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Top 5 Growth Stocks for December as Omicron Threats Ease

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Wall Street started this week with a strong rebound, eliminating most of the losses suffered the previous week due to the resurgence of a new variant of coronavirus – Omicron. On Dec 5, White House chief medical advisor Dr. Anthony Fauci said that early data of Omicron is “encouraging” and less severe than expected.

Consequently, U.S. stocks markets jumped with a broad-based rally. At this stage, it will be prudent to invest in growth stocks with a favorable Zacks Rank. We have selected five such stocks from sectors that benefit from the reopening of the economy. These are — Tesla Inc. TSLA, Devon Energy Corp. DVN, Williams-Sonoma Inc. WSM, Phillips 66 PSX and Pool Corp. POOL.

Wall Street Rebounds

On Dec 4, the South African Medical Research Council reported that the early data of Omicron suggests that the strain is likely to be less severe than its previous variant – Delta – and could cause milder infection. Given the small amount of data, it is not possible to conclude whether Omicron poses a greater risk of death or not.

On Dec 5, Dr. Fauci said that preliminary data of Omicron is “a bit encouraging” regarding its severity. According to Fauci “although it’s too early to make any definitive statements about it, thus far it does not look like there’s a great degree of severity to it.”

Following the news, the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — rallied 1.9%, 1.2% and 0.9%, respectively. The small-cap-centric benchmark — the Russell 2000 — jumped 2.1%. Notably, small-cap stocks suffered the most due to the resurgence of Omicron.

Positive Catalysts

The fundamentals of the U.S. economy are robust. Both consumer spending and business spending remain strong despite mounting inflation and supply-chain disruptions. Manufacturing and services PMIs have stayed elevated.

In its latest projection on Dec 1, the Atlanta Fed reported that the U.S. economy would grow by 9.7% in fourth-quarter 2021. U.S. GDP grew 6.4%, 6.7% and 2%, in the first, second and third quarters of this year, respectively.

Total third-quarter earnings of the market's benchmark — the S&P 500 Index —jumped 40.3% from the same period last year on 17.3% higher revenues. Moreover, in fourth-quarter 2021, total earnings of the S&P 500 Index are expected to increase 19.1% year over year on 11.2% higher revenues.

On Nov 15, President Joe Biden signed a bipartisan infrastructure bill of $550 billion in addition to the previously approved funds of $450 billion for five years. Total spending may go up to $1.2 trillion if the plan is extended to eight years.

The infrastructure development project will be a major catalyst for the U.S. stock markets in 2022. Various segments of the economy such as basic materials, industrials, utilities and telecommunications will benefit immensely with more job creation for the economy.

On Nov 19, the House of Representatives passed a massive $1.75 trillion social safety net and climate bill proposed by the Biden administration. The bill will now head toward the Senate.

Moreover, the White House has put pressure on Congress to quickly pass legislation providing $52 billion to help computer chip manufacturers and ease a shortage of the components vital to many industries.

Our Top Picks

We have narrowed our search to five large-cap (market capital > $10 billion) growth stocks that have solid upside left for the rest of 2021. These stocks have also witnessed positive earnings estimate revisions in the last 60 days. Each of our picks carries a Zacks Rank #1 (Strong Buy) and has a Growth Score A. You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows the price performance of our five picks in the past three months.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Tesla Inc. has acquired a substantial market share within the electric car segment. Increasing Model 3 delivery, which forms a significant chunk of TSLA’s overall deliveries, is aiding its top line. Along with Model 3, Model Y is contributing to its revenues.

In addition to increasing automotive revenues, Tesla’s energy generation and storage revenues boost its earnings prospects. The automaker said that its overall deliveries surged 20% in the third quarter from its previous record in the second quarter, marking the sixth consecutive quarter-on-quarter gain.

Tesla has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 1% over the last 30 days.

Devon Energy Corp. aims for strong oil production from the Delaware Basin holdings. Devon Energy’s presence in Delaware has expanded due to its all-stock merger deal with WPX Energy. DVN is using new technology in its production process to lower expenses.

Devon Energy’s divestiture of its Canadian and Barnett Shale gas assets will allow it to focus on its five high-quality oil-rich U.S. basins assets. DVN’s stable free cash flow generation allows it to pay dividend and buy back shares. Devon Energy has ample liquidity to meet near-term debt obligations.

Devon Energy has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 4.9% over the last 30 days.

Phillips 66 is a leading player in each of its operations like refining, chemicals and midstream in terms of size, efficiency and strength. The company is a leader in the midstream business, which generates stable fee-based revenues. Phillips 66, is well-positioned for making massive profits from higher demand for distillate fuels.

Contributions from the olefins and polyolefins business, backed by high demand, continue to drive PSX’s chemicals segment. Phillips 66’s move of expanding its footprint in the battery supply chain through its NOVONIX investment is praiseworthy.

Phillips 66 has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved more than 100% over the last 60 days.

Williams-Sonoma Inc. is a multi-channel specialty retailer of premium quality home products. WSM continues to enhance the e-commerce channel, optimize the supply chain and undertake cost-control measures to drive growth. Williams-Sonoma is focused on enhancing customer experience through technology innovation and operational improvement.

In order to drive brand awareness and increase customer engagement and cross-selling opportunities, WSM shifted its advertising spend toward social media campaigns and in cross-brand initiatives. Cross-brand initiatives such as The Key, Design Crew Room Planner and The One Registry are expected to be incremental growth drivers for all its brands going forward.

Williams-Sonoma has an expected earnings growth rate of 57.2% for the current year (ending January 2022). The Zacks Consensus Estimate for current-year earnings improved 0.1% over the last 7 days.

Pool Corp. is the world's largest wholesale distributor of swimming pool supplies, equipment and related products. In addition, it is a leading regional wholesale distributor of irrigation and landscape products. POOL is benefitting from the solid performance of its base business, large market presence and strategic expansions through acquisitions.

POOL is also benefitting from solid demand across heaters, pumps, filters, lighting, automation and pool remodeling. POOL remains optimistic on the back of products (such as automation and the connected pool), the continuation of the de-urbanization trends and the strengthening of the southern migration.

POOL has an expected earnings growth rate of 80.2% for the current year. The Zacks Consensus Estimate for current-year earnings improved 7.5% over the last 60 days.


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Devon Energy Corporation (DVN) : Free Stock Analysis Report

Pool Corporation (POOL) : Free Stock Analysis Report

WilliamsSonoma, Inc. (WSM) : Free Stock Analysis Report

Tesla, Inc. (TSLA) : Free Stock Analysis Report

Phillips 66 (PSX) : Free Stock Analysis Report

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