The Dow is set to burst out of correction phase for the first time in more than six months. The broader S&P 500 and the tech-laden Nasdaq Composite, by the way, have already exited the correction territory, showing signs of renewed optimism on Wall Street.
The U.S. stock market, in fact, notched healthy gains this month, dismissing August’s reputation as a weak month for equities. US-China trade talk optimism along with robust earnings on promising fundamentals helped stocks scale up.
And now the bull market is about to become the longest in history, with optimistic investors arguing that it has miles to go. Given the bullishness, let’s invest in stocks that have not only outperformed in the current bull market but have also scope to scale higher.
Dow is Close to Exiting Correction Phase
So far, the Dow Jones Industrial Average has failed to trade 10% above the closing low of 23,533.20 touched on Mar 23. The Dow needs to close at 25,886.52 or higher to achieve such a feat. The blue-chip index needs around 0.5% to rise from the correction territory.
After gaining 89.37 points, or 0.4%, to 25,758.69 on Aug 20, the 30-stock gauge is just less than 130 points short of the coveted mark. Needless to say, this is Dow’s longest spell in the correction phase since 223 sessions in 1961, per Dow Jones Market Data.
Bull Market in Pink of Health
All three major bourses have rallied more than 1% month to date as the U.S. stock market is preparing for the longest bull run on record this week. But, this stellar upward journey raised doubts over whether the market’s momentum is about to lose steam.
However, the U.S. market still has plenty of upside. Bank of America Corporation’s BAC technical research analyst Stephen Suttmeier said that the strength in the market’s breadth, as judged by a record high in the S&P 500’s NYSE Composite Advance-Decline line last week showed that stocks have more room to run.
The U.S. stock market’s comparative strength against the rest of the world is another argument in favor. After all, allocations to U.S. stocks climbed 10 percentage points to a net of 19% overweight, the highest since January 2015, according to the fund managers of Bank of America. This makes America the most-popular region to invest in for the first time in five years.
The volatility backdrop is promising as well. The Cboe Volatility Index at present is at 1.10, which is a key support level. And as long as it remains at or above such a level, the S&P 500 will be in a position to trade above 2,800 and scale higher levels, added Stephen Suttmeier.
US-China Trade Optimism
A recent spell of optimism around U.S. stocks has gained strength, partly on hopes that both the United States and China are laying the groundwork this week for ending a prolonged trade dispute that has threatened to disrupt economic progression and eventually squeeze corporate profits.
The planning requires a concerted effort by both sides to keep the spiraling trade issues at bay. Such issues have already involved billions of dollars in tariffs and come with a threat of hundreds of billions more.
Both the sides have agreed to conduct midlevel talks in Washington this week. A nine-member delegation from Beijing, including Vice Commerce Minister Wang Shouwen, will hold meetings with U.S. counterparts on Aug 22 and 23.
US Stocks Put Up Stellar Show
It may also be worth noting that U.S. stocks are poised to perform well, courtesy of robust earnings on the back of a solid labor market and rising consumer confidence.
Total second-quarter earnings of the 467 S&P 500 members that have reported so far are up 25.5% from the same period last year on 9.9% higher revenues, with 79.2% of the companies beating EPS estimates and 72.8% surpassing the revenue mark (read more: Strong Retail Sector Earnings Performance).
5 Best US Stocks to Invest In
Banking on such positives, we have selected five solid stocks that have outdone in the current bull market and have scope to gain further. These stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy).
The search was also narrowed down with a VGM Score of A or B. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.
Korn/Ferry International KFY provides talent management solutions worldwide. The company has a Zacks Rank #2 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has moved up 0.3% in the last 60 days. The stock’s expected growth rate for the current year is 18.4%, more than the Staffing Firms industry’s rally of 11.3%. The company has given a superb return of 270.3% in the past 10 years.
Cypress Semiconductor Corporation CY designs, develops, manufactures, markets and sells embedded system solutions worldwide. The company has a Zacks Rank #2 and a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings has jumped 7.2% in the last 60 days. The stock’s expected growth rate for the current year is 50.6%, way more than the Semiconductor - Communications industry’s rally of 6.7%. The company has given a solid return of 241.2% in the past decade.
SkyWest, Inc. SKYW operates a regional airline in the United States. The company has a Zacks Rank #1 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has improved 6% in the last 60 days. The stock’s expected growth rate for the current year is 43.4%, in contrast to the Transportation - Airline industry’s projected decline of 10.2%. The company has given a stellar return of 274.8% in the past 10 years. You can see the complete list of today’s Zacks #1 Rank stocks here.
eXp World Holdings, Inc. EXPI provides cloud-based real estate brokerage services for residential real estate market in the United states and Canada. The company has a Zacks Rank #2 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has soared 37% in the last 60 days. The stock’s expected growth rate for the current quarter is 60%, higher than the Internet - Services industry’s rally of 7.8%. The company has given a whopping return of 1,480% in the past decade.
Advance Auto Parts, Inc. AAP provides automotive replacement parts, batteries, accessories, and maintenance items for domestic and imported cars, vans, sport utility vehicles, and light and heavy duty trucks. The company has a Zacks Rank #2 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has increased 1.9% in the last 60 days. The stock’s expected growth rate for the current year is 28.9%, better than the Automotive - Retail and Wholesale - Parts industry’s rally of 21.2%. The company has yielded an encouraging return of 305.6% in the past 10 years.
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SkyWest, Inc. (SKYW) : Free Stock Analysis Report
Bank of America Corporation (BAC) : Free Stock Analysis Report
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Exp World Holdings, Inc. (EXPI) : Free Stock Analysis Report
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