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Indexes Within Striking Distance of Record High: 5 Top Picks

Nalak Das

Wall Street is raging forward for the last 10 years, withstanding intermittent volatilities and fluctuations. After completing a record-setting first quarter of 2019, stock markets are heading further northward in April. The bull run has helped the three main stock indexes –- the Dow, S&P 500 and Nasdaq Composite –- to reach close to record-high levels.

Chances of a solution to the year-long trade conflict between the United States and China and a dovish stance adopted by the Fed in 2019 should be two major stock drivers, indicating continued bull run in the near term.

Major Indexes Northbound

The S&P 500 index –- generally utilized by market participants as the barometer of the broad market movement –- is up 14.9% year to date. The index is just 1.8% below the all-time closing high of 2,930.75 that it set in Sep 20, 2018. It needs to move another 2.2% to touch its all-time intraday high recorded on Sep 21, 2018.

The Dow –- the 30 stock blue-chip index –- has advanced 13.1% year to date. The index is just 1.7% below the all-time closing high of 26,828.39 that it set in Oct 3, 2018. Moreover, the index is currently 2.1% below its all-time intraday high recorded on the same day.

The tech-laden Nasdaq Composite is up 18.9% year to date. Notably, this index is 2.8% below its all-time closing high of 8,109.69 posted on Aug 29, 2018. The tech-heavy index needs to move another 3.1% to touch its all-time intraday high recorded on Aug 30, 2018.

A Dovish Fed

On Mar 20, after the completion of its two-day policy meeting of the Federal Open Market Committee, the central bank has decided not to hike interest rate in 2019 unless the situation changes abruptly. Fed members have unanimously decided to maintain patience before adopting any decision to raise interest rate. This means the benchmark fund rate will remain at 2.25-2.5%.

Moreover, the central bank has also decided to end its balance sheet reduction program in September. Under its quantitative easing program, the Fed allows $30 billion in Treasury proceeds and $20 billion from mortgage-backed securities to roll off and reinvest rest of the bonds.

Fed chairman Jerome Powell said that the U.S. economy will continue to grow in 2019 albeit at a slower pace. Fundamentals of the U.S. economy remain strong. Powell ruled out any concerns about a recession in the near future.

Likelihood of U.S.-China Trade Deal

Since the beginning of 2019, both United States and China are negotiating earnestly to find out an amicable solution to the trade spat. After a successful round of negotiation in Beijing between high-level delegations of two sides, the second round of talk has completed in Washington this week.

On Apr 4, President Trump said “we'll know over the next four weeks'’ if a deal with China happens, after expressing his views that the negotiation is moving forward in the right direction. On Apr 5, Xinhua reported that Chinese vice premier Liu He said a new consensus has been reached between the two countries on an important issue of trade agreement that they are negotiating.

On Mar 27, Reuters reported that China has made unprecedented proposals on a host of issues, including the protection of U.S. intellectual properties to resolve the trade disputes.

Our Top Picks

At this stage, investment in stocks that are part of these three indexes with 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 first quarter 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.

The chart below shows price performance of our five picks year to date.

SS&C Technologies Holdings Inc. SSNC provides software products and software-enabled services to financial services and healthcare industries in the United States, Canada, Mexico, Europe, the Asia Pacific, and Japan. The stock has surged 40.2% year to date. The company has an expected earnings growth rate of 30.5% for the current year. The Zacks Consensus Estimate for the current year has improved 6.7% over the last 60 days.

eGain Corp. EGAN operates as a software-as-a service provider of customer engagement solutions in the United States, the United Kingdom, India, and internationally. The stock has soared 57.8% year to date. The company has an expected earnings growth rate of 216.7% for the current year. The Zacks Consensus Estimate for the current year has improved 137.5% over the last 60 days.

Quanta Services Inc. PWR provides specialty contracting services in the United States, Canada, Australia, Latin America and internationally. The stock has surged 29.9% year to date. The company has an expected earnings growth rate of 25.3% for the current year. The Zacks Consensus Estimate for the current year has improved 9% over the last 60 days.

Ubiquiti Networks Inc. UBNT is engaged in designing, manufacturing and selling broadband wireless solutions worldwide. The stock has risen 60.1% year to date. The company has an expected earnings growth rate of 26.3% for the current year. The Zacks Consensus Estimate for current-year earnings has moved 13.1% up over the past 60 days.

Fortinet Inc. FTNT is a provider of network security appliances and Unified Threat Management network security solutions to enterprises, service providers and government entities worldwide. The stock has surged 18.6% year to date. The company has an expected earnings growth rate of 12.5% for the current year. The Zacks Consensus Estimate for the current year has improved 4% over the last 60 days.

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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