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U.S. GDP and Corporate Profits Likely to Soar in 2021: 5 Picks

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Nalak Das
·6 min read
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Year to date, Wall Street remains green, after an astonishing 2020, despite recent concerns of inflation and surging yields on long-term U.S. sovereign bonds. Stock markets are likely to move northward barring occasional fluctuations buoyed by robust expectations of U.S. GDP and corporate profit growth this year.

At this stage, several large-cap (market capital > $10 billion) S&P 500 stocks with a favorable Zacks Rank and strong growth potential for 2021 are available. A few these stocks have seen positive earnings estimate revisions within the last 7 days. An upward earnings estimate revision for 2021 simply means that the market is expecting these companies to do solid business this year. Investment in these stocks is likely to be fruitful going forward.

Impressive Projections for U.S. GDP

Projections for U.S. GDP and corporate profits are increasing systematically since the beginning of this year. Notably, the U.S. GDP plunged 3.5% in the pandemic-ridden 2020, marking its largest yearly decline since World War II and for the first time since the financial crisis of 2009.

On Mar 17, the Fed has raised its GDP forecast for 2021 to 6.5% from 4.2% in December. On Mar 10, the Wall Street Journal reported that economists on average expect U.S. GDP to expand nearly 6% this year from 4.9% in February and 4.3% in January. Per the Wall Street Journal, this will be the largest U.S. GDP growth since 7.9% in 1983.

On Mar 9, the OECD estimated that the latest fiscal stimulus, along with faster vaccination, could increase U.S. GDP growth to 6.5% in 2021. The Oxford Economics predicted 7% U.S. GDP growth in 2021. In January, the International Monetary Fund estimated 5.1% U.S. GDP growth in 2021.

Robust Expectations for Corporate Profits

Expectations for corporate profits are also improving gradually. In 2019 (the year of severe trade and tariff-related tussles with China), total earnings of the benchmark S&P 500 companies were up 0.4% year over year on 5.2% higher revenues. However, total earnings of same companies plummeted 13.2% year over year in 2020 on 2.3% lower revenues owing to the global outbreak of the deadly novel coronavirus.

Meanwhile, projections for total earnings of S&P 500 companies in 2021 have jumped 24.4% year over year on 8.6% higher revenues. Moreover, projections for total earnings of these companies in 2022 are up 14.9% year over year on 6.5% higher revenues. (Read More: What Will Q1 2021 Earnings Season Show?)

Future Catalysts

On Mar 19, the Wall Street Journal reported that in March, U.S. restaurant and hotel bookings, as well as air ticket sales, have increased considerably. Americans are spending more on gyms, salons and spas in recent weeks than they have since the outbreak of the coronavirus pandemic.

Several catalysts are there for these positives. The government has intensified nationwide deployment of COVID-19 vaccines and the three FDA approved vaccine manufacturers have ramped up productions.

With this, restrictions on business activities and individual activities have softened to a great extent. Several research firms have estimated that U.S. citizens had a staggering $1.5 - $1.8 trillion in savings at the end of 2020 that could climb to $2.4 trillion by mid-2021 due to various restrictions in lockdowns.

Moreover, per the new $1.9 trillion coronavirus-aid package of the Biden administration, eligible U.S. citizens will receive a $1,400 check payment in addition to $1,400 for any dependent. Moreover, the extra amount in unemployment benefits of $300 a week will be available till Sep 6. The fresh stimulus is likely to significantly boost pent-up demand for U.S. consumers.

Our Top Picks

We have narrowed down our search to the five large-cap S&P 500 stocks that have strong growth potential in 2021 and have witnessed robust earnings estimate revisions in the last 7 days. Each of our picks carries a Zacks Rank #1 (Strong 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 year to date.

L Brands Inc. LB operates as a specialty retailer of women's intimate and other apparel, personal care, and beauty and home fragrance products. It operates in three segments: Victoria's Secret, Bath & Body Works, and Victoria's Secret and Bath & Body Works International.

The company has an expected earnings growth rate of 22% for the current year (ending January 2022). The Zacks Consensus Estimate for its current-year earnings has improved 2.9% over the last 7 days.

Pioneer Natural Resources Co. PXD operates as an independent oil and gas exploration and production company in the United States. The company explores, develops and produces oil, natural gas liquids and gas.

The company has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for its current-year earnings has improved 2.9% over the last 7 days.

Nucor Corp. NUE is a leading producer of structural steel, steel bars, steel joists, steel deck and cold-finished bars in the United States. It operates through three segments: Steel Mills, Steel Products, and Raw Materials.

The company has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for its current-year earnings has improved 16.8% over the last 7 days.

EOG Resources Inc. EOG explores, develops, produces and markets crude oil, and natural gas and natural gas liquids in the United States and internationally.

The company has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for its current-year earnings has improved 1% over the last 7 days.

Align Technology Inc. ALGN is a medical device company that designs, manufactures and markets Invisalign clear aligners and iTero intraoral scanners and services for orthodontists and general practitioner dentists and restorative and aesthetic dentistry. It operates in two segments, Clear Aligner, and Scanners and Services.

The company has an expected earnings growth rate of 73.9% for the current year. The Zacks Consensus Estimate for its current-year earnings has improved 0.4% over the last 7 days.

Zacks Top 10 Stocks for 2021

In addition to the stocks discussed above, would you like to know about our 10 best buy-and-hold tickers for the entirety of 2021?

Last year's 2020 Zacks Top 10 Stocks portfolio returned gains as high as +386.8%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.

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Pioneer Natural Resources Company (PXD) : Free Stock Analysis Report

EOG Resources, Inc. (EOG) : Free Stock Analysis Report

Nucor Corporation (NUE) : Free Stock Analysis Report

Align Technology, Inc. (ALGN) : Free Stock Analysis Report

L Brands, Inc. (LB) : Free Stock Analysis Report

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