis. Largely, U.S. stocks snapped the longest-ever bull market in history last month, and retreated from record peaks in February after the outlook for the domestic economy dimmed.

 

The economy has come to a standstill following the coronavirus outbreak and its devastating impact on human lives as well as corporate profits. The pandemic resulted in lockdowns and travel restrictions across the globe, eventually weighing on businesses. 

 

Airlines, transportation and retail, or those dependent on cross-border supply chains incurred heavy losses. And many industries continue to remain vulnerable to social distancing and decline in global demand. Social distancing measures, in particular, impacted restaurant workers and hotel staff that make up a bulk portion of U.S. jobs.

 

But even though markets went into a coronavirus-led freefall in the first quarter, there is glimmer of hope in the second quarter for investors, if history is any guide. After the Dow sees a quarter as ugly as this year's first quarter, the 124-year old index on average returns 11.8% in the following quarter. And in such a year, the index had returned 22.75%, on average.

 

The S&P 500 has a similar trend. After it sees a quarter as brutal as this year’s first quarter, the index tends to return 12% in the following quarter and 27.79% throughout the year. Take a look –

 

 

(Source: Dow Jones Market Data)

 

Meanwhile, Congress and the Fed promised to supply an overwhelming amount of aid to support the economy and markets, as the pandemic shuts down businesses. The White House and the Senate struck a deal for rescue package worth $2 trillion, which stands out to be the biggest congressional bailout in U.S. history.

 

The landmark agreement is expected to inject enough cash to bolster the economy, and provide the required liquidity and help stabilize financial markets. The Fed has also stepped up and released an array of stimulus measures to date. The central bank has trimmed interest rates to near zero and said that it would buy an unlimited amount of Treasury and mortgage-backed securities to stem the economic damage from the coronavirus outbreak.

 

John Normand added that such extraordinary stimulus measures have now set the stage for market stabilization, and that the market rout is most likely past its worst period now. In fact, bullish investors can also take comfort in April being traditionally the strongest calendar month for equities

 

Marc Chaikin, founder of Chaikin Analytics, said that “April has been up 80% of the time over the past 20 years.” The Stock Trader’s Almanac added that April has historically been a strong month for stocks, going back to World War II. The Dow and the S&P 500 gained an average of around 1.9% and 1.5%, respectively.

 

5 Best Stocks to Own in Q2 

 

With the second quarter set to dispel the glum of the first, investing in fundamentally sound stocks that are poised to gain in the near term seems judicious. We have selected five such stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).

 

AcelRx Pharmaceuticals, Inc. ACRX is a specialty pharmaceutical company. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has risen 27.4% over the past 60 days. The company’s shares have declined 36.8% in the first quarter. However, the company’s expected earnings growth rate for the second quarter is a promising 12.5%.

 

BioCryst Pharmaceuticals, Inc. BCRX is a biotechnology company. The company currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved up 8.4% over the past 60 days. The company’s shares have slipped 39.3% in the first quarter. But, the company’s expected earnings growth rate for the second quarter is an encouraging 29.4%.

 

Build-A-Bear Workshop, Inc. BBW operates as a specialty retailer of plush animals and related products. The company currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has surged 22.2% over the past 60 days. The company’s shares have tanked 57.9% in the first quarter. However, the company’s expected earnings growth rate for the second quarter is a stellar 62.5%. You can see the complete list of today’s Zacks #1 Rank stocks here.

 

CACI International Inc CACI provides information solutions and services. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has increased 1.3% over the past 60 days. The company’s shares have declined 16% in the first quarter. However, the company’s expected earnings growth rate for the second quarter is a whopping 67.4%.

 

Evercore Inc. EVR operates as an independent investment banking advisory firm. The Zacks Consensus Estimate for its current-year earnings has moved up 0.3% over the past 60 days. The company’s shares have fallen 36.8% in the first quarter. But, the company’s expected earnings growth rate for the second quarter is a solid 11.1%.

 

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This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year. 

 

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The first three months of 2020 ended with a whimper, with the Dow logging its worst first quarter ever. In the quarter, the blue-chip index shed 23%, its steepest first-quarter decline on record and overall, its worst quarterly loss since the fourth quarter of 1987.

The S&P 500 also lost 20% in the first quarter, which marked the broader index’s sharpest decline since the 2008 financial crisis. Largely, U.S. stocks snapped the longest-ever bull market in history last month, and retreated from record peaks in February after the outlook for the domestic economy dimmed.

