Is This the Right Time to Enter Dow? 4 Great Picks
The month of October is turning out to be one of the worst this year. All three major stock indexes are already in the red this month. In the last two trading sessions, the Dow shed a massive 1,378 points, marking its worst performance in eight months.
However, a glimpse at the 30-stock blue-chip index will reveal that the recent meltdown is likely to be transitory and can provide a good entry point for investors. Consequently, it will be a prudent move to invest in Dow stocks with favorable Zacks Rank.
Dow Meltdown is Transitory
On Oct 10 and 11, the Dow declined 831.83 and 545.91 points, respectively. Likewise, the S&P 500 recorded its sixth straight day of loss, the longest one since November 2016. Meanwhile, tech-heavy Nasdaq Composite recorded its largest sell-off since June 2016.
Notably, the broad-based collapse in U.S. stock markets resulted as investors’ panicked on soaring yields on government bonds, lingering trade-conflicts with China and a recent projection by IMF of a possible setback in global economic growth.
Despite these negatives, the Dow 30 is still in the positive territory in 2018. Moreover, nine of its 30 stock portfolio has so far provided remarkable double-digit return year to date. Robust fundamentals of the U.S. economy and strong earnings momentum will pave the way for the blue-chip index’s future growth.
Robust U.S. Economic Fundamentals
The U.S. GDP grew at 3.2% in the first half of 2018, better than the Trump administration’s target level of 3%. Moreover, the unemployment of 3.7% is at its lowest since December 1969. Despite a noticeable rise in wage rate, inflation remains under control.
Moreover, both manufacturing and services sectors are growing at steady pace and consumer confidence is at its peak. This indicates that the U.S. economy remains strong even though such data has actually pushed up bond yields.
Healthy Earnings Data
U.S. corporates earned record high profits in the first two quarters of 2018. For the third quarter, total earnings of S&P 500 companies are likely to be up by 17.8% on 7.1% higher revenues. For full-year 2018, total earnings of S&P 500 companies are likely to be up by 20.6% on 6.4% higher revenues. (Read More: Bank Earnings in the Spotlight)
At this stage, investment in Dow stocks having strong growth potential and provided solid year to date return despite severe volatility, will be lucrative. We have narrowed down our search to four such stock each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The chart below depicts price performance of our four picks year to date.
Apple Inc. AAPL: The company generated positive earnings surprise of 5.5% in the last four quarters. It has expected earnings growth of 14.3% for current year. The Zacks Consensus Estimate for the current year has improved by 1.5% over the last 60 days.
Cisco Systems Inc. CSCO: The company generated positive earnings surprise of 2.9% in the last four quarters. It has expected earnings growth of 14.2% for current year. The Zacks Consensus Estimate for the current year has improved by 3.1% over the last 60 days.
Merck & Co. Inc. MRK: The company generated positive earnings surprise of 5.3% in the last four quarters. It has expected earnings growth of 7.5% for current year. The Zacks Consensus Estimate for the current year has improved by 0.5% over the last 60 days.
Microsoft Corp. MSFT: The company generated positive earnings surprise of 11.4% in the last four quarters. It has expected earnings growth of 9.5% for current year. The Zacks Consensus Estimate for the current year has improved by 0.3% over the last 60 days.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
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