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Economic Diagnosis After 1 Year of COVID-19: 6 Stock Picks

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U.S. economic growth is far from the pre-pandemic levels but has shown solid improvement from the lows reached during the crisis. Also, Wall Street has staged a solid comeback and reached new milestones. Let us examine the health of the U.S. economy this World Health Day and bring to investors’ attention the key developments and some solid picks for a robust investment portfolio.

Similar to the six vital nutrients required for good health, six pillars support the economy. Here, we have picked six essential market nutrients in the form of sectors and then zeroed in on stocks that have a Zacks Rank #1 (Strong Buy) or 2 (Buy) with a higher market cap in their respective sectors using the Zacks Stock Screener. Other parameters considered include a VGM Score of B or better, positive current-year earnings estimate revisions over the past 30 or 60 days, positive current-year EPS growth, and position 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

The consumer sector, being hit hard by the pandemic recession last year, is now enjoying huge optimism given the rapid pace of coronavirus vaccination, progress on more vaccines, rounds of unprecedented stimulus and easing of business restrictions.

Americans are growing more confident about the economy given that the University of Michigan’s final sentiment index climbed to a pandemic high of 84.9 in late March from a preliminary reading of 83. The Conference Board on consumer confidence index also jumped to 109.7 in March — the highest level since the onset of the pandemic in March 2020. Meanwhile, a measure of U.S. manufacturing activity soared to its highest level in more than 37 years in March, driven by strong growth in new orders. Additionally, historically lower rates have boosted their spending power.

The combination of all these factors has led to higher demand for all types of products and services in the economy, taking the consumer sector higher. It will continue to give the economy its regular dose of vitamins. Within this sector, Mohawk Industries Inc. MHK, a leading global manufacturer of carpet, rugs, ceramic tile, laminate, wood, stone and vinyl flooring, is a great pick for investors.

This Zacks Rank #2 company saw positive earnings estimate revision of 8 cents over the past 30 days for this year with an expected earnings growth rate of 8.9%. Mohawk Industries belongs to a top-ranked Zacks industry (top 44%) and has a VGM Score of A, suggesting its potential for outperformance in the months ahead. The stock has skyrocketed more than 174% 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 rising on surging yields and an improving economy. Rising rates are highly profitable for the financial sector as the steepening yield curve would bolster profits for banks, insurance companies, discount brokerage firms and asset managers.

The rapid pace of vaccinations and government stimulus programs has also fueled optimism for loan growth and lower-than-expected losses on bad loans. Further, the Biden administration’s focus on stimulating the economy and improving the nation's infrastructure will lend additional support to the financial sector.

That said, The Goldman Sachs Group Inc. GS with a market cap of $113.3 billion, has more than doubled in one year. It is a leading global financial holding company providing investment banking, securities and investment management services to a diversified client base. The Zacks Consensus Estimate for 2021 has been revised upward by a solid $1.05 over the past 30 days and indicates substantial year-over-year growth of 29.5%. This Zacks Rank #1 company falls within a top-ranked Zacks industry (top 6%) and has a VGM Score of A.

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 currently benefiting from COVID-19 vaccines and treatment with many more to come. One of the beneficiaries of this trend is the Zacks Ranked #2 player HCA Healthcare Inc. HCA from a top-ranked Zacks industry (top 21%). This is the largest non-governmental operator of acute care hospitals in the United States. The Zacks Consensus Estimate has moved up a solid 18 cents for this year over the past 60 days to $12.67, indicating year-over-year growth of 15.9%. The stock almost doubled in a year and has a VGM Score of A.

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 global digital shift has accelerated e-commerce for everything, ranging from remote working to entertainment and shopping. The rapid adoption of cloud computing, big data, Internet of Things, wearables, VR headsets, drones, virtual reality, artificial intelligence, machine learning, digital communication and 5G technology will continue to drive the sector higher.

Applied Materials Inc. AMAT with a Zacks Rank #2 and a VGM Score of B seems a solid choice. It is one of the world’s largest suppliers of equipment for the fabrication of semiconductor, flat panel liquid crystal displays or LCDs, and solar photovoltaic cells and modules. The stock, which belongs to a top-ranked Zacks industry (top 27%), saw robust earnings estimate of 97 cents over the past 60 days for this year and has an expected earnings growth rate of 43.4%. It has surged nearly 210% in a year.

Fats: Construction Sector

The 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. Though the cost of raw material prices and construction has increased in tandem with the rise in commodity prices, the construction sector has been doing well on lower mortgage rates, which is encouraging people to buy more homes and has made refinancing cheaper.

To tap this bullish trend, Lennar Corporation LEN, which is engaged in homebuilding and financial services in the United States, could be an exciting pick. The company’s earnings estimates have gone up by $1.61 over the past month for the fiscal year (ending November 2021). The current Zacks Consensus Estimate is pegged at $10.98, up 39.9% year over year. Lennar has a Zacks Rank #1 and a VGM Score of A. It belongs to a top-ranked Zacks industry (top 17%). Shares of LEN are up more than 167% in a 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. As lockdown measures have eased and more people are being vaccinated, the transport sector is on a solid growth path with a surge in travel demand.

United Parcel Service Inc. UPS is the world's largest express carrier and package delivery company. The stock has seen positive earnings estimate revision of a penny for this year over the past 60 days and has estimated earnings growth of 7%. UPS has a Zacks Rank #2 and a VGM Score of A. It belongs to a top-ranked Zacks industry (top 44%). The stock has gained nearly 80% in a year.

The Hottest Tech Mega-Trend of All

Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>

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United Parcel Service, Inc. (UPS) : Free Stock Analysis Report
Mohawk Industries, Inc. (MHK) : Free Stock Analysis Report
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Lennar Corporation (LEN) : Free Stock Analysis Report
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