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U.S. private sector employers made robust job additions in March, per a Automatic Data Processing Inc. ("ADP") and Moody’s Analytics report dated Apr 4. In fact, data from the same proved that the negative market sentiment about U.S. tariffs imposed on steel and aluminum by President Trump was overblown.
Also, the U.S. Labor Department’s report released on Mar 9 showed that the economy added 313,000 jobs in February 2018, exceeding the consensus estimate of 208,000. However, wages increased by a meager 2.6% on an annualized basis compared with 2.9% in the prior month. Consequently, investors’ apprehensions over rising inflation were significantly dispelled.
The U.S. jobless rate currently stands at a 17-year low of 4.1%. The ADP/Moody’s Analytics job data for March indicates that the labor market remains healthy despite the looming fears of trade war. Consequently, stocks from the industries which recruited aggressively in March appear to be lucrative investment options.
Robust Data for March
The ADP/Moody’s Analytics report revealed that U.S. private sector added 241,000 jobs in non-farm sectors in March. This seasonally adjusted figure was 2% lower than February’s numbers but represents a whopping 97% year over year improvement. This was the fifth consecutive month that ADP/Moody's Analytics data showed private payrolls were up by at least 200,000.
Job additions in March were fairly broad-based in nature. Small, medium and large-sized enterprises added 47,000, 127,000 and 67,000 employees, respectively. Services-producing industries generated 176,000 jobs and goods-producing industries generated 65,000 jobs. Professional and business services, trade/transport/utilities, construction and manufacturing were the major employers.
Labor Market Remains Stable
Also the Fed’s projection for the labor market released in March has added a little extra sweetness to the economic scenario. The central bank has reduced its 2018 unemployment rate estimate to 3.8% from 3.9% in December 2017. Unemployment rate is likely to remain stable at 3.6% in 2019 and 2020 better than the central bank’s December projection of 3.9% and 4%, respectively. This indicates that the U.S. labor market will maintain near full employment levels over 2018-2020.
Newly introduced tax-reforms and deregulation policies are likely to act as a major catalyst. The corporate tax rate was lowered from 35% to 21%. Moreover, repatriation of income will be taxed 8% to 15.5%, instead of the current 35%. President Trump has also promised removing 75% of the regulations during his tenure. Trump’s business-friendly policies ought to help the private employers.
How to Identify the Potential Winners?
Strong business sentiments together with business-friendly policies and solid earnings should pave the way for a bull run in the second quarter of 2018. Consequently, it will be wise to invest in those stocks of those sectors which were most aggressive in recruiting. These include the professional and business services, trade/transport/utilities, construction and manufacturing arenas. However, picking winning stocks can be a difficult task.
This is where our VGM Score comes in handy. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select the winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score.
We have narrowed down our search to the following stocks, each of which has a Zacks Rank #1 (Strong Buy) and a good VGM Score. You can see the complete list of today’s Zacks #1 Rank stocks here.
Shuffle Your Portfolio: 5 Key Picks
Chart below shows price performance of our five picks year to date.
Vectrus Inc. VEC engages in providing infrastructure asset management, logistics and supply chain management, and information technology and network communication services.
Vectrus has a VGM Score of B. It has expected earnings growth of 37.8% for the current year. The Zacks Consensus Estimate for the current year has improved by 27.2% over the last 60 days.
General Finance Corp. GFN provides mobile storage, liquid containment and modular space solutions.
General Finance has a VGM Score of B. It has expected earnings growth of 80% for the current year. The Zacks Consensus Estimate for the current year has improved by 81.5% over the last 60 days.
Dynegy Inc. DYN provides wholesale power, capacity and ancillary services to utilities, cooperatives, municipalities and other energy companies
Dynegy has a VGM Score of A. It has expected earnings growth of 356.6% for the current year. The Zacks Consensus Estimate for the current year has improved by 66.7% over the last 60 days.
Arch Coal Inc. ARCH is a natural resource company. It produces metallurgical and thermal coal, utilized to manufacture steel and generate electricity.
Arch Coal has a VGM Score of A. It has expected earnings growth of 11.4% for the current year. The Zacks Consensus Estimate for the current year has improved by 19.4% over the last 60 days.
DMC Global Inc. BOOM is a technical services company. Its operating sector consists of industrial infrastructure and oilfield products and services.
DMC Global has a VGM Score of A. It has expected earnings growth of 687.5% for the current year. The Zacks Consensus Estimate for the current year has improved by 28.6% over the last 60 days.
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