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Top 5 Momentum Stocks for March Amid Severe Volatility

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·7 min read
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Wall Street is reeling under severe volatility since the beginning of this year. Several inflation indexes, which have started rising since mid-2021, touched a 40-year high in January. The Fed has initiated steps to combat soaring inflation. The central bank’s quantitative easing program is due to terminate in March. Moreover, the first hike in interest rate after three years will also happen this month.

Consequently, market participants remained concerned regarding a more hawkish Fed. Furthermore, Russia’s invasion of Ukraine and uncertainty in global geopolitical stability have forced investors to remain skeptical regarding risky assets like equities. For that, the U.S. stock markets have been witnessing almost regular fluctuations in 2022 so far.

However, the overall trend of the market will remain northbound based on the strong fundamentals of the U.S. economy. At this stage, it will be prudent to invest in stocks with a favorable Zacks Rank and strong momentum for the near term. Five of them are — Marathon Oil Corp. MRO, Occidental Petroleum Corp. OXY, Exxon Mobil Corp. XOM, Tesla Inc. TSLA and Tyson Foods Inc. TSN.

February was highly disappointing as market participants assessed the Fed’s next move regarding interest rate and geopolitical conflict between Russia and Ukraine. The Dow plummeted 3.5% or 1,239.26 points, marking the largest one-month point and percentage decline since November.

The S&P 500 tumbled 3.1% or 141.61 points. The Nasdaq Composite tanked 3.4% or 488.48 points in February. The tech-laden index plunged 12% in the first two months of 2022, reflecting the largest two-month percentage decline since March 2020.

In spite of occasional market fluctuations owing to a shift from ultra-dovish to a more hawkish Fed, the overall movement of Wall Street is likely to remain northbound due to the following reasons.

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.

Some recently published economic data also provides a rosy picture. The Conference Board reported that the index for U.S. consumer confidence in February came in at 110.5, surpassing the consensus estimate of 109.5. The University of Michigan reported that the final reading of the U.S. consumer sentiment index inched up to 62.8, outpacing the consensus estimate of 61.7.

Consumer spending in January rose 2.1%, beating the consensus estimate of 1.5% and reversing the previous month’s decline of 0.8%. Notably, consumer spending accounts for nearly 70% of the U.S. GDP. A 40-year high inflation rate failed to deter consumers from demanding more goods and services.

The U.S. manufactured durable goods orders increased 1.6% in January compared with the consensus estimate of 1.1% and the previous month’s data of 1.2%. The shipment of durable goods increased 1.2% in January compared with 1.3% in December. Core durable goods shipment (excluding aircraft) rose 1.9% in January compared with 1.6% in December.

In the fourth quarter of 2021, the U.S. GDP climbed 7% compared with the consensus estimate of 6.9%. In 2021, U.S. GDP increased 5.7%, marking its best performance since 1984. The momentum is likely to continue as the average estimate of 2022 is currently at 3.5%.

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 past 30 days indicating that the market is expecting these 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 or B. 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 year to date.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Marathon Oil is a leading oil and natural gas exploration and production company with operations in the United States and Africa. MRO’s robust operational metrics suggest strong long-term cash flows that should support a higher price for its shares. The wells drilled by Marathon Oil have extremely low oil price breakeven costs and need oil prices of just $35 a barrel to be profitable.

MRO continues to cut down costs substantially and is striving to achieve a 30% decline in production and G&A costs in 2021 compared to the 2019 levels. Furthermore, Marathon Oil’s significant debt maturities will mostly fall after 2025 and there does not appear much risk here.

Marathon Oil has an expected earnings growth rate of 83.4% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.8% over the past 7 days.

Occidental Petroleum continues to increase hydrocarbon production volumes from its high-quality asset holdings and lower outstanding debts through the proceeds from non-core assets sale. The acquisition of Anadarko, investments to strengthen infrastructure and its Permian Basin exposure continue to boost the performance of OXY.

Occidental Petroleum has achieved the $10-billion divestiture goal through non-core assets sales. Its cost-management initiatives will boost margins going forward. OXY is also working to lower emissions and aims for net-zero emissions by 2050.

Occidental Petroleum has an expected earnings growth rate of 52.9% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 4.6% over the past 30 days.

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 Mobil’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 28.1% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 4.7% over the past 30 days.

Tesla 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 should boost its earnings prospects. TSLA 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 40.7% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 5.8% over the past 30 days.

Tyson Foods has been gaining on strategic growth efforts, including its focus on protein-packed brands and capacity expansion endeavors. TSN is also benefiting from robust demand in its retail core business lines. Moreover, continued recovery in the foodservice channel is a driver.

Tyson Foods has undertaken a number of operational and supply chain efficiency programs to place itself better for the long run. In this regard, TSN is investing in capacity expansion and automation technology.

Tyson Foods has an expected earnings growth rate of 2.9% for the current year (ending September 2022). The Zacks Consensus Estimate for current-year earnings has improved 18.5% over the past 30 days.


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

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