Surging Earnings Estimates Signal Upside for Ranger Energy Services, Inc. (RNGR) Stock
On Mar 19, one of the equity markets’ most closely watched indexes, the Dow, plunged. Consequently, this pushed it into the negative territory for 2018. Yesterday’s market turmoil stemmed from the melt-down of technology stocks led by Facebook which is currently facing a severe data breach scandal in both the United States and the U.K.
Tech stock plunge had a cascading effect on overall market as most of the important indexes like S&P 500 and Nasdaq Composite index were also impacted. However, both S&P 500 and Nasdaq are still in the green for the year. Meanwhile, yesterday’s decline has pushed the Dow into the negative zone year to date.
However, a closer look at the index’s composition will give a different story. Despite an overall decline, a strong bunch of 13 stocks out of the total portfolio of 30 stocks in the Dow has provided positive returns so far this year. Investment in some of these stocks with a favorable Zacks Rank should prove to be lucrative.
Melt-Down a Temporary Phenomenon
On Monday, the Dow lost 335.60 points (1.35%) and closed at 24,610.91. Subsequently, the index is down 0.4% year to date. It closed at 24,719.22 at the end of 2017. Likewise, S&P 500 and tech-heavy Nasdaq Composite index also declined 1.42% and 1.84%, respectively.
Notably, Facebook, which triggered the domino effect leading to stock prices plummeting, is not a component of the Dow. Other major tech stocks, like Alphabet, Twitter, Amazon and Netflix, which also declined substantially leading to broader market downturn, are also not part of the index. The index consists of other major blue-chip stocks many of which have strong fundamentals.
In 2017, 21 out of 30 stocks of Dow provided double-digit returns. Year to date, 13 stocks are already in positive and three have provided double-digit returns. Strong earnings growth potential of major components will help the blue-chip index return to positive territory in the near term.
Strong Economic Fundamentals
The U.S. economy is currently on a strong footing. A recent survey among economists by The Wall Street Journal predicted U.S. GDP will rise 2.8% in 2018, better-than 2.5% in the fourth quarter of 2017. The two pro-growth agendas of President Trump, namely, significant cut in corporate tax and deregulation are major catalysts to the U.S. economy. A robust labor market along with modest wage growth indicates that inflationary risks are overblown.
Earnings momentum is expected to continue in the first quarter of 2018 buoyed by strong economic fundamentals. Total earnings of S&P 500 index expected to be up 15.5% from the same period last year backed by 7.2% year-over-year growth in revenues. Moreover, expectations for full-year 2018 are for an impressive showing, with total earnings for the S&P 500 index expected to be up by 21% from the year-earlier level driven by 6.8% higher revenues. (Read: Q1 Earnings Season to Show Growth Acceleration)
Stock markets momentum remained largely unhindered despite the correction experienced in February. Steady economic activities and business-friendly policies followed by the Fed will pave the way for further stock market growth. At present, U.S. markets are well positioned to attract investors’ attention by offering high yields with strong macroeconomic fundamentals.
At this stage, we narrowed down our search to five stocks within the Dow Jones Industrial Average each contains either a Zacks Rank #1 (Strong Buy) or 2 (Buy). Each of these stocks has provided fabulous return so far this year and flaunts strong growth potential.
The chart below depicts the performnace of our five picks year to date.
The Boeing Co. BA: The company generated positive earnings surprise of 65% and positive revenue surprise of 2.2% in the fourth quarter of 2017. Boeing has expected earnings growth of 16.7% for current year. The Zacks Consensus Estimate for the current year has improved by 16.6% over the last 60 days. The stock flaunts a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Cisco Systems Inc. CSCO: The company generated positive earnings surprise of 9.4% and positive revenue surprise of 0.7% in the second quarter of fiscal 2018. The stock carries a Zacks Rank #2. Cisco has expected earnings growth of 7.1% for current year. The Zacks Consensus Estimate for the current year has improved by 4.1% over the last 60 days.
Intel Corp. INTC: The company generated positive earnings surprise of 25.6% and positive revenue surprise of 4.6% in the fourth quarter of 2017. The stock carries a Zacks Rank #2. Intel has expected earnings growth of 1.5% for current year. The Zacks Consensus Estimate for the current year has improved by 6.7% over the last 60 days.
Visa Inc. V: The company generated positive earnings surprise of 10.2% and positive revenue surprise of 1.0% in the first quarter of fiscal 2018. The stock carries a Zacks Rank #2. Visa has expected earnings growth of 25.9% for current year. The Zacks Consensus Estimate for the current year has improved by 7.4% over the last 60 days.
The Goldman Sachs Group Inc. GS: The company generated positive earnings surprise of 0.8% and positive revenue surprise of 2.7% in the fourth quarter of 2017. The stock carries a Zacks Rank #2. Goldman Sachs has expected earnings growth of 9.5% for current year. The Zacks Consensus Estimate for the current year has improved by 1.0% over the last 60 days.
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