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Top 5 Momentum Picks for January Despite Market Volatility

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·7 min read
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Wall Street successfully defeated the pandemic with astonishing performances in 2020 and 2021. However, U.S. stock markets have begun 2022 with volatile trading. Mounting inflation, and the Fed's reaffirmation of doing away with the pandemic-era easy money policies and a possible hike in interest rate after two years dented market participants’ sentiment.

Nevertheless, the overall trend of the market will remain northbound based on the strong fundamentals of the U.S. economy. Moreover, a likely end of the pandemic after this winter should be another positive. At this stage, it will be prudent to invest in stocks with a favorable Zacks Rank that have strong momentum for the near-term. Five of them are - Exxon Mobil Corp. XOM, STMicroelectronics N.V. STM, The Charles Schwab Corp. SCHW, Albemarle Corp. ALB and Interactive Brokers Group Inc. IBKR.

Wall Street Starts 2022 With Volatility

The U.S. stock market was in negative territory for the first eight trading sessions of 2022. The Dow, the S&P 500 and the Nasdaq Composite fell 0.1%, 0.8% and 2.9%, respectively. The small-cap benchmark the Russell 2000 dropped 3.1% during the same time frame.

The United States has been suffering from soaring inflationary pressure since the second quarter of 2021. Growing inflation compelled Fed Chairman Jerome Powell to change his view on inflation at the end of last year as he commented that inflation is no longer transitory.

The consumer price index (CPI) rose 7% year over year in December 2021, marking its highest monthly rise since June 1982. Excluding the volatile food and energy items, the core CPI rose 5.5% year over year, reflecting the highest monthly gain since February 1991. Several market researchers are concerned that globally the rapid spread of the Omicron variant of coronavirus globally will make the sagging supply-chain system more disruptive, thereby fueling inflation in the future.

Robust U.S. Economy to Drive Stock Markets

In 2022, the biggest drivers of the U.S. stock markets should be the nation’s strong economic fundamentals. We expect the U.S. economy to become fully operational as the pandemic is expected to reach its peak this winter. Several major investment bankers and money managers have already started removing pandemic-related adjustments from their financial models.

The U.S. economy will get more upside from the government’s infrastructure spending. 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 key catalyst for the U.S. stock markets in 2022. Various segments of the economy such as basic materials, industrials, utilities and telecommunications should benefit immensely with more job creation.

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

Another near-term driver for U.S. stocks will be fourth-quarter 2021 earnings results. As of Jan 12, total earnings of the S&P 500 Index are expected to be up 19.9% from the same period last year on 11.9% higher revenues. Furthermore, on Jan 10, the Atlanta Fed reported that the U.S. economy grew 6.8% in fourth-quarter 2021.

Our Top Picks

We have narrowed our search to five large-cap (market capital > $10 billion) momentum stocks that have solid upside left for 2022. These stocks have seen strong earnings estimate revisions within the last 7 days indicating that the market is expecting this companies to do good business in the near-term. Each of our picks carries a Zacks Rank #1 (Strong Buy) and has a Momentum Score of 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 year.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Exxon Mobil made multiple world-class oil discoveries at the Stabroek Block, located off the coast of Guyana. XOM has raised the estimate for discovered recoverable resources from the Stabroek Block to approximately 10 billion oil-equivalent barrels.

Exxon Mobile’s bellwether status and an optimal integrated capital structure, which have historically led to industry-leading returns make it a relatively lower-risk energy sector play. The integrated oil behemoth expects to reduce greenhouse gas emissions by 30% in its upstream business. By the same time, XOM expects to reduce flaring and methane emissions by 40%.

Exxon Mobil has an expected earnings growth rate of 21.6% for the current year. The Zacks Consensus Estimate for current-year earnings improved 2.7% over the last 7 days. The stock price of XOM has jumped 46.9% in the past year.

The Charles Schwab remains focused on enhancing trading revenues, which have been under pressure for a few years. For this, SCHW continues to undertake several initiatives including lowering its basic online equity and ETF trade commissions to zero and reducing fees for the Schwab market cap-weighted index mutual funds.

Further, it launched Schwab Stock Slices, through which investors will be able to own shares of any company in the S&P 500 Index starting at $5 each, even though these shares cost more. These efforts, aimed at building client base and the acquisition of TD Ameritrade, are likely to lead to further improvement in the trading income of Charles Schwab.

SCHW has an expected earnings growth rate of 20.2% for the current year. The Zacks Consensus Estimate for current-year earnings improved 4% over the last 7 days. The stock price of Charles Schwab has soared 59.3% in the past year.

Interactive Brokers Group operates as an automated electronic broker worldwide. IBKR specializes in executing and clearing trades in securities, futures, foreign exchange instruments, bonds, and mutual funds.

Interactive Brokers Group’s efforts to develop proprietary software (including IBKR Lite), its low level of compensation expenses relative to net revenues and an increase in emerging market customers will likely continue aiding its financials. The acquisition of the retail unit of Folio Investments will strengthen IBKR’s position in the online brokerage space.

Interactive Brokers Group has an expected earnings growth rate of 5.5% for the current year. The Zacks Consensus Estimate for current-year earnings improved 2.3% over the last 7 days. The stock price of IBKR has gained 11.1% in the past year.

Albemarle is likely to gain from long-term growth in the battery-grade lithium market. ALB is expected to benefit from its actions to boost its global lithium derivative capacity. Albemarle remains on track with its La Negra III and IV projects.

ALB also remains focused on executing its cost-reduction program. Its cost-saving actions are also expected to support margins in 2021. Albemarle should also benefit from the synergies of the Rockwood acquisition. The buyout has provided ALB a complimentary product portfolio.

ALB has an expected earnings growth rate of 51.5% for the current year. The Zacks Consensus Estimate for current-year earnings improved 1.3% over the last 7 days. The stock price of Albemarle has climbed 34% in the past year.

STMicroelectronics is a global independent semiconductor company that designs, develops, manufactures and markets a broad range of semiconductor integrated circuits and discrete devices used in a wide variety of microelectronic applications.

STM operates through Automotive and Discrete Group, Analog, MEMS and Sensors Group, and Microcontrollers and Digital ICs Group segments. STMicroelectronics’ products are primarily used in telecommunications systems, computer systems, consumer products, automotive products and industrial automation and control systems.

STMicroelectronics has an expected earnings growth rate of 32.4% for the current year. The Zacks Consensus Estimate for current-year earnings improved 5.5% over the last 7 days. The stock price of STM has advanced 18.6% in the past year.


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

STMicroelectronics N.V. (STM) : Free Stock Analysis Report

Exxon Mobil Corporation (XOM) : Free Stock Analysis Report

The Charles Schwab Corporation (SCHW) : Free Stock Analysis Report

Interactive Brokers Group, Inc. (IBKR) : Free Stock Analysis Report

Albemarle Corporation (ALB) : Free Stock Analysis Report

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