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Diagnosis of Economy Ahead of World Health Day: 6 Picks

Sweta Killa
The Zacks Analyst Blog Highlights: Advanced Emissions, Aptevo, BankFinancial, Good Times and Health Insurance

Amid global growth concerns and fears of recession in the United States, let us examine the health of the U.S. economy ahead of the World Health Day and remind investors of some wholesome supplements for a robust investment portfolio.

Similar to the six vital nutrients required for good health, there are six pillars that uphold the economy. Solid manufacturing growth, still-aggressive monetary policies as well as better job prospects testify to economic well-being. But what is the secret behind this economic improvement and the resultant surge in stock prices?

We have figured out the mantra for good economic health. First, we picked six essential market nutrients in the form of sectors and then zeroed in on stocks that are in the green with the help of our Zacks Stock Screener. All these are Zacks Rank #1 (Strong Buy) or 2 (Buy) stocks with higher market caps in their respective sectors. Other parameters include positive current-year earnings estimate revisions over the past 30 or 60 days, positive current-year EPS growth, positive earnings surprise over the trailing four quarters, and place in a top-ranked Zacks industry (in the top 45%).

You can see the complete list of today’s Zacks #1 Rank stocks here.

Vitamins: Consumer Sector

Growth in America cooled down at the end of last year with annual GDP growth of 2.9%. Though it came slightly below Trump’s goal of 3%, the growth was stronger since 2015 and better than 2.2% recorded in 2017. About two-thirds of overall economic growth comes from consumer spending, which has been on a decline since December. Consumer confidence has also weakened in recent months.

The stock market turmoil at the end of the last year and longest-ever government shutdown this year took toll on consumers’ confidence and economic growth. This has made valuations in the consumer sector attractive going into the spring selling season and will provide the economy its regular dose of vitamins. Within this sector, a global media and technology company Comcast Corporation CMCSA is a great pick for investors.

This Zacks Rank #2 company has seen rising estimates of 7 cents over the past 60 days with an expected earnings growth rate of 8.63%. It beat earnings estimate in each of the past four quarters with an average surprise of 5.36%. Comcast belongs to a top-ranked Zacks industry (top 24%), suggesting its potential for solid growth in the months ahead. The stock has gained 20.4% in a year.

Proteins: Financial Sector

Like protein, the financial sector, helps in carrying out a huge array of functions through its banks and financial institutions. The sector facilitates growth in every part of the country. The stocks in this sector have been battered by the dual attack of the flattening yield curve and global slowdown concerns. The weak trend accelerated following the Fed’s dovish stance that it will not raise interest rates for this year, citing a slowing economy.

Euronet Worldwide Inc. EEFT bucked the downtrend and surged more than 95% in a year. It is an industry leader in providing secure electronic financial transaction solutions. The Zacks Consensus Estimate for 2019 has been revised up from $6.82 to $6.88 over the past 60 days and represents substantial year-over-year growth of 24.41%. This Zacks Rank #2 company falls within a top-ranked Zacks industry (top 41%) and delivered positive earnings surprises in the last four quarters, with an average beat of 2.68%.

Minerals: Medical Sector

Just like minerals are important for bone structure, healthcare is crucial to the economy. In fact, it is the backbone of an economy. Healthcare is one of the largest and fastest-growing sectors thanks to an aging population, growing middle class, and insatiable demand for new treatments and drugs for many illnesses. About 10% of economic growth comes from this sector.

The industry is clearly benefiting from increased M&A activity, an accelerated pace of innovation, promising drug launches, growing importance of biosimilars, cost-cutting efforts, expanding insurance coverage and ever-increasing health care spending. One of the beneficiaries of this trend is Zacks Rank #2 Merck & Co. Inc. MRK from a top-ranked Zacks industry (top 20%).

It provides healthcare solutions worldwide, offering therapeutic and preventive agents to treat cardiovascular, type 2 diabetes, chronic hepatitis C virus, HIV-1 infection, intra-abdominal, fungal infection, insomnia and inflammatory diseases. It saw positive earnings estimates of a couple of cents over the past 60 days to $4.65, representing year-over year growth of 7.14%. The company beat the Zacks Consensus Estimate in each of the past four quarters, with an average positive surprise of 3.13%. The stock is up 54.4% in a year.

Carbohydrates: Technology Sector

Similar to carbs that provide energy to the muscles and brain, the technology sector powers the economy with its wide range of products and services including electronics, software, computers and social media. The emergence of cutting-edge technology such as cloud computing, big data, Internet of Things, wearables, VR headsets, drones, virtual reality, artificial intelligence and machine is driving growth. The deployment of 5G (fifth-generation) technology — the next wireless revolution — is creating further opportunities. The wave of mergers and acquisitions is providing further impetus.

Within the sector, Intuit Inc. INTU with a Zacks Rank #2 seems a solid choice. It provides financial management and compliance products and services for small businesses, consumers, self-employed and accounting professionals. The stock, which belongs to a top-ranked Zacks industry (top 7%), saw positive earnings estimate of 6 cents over the past 60 days for fiscal year (ending July 2019) and has an expected earnings growth rate of 17.11%. It delivered positive earnings surprises in the last four quarters, with an average beat of 55.57%.

Fats: Construction Sector

Construction sector — accounting for 5.5% of GDP — provides energy backup to the economy. This is because construction activity picks up when the economy strengthens. The sector has been gaining confidence this year on lower mortgage rates and decelerating home price growth that have encouraged people to buy more homes. Low unemployment, solid job growth, wage gains and favorable demographics are also fueling growth in the sector.

To tap this bullish trend, Quanta Services Inc. PWR could be an exciting pick. The company’s earnings estimates have gone up by 29 cents over the past two months. The current Zacks Consensus Estimate is pegged at $3.52, up 25.27% year over year. Quanta Services delivered positive earnings surprises in two of the last four quarters, with an average beat of 4.03%. The stock has a Zacks Rank #1 and belongs to a top-ranked Zacks industry (top 37%). Shares of PWR are up nearly 14% over the past one year.

Water: Transport Sector

Transport enables smooth movement of freight and passengers through different modes such as rail, trucks, ships and air. It occupies an important place in the world market and is often considered a barometer of broad economic health. Though higher oil and gasoline prices have taken a toll on the sector, an improving economy, employment gains and higher consumer confidence provides boost.

Delta Air Lines Inc. DAL is America's fastest growing international carrier that provides scheduled air transportation for passengers and cargo in the United States and internationally. The stock has seen positive earnings estimate revision of three cents for this year over the past month and has estimated earnings growth of 15.58%. Further, the stock beat earnings estimates in the last four quarters, with an average positive surprise of 2.52%. Delta Air Lines has a Zacks Rank #2 and belongs to a top-ranked Zacks industry (top 21%). It has gained 9% in the past year.

Zacks' Top 10 Stocks for 2019

In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year? Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.

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