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Indexes Within Striking Distance of Record High: 5 Top Picks

Nalak Das

After the August mayhem, Wall Street bulls are raging forward in September as all three major stock indexes -- the Dow, the S&P 500 and Nasdaq Composite -- are gradually approaching another all-time high after July. The impressive stock market rally, which commenced at the beginning of this year, has been maintained to date except some fluctuations in May and August.

A fundamentally stable U.S. economy, which is growing for the historically longest 11 years -- albeit with some loss in pace and a dovish monetary stance adopted by Fed in 2019 -- has strengthened investors’ confidence in risky assets like equities despite heightened trade conflict between the United States and China for more than a year.

Major Indexes Northbound

The S&P 500 Index -- generally utilized by market participants as the barometer of the broad market movement -- is up 19.9% year to date. The index is just 0.6% below the all-time closing high of 3.025.86 that it set in Jul 26, 2019. It needs to move another 0.7% to touch its all-time intraday high of 3,027.98 recorded on the same day.

The Dow -- the 30 stock blue-chip index -- has advanced 16.2% year to date. The index is currently less than 1% below the all-time closing high of 27,359.16 that it set in Jul 15, 2019. Moreover, the index is just 1.1% below its all-time intraday high of 27,398.68 recorded on the same day.

The tech-laden Nasdaq Composite is up 23.3% year to date. Notably, this index is 1.6% below its all-time closing high of 8,330.21 posted on Jul 26, 2019. The tech-heavy index needs to move another 1.9% to touch its all-time intraday high of 8,339.64 recorded on Jul 26, 2019.

Fundamentals of the U.S. Economy Remain Strong

The majority of consumer-centric, business-centric and labor market data for August clearly indicated a stable U.S. economy.

Industrial production in August rebounded with a rise of 0.6%, reversing a 0.1% dip in July and beating the consensus estimate growth of 0.2%. Manufacturing production, which accounted for 12% of the U.S. economy, grew 0.6% in August after a decline of 0.4% in July.

The National Association of Home Builders/Wells Fargo Housing Market Index -- tracking homebuilders’ sentiment -- edged up 1 point to 68, the highest reading in a year. Existing home sales in August rose 1.3%, marking the strongest pace of sales since March 2018.

U.S. retail sales for the month of August increased 0.4% after rising 0.8% in July and surpassing the consensus estimate of 0.2% growth. Retail sales growth rates in July and August indicate strong consumer spending in the third quarter of 2019 after it rebounded in the second. Notably, consumer spending accounts for more than 70% of the U.S. economy.

Meanwhile, the hourly wage rate increased 0.4% in August compared with 0.3% in July. Year over year, wage rate increased 3.2% in August beating the consensus estimate of 3%.

A Dovish Fed

The Fed had raised the benchmark interest rate four times in 2018 to 1% higher, which market participants largely blamed on the disappointing performance of Wall Street and the U.S.-China trade conflict. However, since the beginning of 2019, the central bank has adopted a dovish stance, which helped to defuse trade-related volatilities to a great extent.

After a long period of 11 years, Fed has reduced the benchmark lending rate by 50 basis points in two tranches this year so far. Several market participants still consider a third rate cut of same magnitude by the Fed within this year. Although Fed Chair Jerome Powell refrained to give any clear indication of further rate cut, he did stick to his earlier stance to do whatever is needed to sustain U.S. economic expansion.

Our Top Picks

At this stage, investment in stocks that are part of these three indexes, and have a favorable Zacks Rank and strong growth potential will be a prudent move. We have narrowed our search to five stocks that have moved higher in the past three months and still have upside left. All five stocks currently carry a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Crocs Inc. CROX designs, develops, manufactures, markets and distributes casual lifestyle footwear and accessories for men, women, and children worldwide. It offers various footwear products, including clogs, sandals, flips and slides, shoes and boots under the Crocs brand name. The company has an expected earnings growth rate of 65.1% for the current year. The Zacks Consensus Estimate for the current year has improved 1.4% over the last 30 days. The stock has jumped 54.9% in the past three months.



Zumiez Inc. ZUMZ operates as a specialty retailer of apparel, footwear, accessories and hardgoods for young men and women. Its hardgoods include skateboards, snowboards, bindings, components, and other equipment. The company has an expected earnings growth rate of 20.7% for the current year. The Zacks Consensus Estimate for the current year has improved 14.3% over the last 30 days. The stock has soared 22.7% in the past month.



Fiserv Inc. FISV provides information management systems and services to the financial and insurance industries. Leading services include transaction processing, outsourcing, business process outsourcing, software and systems solutions. The company has an expected earnings growth rate of 23.6% for the current year. The Zacks Consensus Estimate for the current year has improved 4.1% over the last 30 days. The stock has surged 14.4% in the past three months.



Keysight Technologies Inc. KEYS provides electronic design and test solutions to commercial communications, networking, aerospace, defense and government, automotive, energy, semiconductor, and electronic industries in the Americas and the Asia Pacific. The company has an expected earnings growth rate of 41.7% for the current year. The Zacks Consensus Estimate for the current year has improved 8.5% over the last 30 days. The stock has surged 13.2% in the past three months.



National Oilwell Varco Inc. NOV designs, manufactures and sells systems, components and products for oil and gas drilling and production worldwide. It operates in three segments: Wellbore Technologies, Completion & Production Solutions, and Rig Technologies. The company has an expected earnings growth rate of 137.5% for the current year. The Zacks Consensus Estimate for the current year has improved 300% over the last 30 days. The stock has gained 5.4% in the past three months.



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