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US GDP to Hit Elusive 3% Annual Growth in 13 Years: 5 Picks

Tirthankar Chakraborty
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How Steel Dynamics (STLD) Stock Stands Out in a Strong Industry

Steel Dynamics (STLD) is seeing solid earnings estimate revision activity, and is a great company from a Zacks Industry Rank perspective.

The nation’s gross domestic product (GDP) is on track for a mind-blowing year of growth that could come teasingly close to a milestone last achieved in 2005. Ramped up business investments helped the economy gain traction.

This rise in business investments dispelled fears that tariff tantrums and higher interest rates would hamper production levels. Hence, it seems judicious to invest in areas where businesses have ramped up investments.

Annual GDP Growth of 3% Within Reach

The U.S. economy is projected to expand in the second quarter at an annual pace of nearly 4% after a 2.2% gain in the first three months of this year, economists say. This would put the economy in a solid position this year to meet or even beat 3% growth in gross domestic product, one of the primary aims of the government.

The last time the economy surpassed 3% annual GDP growth was 13 years ago. So, what’s different this time around? This is simply because businesses are investing more money despite a brewing global trade war and continuous rise in commodity prices.

Even though household outlays account for 70% of economic activity, business investment is the real differentiating factor between a good economy and a great one. Needless to say, higher the investment, better will be the growth of economy.

Stronger business investment prompted five members from the panelists of the American Bankers Association to lift their GDP growth forecast to 3% or higher for this year. The association has been bullish for a long time.

What Drove Business Investments?

Corporate America received a massive permanent tax break that encouraged them to invest more in the United States. The Tax Cuts and Jobs Act (TCJA) slashed the U.S. federal corporate income tax rate from 35% to 21%.

Republicans also repealed the 20% corporate alternative minimum tax, while any income brought back from overseas will be taxed 8% to 15.5%, instead of the earlier 35%. Immediate offset of spending on short lived capital equipment may further save U.S. companies around $32.5 billion this year, per Congress’s joint committee on taxation.

Strengthening labor market is another incentive for businesses to invest in the United States. Jobless rate ticked down to an 18-year low of 3.5% last month, indicating that the nine-year stretch of economic expansion has scope to continue. The United States was also able to add 223,000 jobs last month, exceeding analysts’ estimates. Such a feat was achieved despite questions about employers’ ability to find skilled labor (read more: Jobs Report Paints a Pretty Picture for Stocks: 5 Top Picks).

How Do You Know That Business Investments Are Rising?

A major yardstick for business investments, known as the core orders for durable goods industries which make long-lasting goods, have been especially strong last year after tanking in 2015 and 2016.

In fact, orders for long-lasting goods including appliances, equipment, consumer electronic, furniture, cars, tractors, sporting goods, jewelry and drilling rigs to name a few are now climbing at a 12-month rate of 5.7%, according to the Commerce Department.

5 Solid Choices

Given such bullishness, investing in companies manufacturing long-lasting goods seems prudent. We have, thus, selected five such stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).

Immersion Corporation IMMR designs, develops, and licenses haptic technologies. The stock currently has a Zacks Rank #1. In the last 60 days, two earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings soared 51.5% in the same period.

The company’s expected earnings growth rate for the current quarter is nearly 73%, in contrast to the Computer - Peripheral Equipment industry’s projected decline of more than 100%.

American Woodmark Corporation AMWD manufactures and distributes kitchen cabinets and vanities for the remodeling and home construction markets. The stock currently has a Zacks Rank #1. In the last 60 days, one earnings estimate moved up, while none moved down for the current year. The Zacks Consensus Estimate for earnings rose 25.6% in the same period.

The company’s expected earnings growth rate for the current quarter is 59.4% compared with the Furniture industry’s rally of 5.7%.

Commercial Vehicle Group, Inc. CVGI designs, engineers, produces, and sells a range of cab-related products and systems. The stock currently has a Zacks Rank #2. In the last 60 days, one earnings estimate moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings jumped 11.9% in the same period.

The company’s expected earnings growth rate for the current quarter is 350%, in contrast to the Automotive - Original Equipment industry’s estimated decline of 0.7%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Oshkosh OSK manufactures, and markets specialty vehicles and vehicle bodies.  The stock currently has a Zacks Rank #2. In the last 60 days, one earnings estimate moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings rose 0.9% in the same period.

The company’s expected earnings growth rate for the current quarter is 9.2%, in contrast to the Automotive - Original Equipment industry’s projected decline of 0.7%.

Five Below, Inc. FIVE operates as a specialty value retailer in the United States. It offers accessories, including novelty socks, sunglasses, jewelry, scarves, gloves, hair accessories, athletic tops and bottoms, and t-shirts. The stock currently has a Zacks Rank #2. In the last 60 days, seven earnings estimates moved up, while none moved down for the current year. The Zacks Consensus Estimate for earnings advanced 2.9% in the same period.

The company’s expected earnings growth rate for the current quarter is 26.7%, in contrast to the Retail - Miscellaneous industry’s projected decline of 47.4%.

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Oshkosh Corporation (OSK) : Free Stock Analysis Report
 
Commercial Vehicle Group, Inc. (CVGI) : Free Stock Analysis Report
 
Immersion Corporation (IMMR) : Free Stock Analysis Report
 
American Woodmark Corporation (AMWD) : Free Stock Analysis Report
 
Five Below, Inc. (FIVE) : Free Stock Analysis Report
 
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