Unemployment Falls to 18-Year Low: 6 Winning Picks

Nearly an hour before its release, President Trump tweeted that he was “looking forward” to May’s jobs data. Ultimately, the report was able to live up to investors’ expectations, heightened primarily by Trump’s comments. The unemployment rate declined to the lowest level witnessed since April 2000. Job additions also increased substantially.

May’s jobs report has successfully dispelled concerns about slowing jobs growth. Retail trade led job gains, followed by healthcare and construction. With job gains likely to continue in the months ahead, picking stocks from these sectors looks like a prudent option at this point.

Unemployment Lowest Since April 2000

The unemployment rate declined from 3.9% in April to 3.8% in May, the lowest in 18 years. The U6 unemployment rate that includes people forced into part-time work and people only sporadically looking for jobs declined to 7.6%, the lowest level witnessed since May 2001.

The decline in the unemployment rate was also attributable to a marginal fall in the labor participation rate, which declined from 62.8% to 62.7. However, economists now think that unemployment can decline further since 60.4% of the U.S. population is still unemployed. Since this is still lower than pre-recession levels, the slack in the labor market prevails.

Meanwhile, average hourly earnings increased by 0.3%, or 8 cents to $28.92 an hour. Consequently, wages increased by 2.7% year over year in May. This is particularly significant since the metric remained unchanged at 2.6% for three consecutive months. The average workweek remained flat at 34.5 hours.

Retail Trade, Healthcare, Construction Lead Gains

The economy added 223,000 jobs in April, exceeding the consensus estimate of 190,000. This was the largest number of job additions in three months. Notably, monthly job additions have averaged 191,000 over the past one year. Job additions for March and April were revised upward by a combined 15,000.

At the forefront of job gains were healthcare and construction. These sectors added 29,000 and 25,000 jobs, respectively. However, leading the pack was the retail trade sector which added 31,000 jobs. The sector has added 125,000 jobs in the past 12 months.

Our Choices

The decline in the unemployment rate indicates the extent to which the labor market has tightened. This is also probably why job additions have declined to a pace lower than what was witnessed earlier this year. However, most economists think job additions will continue and that the unemployment rate will decline further.

Retail trade, healthcare and construction have been the highest recruiters according to the May jobs report. Adding stocks from these sectors looks like a smart choice at this point. However, picking winning stocks may be difficult.

This is where our VGM Score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score. 

We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM Score.

Dillard's Inc. DDS is a large departmental store chain featuring fashion apparel and home furnishings.

Dillard's has a Zacks Rank #1 (Strong Buy) and a VGM Score of B. The company has expected earnings growth of 26.1% for the current year. The Zacks Consensus Estimate for the current year has improved by 4.1% over the last 30 days.

Shoe Carnival, Inc. SCVL is one of the largest family footwear retailers in the United States.

Shoe Carnival has a Zacks Rank #1 and a VGM Score of B. The company has expected earnings growth of 35.9% for the current year. The Zacks Consensus Estimate for the current year has improved by 5.5% over the last 30 days.

MasTec, Inc. MTZ is a leading infrastructure construction company operating throughout the United States.

MasTec has a VGM Score of B. The company has expected earnings growth of 21.8% for the current year. The Zacks Consensus Estimate for the current year has improved by 4.6% over the last 60 days. The stock has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Jacobs Engineering Group Inc. JEC is one of the leading providers of professional, technical and construction services to industrial, commercial and governmental clients.

Jacobs Engineering Group has a Zacks Rank #2 (Buy) and a VGM Score of A. The company has expected earnings growth of 31.4% for the current year. The Zacks Consensus Estimate for the current year has improved by 6% over the last 30 days.

Chemed Corporation CHE currently operates as two wholly owned subsidiaries: VITAS Healthcare and Roto-Rooter. The VITAS Healthcare segment provides hospice and palliative care services for patients with terminal illnesses.

Chemed has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of 30% for the current year. The Zacks Consensus Estimate for the current year has improved by 3.4% over the last 60 days.

The Ensign Group, Inc. ENSG provides health care services in the post-acute care continuum, urgent care center and mobile ancillary businesses in the United States.

Ensign Group has a Zacks Rank #2 and a VGM Score of A. The company has expected earnings growth of 24.4% for the current year. The Zacks Consensus Estimate for the current year has improved by 1.4% over the last 30 days.

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