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Wall Street Sees Best Quarter in a Decade: 5 Winners

Tirthankar Chakraborty

Wall Street posted its strongest quarterly rise in a decade, with the broader S&P 500 index rising 13.1%, marking its best start to a year since 1998. The index also successfully notched its biggest one-quarter gain since the end of the Great Recession.

But, it’s just not the S&P 500 that started off well this year. Other major bourses, including the Dow Jones Industrial Average, Nasdaq Composite and the Russell 2000 index of small-cap stocks, surged more than 11%. The indexes recouped the losses incurred in the final months of 2018, when fears of a global recession sent markets across the globe sliding.

What Led the Gains?

The first-quarter gains were predominantly led by a sharp rebound from the Christmas Eve lows, Fed’s patient stance with interest rates hikes as global growth slows and increasing optimism in U.S.-China trade negotiations.

The Fed’s latest comment that the rate increases are on a pause is of utmost significance. This dovish stance certainly helped the broader market chug along in the first quarter. The Fed confirmed that it would be “patient” with future rate hikes and has also indicated that the unwinding of the asset portfolio might conclude sooner than expected.

Such views were widely considered as accommodative measures, at least for the time being, and have had a soothing effect on investors. After all, the Fed’s rate increase last year has taken a toll. This is because hike in rates increases the cost of lending money from financial institutions for small and medium business houses. This in turn could exert more pressure on the U.S. economy that is on the cusp of a slowdown this year.

On the political side, both U.S. and Chinese trade officials have begun talks to bring an end to their prolonged trade dispute. These economies imposed billions of dollars of tariffs on each others’ goods over the past year, battering equity markets, souring business and consumer sentiment as well as hampering economic growth.

Also, stocks bounced back in the first quarter as rise in oil prices eased worries about global economic growth, fourth-quarter earnings coming in better-than-expected and China, itself, taking enough steps to stimulate its economy.

The U.S. oil price benchmark, West Texas Intermediate, climbed 32% during the first quarter to nearly $60 a barrel. The Trump administration’s unexpected move to grant waivers to most of Iran’s buyer resulted in more oil than needed, leading to a plunge in oil prices. But, OPEC’s policy shift to quickly reduce supplies rebalanced the oil market and helped oil prices increase.

Coming to the fourth-quarter earnings report, total earnings growth for the S&P 500 index came in at 13.4%, showing a quarterly growth pace that was roughly double the pace in the first three quarters of the year (Read more: Q1 Earnings Season Gets Underway).

Beijing, in the meantime, introduced a series of measures including cutting taxes to help support its economy. And such measures paid off! The Caixin/Markit Manufacturing Purchasing Managers' Index (PMI) rose to an eight-month high of 50.8 in March, beating most of analysts’ projections.

Q1 Scorecard: Winners

Leading the way higher for U.S. stocks in the first quarter were the tech and industrial sectors, banking on optimism surrounding U.S.-China trade deal. The tech sector was, in fact, the best performing sector, which skyrocketed around 20% in the period. Two of the biggest publicly traded tech behemoths, Apple Inc. AAPL and Microsoft Corporation MSFT, rose more than 16% each for the quarter. But, it was shares of copy and fax machine maker, Xerox Corporation XRX that stole the show by gaining more than 60% so far this year.

Other top performing sectors included real estate and energy. While the real estate sector got a boost from a low interest rate environment, the energy sector gained traction as oil prices scaled north. Among the sectors, heath care and financials were some of the biggest laggards, gaining just 8% and 9%, respectively.

(Source: www.sectorspdr.com)

5 Solid Bets

Given the aforesaid rally, investing in some of the sought-after tech, industrial, real estate and energy players doesn’t seem to be a bad proposition. These stocks have not only made the most of the first quarter but are also poised to gain further. These stocks flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).

Digital Turbine, Inc. APPS provides media and mobile communication solutions for mobile operators, application developers, device original equipment manufacturers, and other third parties. The company currently has a Zacks Rank #1. The Zacks Consensus Estimate for earnings soared 75% in the past 60 days. The company’s expected earnings growth rate for the current year is 240% compared with the Internet - Software industry’s projected rise of 14.5%. The company has outperformed the broader industry in the first quarter (+91.3% vs +28.9%).

Universal Display Corporation OLED engages in the research, development, and commercialization of organic light emitting diode (OLED) technologies. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for earnings increased 4.8% in the past 60 days. The company’s expected earnings growth rate for the current year is 75.8%, in contrast to the Electronics - Miscellaneous Components industry’s projected decline of 0.6%. The company has outperformed the broader industry in the first quarter (+63.4% vs +16.0%).

DMC Global Inc. BOOM engages in technical product and process businesses serving the energy, industrial, and infrastructure markets. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for earnings increased 3.7% in the past 60 days. The company’s expected earnings growth rate for the current year is 23.2% compared with the Industrial Services industry’s projected rise of 12.2%. The company has outperformed the broader industry in the first quarter (+41.4% vs +9.0%). You can see the complete list of today’s Zacks #1 Rank stocks here.

Armstrong World Industries, Inc. AWI designs, manufactures, and sells ceiling systems primarily for use in the construction and renovation of residential and commercial buildings. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for earnings advanced 2.8% in the past 60 days. The company’s expected earnings growth rate for the current year is 21.9% compared with the Building Products - Miscellaneous industry’s projected rise of 8.8%. The company has outperformed the broader industry in the first quarter (+36.4% vs +17.3%).

ProPetro Holding Corp. PUMP is an oilfield services company that provides pressure pumping and other related services. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for earnings moved 21.3% up in the past 60 days. The company’s expected earnings growth rate for the current year is 19.5% compared with the Oil and Gas - Field Services industry’s projected rise of 0.7%. The company has outperformed the broader industry in the first quarter (+83.0% vs +15.9%).

Zacks' Top 10 Stocks for 2019

In addition to the stocks discussed above, wouldn't you like to know about our 10 finest buy-and-holds for the year?

From more than 4,000 companies covered by the Zacks Rank, these 10 were picked by a process that consistently beats the market. Even during 2018 while the market dropped -5.2%, our Top 10s were up well into double-digits. And during bullish 2012 – 2017, they soared far above the market's +126.3%, reaching +181.9%.

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Digital Turbine, Inc. (APPS) : Free Stock Analysis Report
 
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Xerox Corporation (XRX) : Free Stock Analysis Report
 
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