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U.S. Heading for Largest Economic Expansion: 5 Top Picks

Nalak Das

Finally, May's market mayhem is over. June 2019 promises to bring along fortunes as the United States is on the verge of completing the longest economic expansion. According to the National Bureau of Economic Research, the ongoing expansion started back in June 2009. The previous record of longest economic expansion was from March 1991 to March 2001.

Fundamentals of the U.S. economy remain strong with no nearby sign of recession. Despite the stock market rout in May, a closer look at the U.S. economy has a different story to tell, with enough reasons for further rally on Wall Street.

Stock Market Meltdown Likely Temporary

President Donald Trump’s tariff wars against China and Mexico brought back volatility in Wall Street, which otherwise sailing through impressively in the first four months on 2019. In May, the three major stock indexes -- the Dow, S&P 500 and Nasdaq Composite -- plunged 6.7%, 6.6% and 7.9%.

However, year-to-date, these indexes are still in the positive territory with gains of 6.4%, 9.8% and 12.3%, respectively. Notably, per Ben Carlson, director of institutional asset management at Ritholtz Wealth Management, a pullback of 5% or more in a month on the S&P 500 Index happened in 65 of the last 70 years. So, a sudden shock last month may well be the much-needed correction in stock markets.

U.S. Economy Remains Strong

For May 2019, the Conference Board's measure of consumer confidence index stands at 134.1 compared with 129.2 in April. May’s reading is near the 18-year high recorded in November 2018. This indicates that U.S. consumers are highly confident about future growth despite trade concerns.

On May 3, the Department of Labor reported that the U.S. economy added 263,000 jobs in April. Year to date, job gains are impressive at 205,000 on an average per month. Unemployment fell to 3.6% compared with the consensus estimate of 3.8%. This marks the lowest level of unemployment since December 1969.

The Philadelphia Fed manufacturing index came in at 16.6 in May, a massive gain from the reading of 8.5 in April. The index was the highest in four months in May. Notably, any reading above zero indicates improving conditions. The employment index grew to 18.2, the highest in five months. The prices index was at 17.5, the lowest in 17 months.

Fed Maintains Dovish Stance

The Federal Reserve has decided to keep the federal funds target rate unchanged in the range of 2.25-2.50% at least for the time being. The central bank also said that it will not downsize its $4 trillion balance sheet this year. Per the Fed, although U.S. economy is in solid footing, trade-related concerns may result in global economic slowdown which will reduce the growth rate of the U.S. economy.

Moreover, core PCE inflation index – Fed’s favorite inflation gauge – increased 1.6% in April, well below the central bank’s target rate of 2%. Muted inflation and the likelihood of a reduction of U.S. economic growth may compel Fed to reduce interest rate, much to the delight of President Trump. The Trump administration is constantly blaming the central bank for its aggressive monetary stance as the major hindrance of economic growth.  

Our Top Picks

At this stage, it will be prudent to invest in stock with strong growth potential and a favorable Zacks Rank. We have narrowed down our search to five such stocks with a Growth Score of A and Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. Each of these stocks has moved higher in the last three months and still has upside left.

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

HEICO Corp. HEI designs, manufactures, and sells aerospace, defense, and electronic related products and services in the United States and internationally. The company has expected earnings growth of 22.7% for the current year. The Zacks Consensus Estimate for the current year has improved by 3.7% over the last 30 days. The stock has surged 30.6% in the past three months.

Group 1 Automotive Inc. GPI is a leading operator in the automotive retailing industry. It has expanded to become the third largest dealership group in the United States. The company has expected earnings growth of 13.6% for the current year. The Zacks Consensus Estimate for the current year has improved by 4.5% over the last 30 days. The stock has surged 15.7% in the past three months.

Rent-A-Center Inc. RCII leases household durable goods to customers on a rent-to-own basis. It operates through four segments: Core U.S., Acceptance Now, Mexico and Franchising. The company has expected earnings growth of 100% for the current year. The Zacks Consensus Estimate for the current year has improved by 11% over the last 30 days. The stock has surged 24.6% in the past three months.

Repligen Corp. RGEN develops, manufactures, and sells products used to enhance the interconnected phases of the biological drug manufacturing process in North America, Europe, APAC and internationally. The company has expected earnings growth of 28.8% for the current year. The Zacks Consensus Estimate for the current year has improved by 10.6% over the last 30 days. The stock has surged 17.4% in the past three months.

Strategic Education Inc. STRA provides a range of post-secondary education and non-degree programs in the United States. It operates through three segments: Strayer University, Capella University and Non-Degree Programs. The company has expected earnings growth of 36.2% for the current year. The Zacks Consensus Estimate for the current year has improved by 7.1% over the last 30 days. The stock has surged 23.8% in the past three months.

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Group 1 Automotive, Inc. (GPI) : Free Stock Analysis Report
 
Heico Corporation (HEI) : Free Stock Analysis Report
 
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Strategic Education Inc. (STRA) : Free Stock Analysis Report
 
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