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Top 5 Stocks With Robust EPS Estimate Revision in Last 7 Days

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·7 min read
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U.S. stock markets maintained their north bound journey in the first week of June, despite the month being historically known as one of the weakest on Wall Street. Month to date, the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — are up 0.3%, 0.5% and 1%, respectively.

However, Wall Street has been reeling under an inflationary threat over the last couple of months in spite of its overall uptrend. Over the last 7 trading days, the market's benchmark — the S&P 500 Index — is hovering around (<1%) its all-time high of 4,238.04 recorded on May 7 but failed to reach a new high. This was predominantly due to day-to-day fluctuations on market participants' fear of an impending inflation.

Meanwhile, several corporate behemoths (market capital > $50 billion) have witnessed strong earnings per share (EPS) estimate revisions within the last 7 days. Investment in these stocks with a favorable Zacks Rank may be fruitful going forward.

Growing Concerns Over Inflation

Market participants are highly concerned about inflation in the last couple of months of the year. The consumer price index (CPI) — popularly known as household inflation — jumped 4.2% year over year in April, its highest since September 2008. Year over year, the core PCE inflation — Fed's favorite gauge of inflation — climbed 3.1% in April, marking the highest monthly gain since July 1992. The figure was well above the Fed's target rate of 2%.

Meanwhile, commodity prices have skyrocketed globally since 2008. Lumber, iron ore and copper prices are currently at record highs. Corn, soybeans and wheat prices hit eight-year highs. Crude oil prices are hovering around their two-and-half-year highs. High-tech microchip prices have soared primarily due to the pandemic-led breakdown of the global supply-chain system.

The above-mentioned negatives along with the shortage of skilled laborers that result in a higher wage rate significantly raised producers' input costs and thereby the price of the final products. Moreover, strong pent-up demand of Americans buoyed by record-setting multi-trillion-dollar forced savings during lockdowns, is injecting demand-pull inflation in the economy.

The Fed has so far maintained that any inflation above its targeted 2% in 2021 will be transitory. Recently released higher inflation data may be due to the extremely low base last year when the pandemic had rattled the whole economy.

However, Fed's upcoming FOMC meeting on Jun 15-16 will be keenly watched by market participants as a large section of economists and financial experts have said that Fed officials may discuss the need for continuing the quantitative easing program. Any indication of a gradual termination of purchasing $120 billion treasury or mortgage-backed bonds per month by the central bank will have an immediate impact on stock markets.

Upward Revision of EPS Estimates - A Crucial Indicator

An upward EPS estimate revision for 2021 of any stock simply means the market is expecting these companies to do good business this year. A positive estimate revision within the last 7 days means that the market is thinking positively about the company.

Therefore, a positive EPS estimate revision under growing threats of inflation highlights the solid business model and robust growth potential of a company. Investors can certainly take a look at these stocks which currently have strong earnings momentum.

Our Top Picks

We have narrowed down our search to five U.S. corporate giants as these companies have well-established business models and globally acclaimed brand values. These stocks have a strong growth potential for 2021 and long-term (3-5 years) growth forecast well above the S&P 500's 11% growth rate. Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). 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

Alphabet Inc. GOOGL has been showing increased appetite in the Home Assistant space. The company is focused on innovation, launching products and services for multiple industries. Google has been growing rapidly in the fast-growing highly-competitive cloud market.

This Zacks Rank #1 company has an expected earnings growth rate of 52.6% for the current year. It has a long-term growth rate of 18.1%. The Zacks Consensus Estimate for the current year improved 1.8% over the last 7 days.

Apple Inc.'s AAPL Services and Wearables businesses are expected to drive top-line growth in fiscal 2021 and beyond. Its focus on autonomous vehicles and augmented reality/virtual reality (AR/VR) technologies presents growth opportunities in the long haul.

This Zacks Rank #2 company has an expected earnings growth rate of 57.6% for the current year (ending September 2021). It has a long-term growth rate of 12.5%. The Zacks Consensus Estimate for the current year improved 1.4% over the last 7 days.

Dow Inc. DOW provides various materials science solutions for consumer care, infrastructure, and packaging markets in the United States, Canada, Europe and internationally. It remains focused on investing in attractive areas through highly accretive projects. Dow is investing in several high-return growth projects including the expansion of downstream silicones capacity.

This Zacks Rank #1 company has an expected earnings growth rate of more than 100% for the current year. It has a long-term growth rate of 27.7%. The Zacks Consensus Estimate for the current year improved 1.6% over the last 7 days.

Zoom Video Communications Inc. ZM is undoubtedly the biggest gainer of the coronavirus-induced remote working trend. Demand for its platform and solutions is expected to remain robust as healthcare experts believe that some form of social distancing will remain to prevent the recurrent transmission of the COVID-19 infections. Moreover, its freemium business model helps in winning customers rapidly, which can later be converted into paying back customers.

This Zacks Rank #1 company has an expected earnings growth rate of 39.52% for the current year (ending January 2022). It has a long-term growth rate of 15.6%. The Zacks Consensus Estimate for the current year improved 27% over the last 7 days.

The Sherwin-Williams Co. SHW is seeing favorable demand in domestic markets and remains committed to expanding its retail operations. The acquisition of Valspar has enabled it to strengthen its position as a leading paints and coatings provider globally, leveraging highly complementary offerings, strong brands and technologies.

This Zacks Rank #2 company has an expected earnings growth rate of 13.6% for the current year. It has a long-term growth rate of 11.3%. The Zacks Consensus Estimate for the current year improved 0.6% over the last 7 days.

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