Last year turned out to be epic for U.S. stocks. The market’s relentless rally catapulted the key S&P 500 index to new heights, which logged its best year since 2013. As a matter of fact, the broadest measure of the equity market added as much as 28.9% to its value in 2019. While 2019 was an exceptional year, going ahead, the odds of an extended run in stocks this year also appear to be good.
What Drove the Record-Breaking 2019?
Let’s see what went right for the markets in 2019. It’s fairly simple: investors drove up equities on evidence of economic growth. Another big catalyst was the preliminary U.S.-China trade deal.
Investors cheered the Federal Reserve’s decision to cut rates thrice last year – in July, September and October – coupled with the central bank’s assertions of a robust labor market and strong economic activity. Impressive pace of hiring and a 50-year low unemployment rate added to the optimism. Moreover, domestic homebuilding market took off, while a buoyant consumer environment and rise in disposable income meant solid momentum for the overall economy.
The agreement on a phase one trade deal between U.S. and China, the two biggest economies, further boosted the market sentiment. The development – coming after almost two-years of wrangling – was seen to prop up the demand outlook and revive global economic growth.
How Will 2020 Unfold for the Markets?
The bull market turned 10 in March 2019 and Wall Street pundits expect the rally to continue in 2020, on the back of an accommodative monetary policy adopted by the Federal Reserve as well as strong fundamentals of the U.S. economy.
Meanwhile, the OPEC+ group announced cutting output by as much as 500,000 barrels per day from Jan 1 for three months to end a supply glut and prop up prices. This is in addition to the existing production curbs of 1.2 million barrels per day by OPEC, Russia and other non-member oil producers. The cartel’s renewed supply cuts lifted energy and commodity companies and helped give the markets another lift.
Invest in Companies with Strong Business Models
Naturally, when the broader market sentiments have a predetermined positive direction, there is hardly any strategy as lucrative as growth investing. However, at a time when volatility may continue to unsettle the stock market (as was the case during the recent geopolitical tensions in the Middle East), investors want to seek haven in safe income stocks.
We believe that one of the smartest plays would be to go for mega-cap stocks (stocks with a market cap of around $100 billion or more) which still have high growth potential.
Mega-caps, usually the largest and most established companies in the stock market, have been around for a while. They tend to be stable, and many of them pay dividends based on their earnings.These companies enjoy leading market positions, have a global footprint, strong cash positions and are large enough to stay strong even in the face of unfavorable events.
Though mega-caps may not see the exponential returns that the small-caps sometimes achieve, they are equally less likely to see the big downturns frequently experienced by smaller companies. In other words, you may not want to be lured by the expectant triple-digit returns (and end up losing money), but instead find a growth story in the relatively safer mega-cap stocks.
We have used the Zacks Stock Screener to narrow down on five mega-cap stocks with excellent growth potential. These stocks have a solid Zacks Rank as well.
Growth stocks are fundamentally strong businesses that ensure solid portfolio returns. We have used the Zacks Growth Score to pick such stocks. Our research shows that stocks with the combination of a Growth Score of A or B and a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer good investment opportunities. All our choices carry a Zacks Rank of 2.
You can see the complete list of today’s Zacks #1 Rank stocks here.
First on our list is Alphabet Inc. GOOGL. Headquartered in Mountain View, CA, Alphabet is a global Internet-based tech leader. It provides web-based search, advertisements, maps, software applications, mobile operating systems, consumer content, enterprise solutions, commerce and hardware products. The company, with a market cap of around $990 billion, sports a Growth Score of B.
The Procter & Gamble Company PG is our next pick. A branded consumer products company with operations in approximately 70 countries, Procter & Gamble has a Growth Score of B and a current market cap of $311 billion.
Then we have Roche Holding AG RHHBY. Based on net sales, the company Basel, Switzerland, Roche is a leading health care company focused on developing and commercializing innovative diagnostic and therapeutic products and services, which enable early detection and prevention of diseases as well as their treatment and monitoring. With a current market cap of $282 billion, this stock flaunts a Growth Score of A.
Our fourth choice is Adobe Inc. ADBE, one of the largest software companies in the world. With a current market cap of more than $167 billion, this stock sports a Growth Score of B.
Finally, there is NIKE, Inc. NKE. Headquartered in Beaverton, OR, NIKE is engaged in the business of designing, developing and marketing of athletic footwear, apparel, equipment and accessories, and services for men, women and children worldwide. This company, with a market cap of $159.5 billion, sports a Growth Score of A.
Today's Best Stocks from Zacks
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