The economy has come to a standstill following the coronavirus outbreak and its devastating impact on human lives as well as corporate profits. The pandemic resulted in lockdowns and travel restrictions across the globe, eventually weighing on businesses. 

Airlines, transportation and retail, or those dependent on cross-border supply chains incurred heavy losses. And many industries continue to remain vulnerable to social distancing and decline in global demand. Social distancing measures, in particular, impacted restaurant workers and hotel staff that make up a bulk portion of U.S. jobs.

But even though markets went into a coronavirus-led freefall in the first quarter, there is glimmer of hope in the second quarter for investors, if history is any guide. After the Dow sees a quarter as ugly as this year's first quarter, the 124-year old index on average returns 11.8% in the following quarter. And in such a year, the index had returned 22.75%, on average.

The S&P 500 has a similar trend. After it sees a quarter as brutal as this year’s first quarter, the index tends to return 12% in the following quarter and 27.79% throughout the year. Take a look –

(Source: Dow Jones Market Data)

Meanwhile, Congress and the Fed promised to supply an overwhelming amount of aid to support the economy and markets, as the pandemic shuts down businesses. The White House and the Senate struck a deal for rescue package worth $2 trillion, which stands out to be the biggest congressional bailout in U.S. history.

The landmark agreement is expected to inject enough cash to bolster the economy, and provide the required liquidity and help stabilize financial markets. The Fed has also stepped up and released an array of stimulus measures to date. The central bank has trimmed interest rates to near zero and said that it would buy an unlimited amount of Treasury and mortgage-backed securities to stem the economic damage from the coronavirus outbreak.

John Normand added that such extraordinary stimulus measures have now set the stage for market stabilization, and that the market rout is most likely past its worst period now. In fact, bullish investors can also take comfort in April being traditionally the strongest calendar month for equities

Marc Chaikin, founder of Chaikin Analytics, said that “April has been up 80% of the time over the past 20 years.” The Stock Trader’s Almanac added that April has historically been a strong month for stocks, going back to World War II. The Dow and the S&P 500 gained an average of around 1.9% and 1.5%, respectively.

5 Best Stocks to Own in Q2 

With the second quarter set to dispel the glum of the first, investing in fundamentally sound stocks that are poised to gain in the near term seems judicious. We have selected five such stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).

AcelRx Pharmaceuticals, Inc. (ACRX) is a specialty pharmaceutical company. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has risen 27.4% over the past 60 days. The company’s shares have declined 36.8% in the first quarter. However, the company’s expected earnings growth rate for the second quarter is a promising 12.5%.

BioCryst Pharmaceuticals, Inc. (BCRX) is a biotechnology company. The company currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved up 8.4% over the past 60 days. The company’s shares have slipped 39.3% in the first quarter. But, the company’s expected earnings growth rate for the second quarter is an encouraging 29.4%.

Build-A-Bear Workshop, Inc. (BBW) operates as a specialty retailer of plush animals and related products. The company currently has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has surged 22.2% over the past 60 days. The company’s shares have tanked 57.9% in the first quarter. However, the company’s expected earnings growth rate for the second quarter is a stellar 62.5%. You can see the complete list of today’s Zacks #1 Rank stocks here.

CACI International Inc (CACI) provides information solutions and services. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has increased 1.3% over the past 60 days. The company’s shares have declined 16% in the first quarter. However, the company’s expected earnings growth rate for the second quarter is a whopping 67.4%.

Evercore Inc. (EVR) operates as an independent investment banking advisory firm. The Zacks Consensus Estimate for its current-year earnings has moved up 0.3% over the past 60 days. The company’s shares have fallen 36.8% in the first quarter. But, the company’s expected earnings growth rate for the second quarter is a solid 11.1%.

Today's Best Stocks from Zacks 

Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.

This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year. 

See their latest picks free >>


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BioCryst Pharmaceuticals, Inc. (BCRX) : Free Stock Analysis Report
 
CACI International, Inc. (CACI) : Free Stock Analysis Report
 
AcelRx Pharmaceuticals, Inc. (ACRX) : Free Stock Analysis Report
 
Evercore Inc (EVR) : Free Stock Analysis Report
 
Build-A-Bear Workshop, Inc. (BBW) : Free Stock Analysis Report
 
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