Weak Economic Data Turns Good for Wall Street: Top 5 Picks
Wall Street has witnessed volatility in August for the first time in 2023. Month to date, major stock indexes are in negative territory. However, U.S. stock markets have returned to the northward journey in the last week of August.
The primary reason for this turnaround is the release of a series of weak economic data. These data indicate that the U.S. economy is cooling. Market participants believe that a slowing economy may compel the Fed to control monetary hardness and aggressive interest rate hikes.
Weak Economic Data
The Bureau of Economic Analysis reported that the U.S. GDP grew at 2.1% in second-quarter 2023, lower than the previous estimate of 2.4%. The consensus estimate was 2.4%.
The latest Job Opening and Labor Turnover Survey reported that there were 8.8 million jobs open at the end of July, a decrease from the 9.16 million job openings in June. July’s data was the lowest since March 2021. Job hiring in July was 5.78 million, the lowest total since January 2021.
The ADP jobs data has shown U.S. private employers added 177,000 jobs in August, sharply lower than revised data of 371,000 for June. The consensus estimate was 200,000. However, investors are waiting for the government nonfarm payrolls data to be released on Sep 1.
The Conference Board reported that U.S. Consumer Confidence Index for August fell sharply to 106.1, well below the consensus estimate of 116. July’s reading was also revised downward to 114 from 116 reported earlier.
The Present Situation Index, which gauges consumers’ views on current market conditions, fell to 144.8 in August from 153 in July. The Expectations Index, which is a measure of consumers’ short-term (next six months) outlook on income, business, and labor market conditions, dropped to 80.2 in August from 88 in July. The Expectations Index has remained below 80 (the level indicates expectations of a recession within a year) since February 2022 excluding last December.
A similar kind of survey, conducted by the University of Michigan, reported that the final reading of the U.S. Consumer Sentiment for the month of August came in at 69.5 compared with the preliminary reading of 71.2. The consensus estimate was also 71.2.
Our Top Picks
At his stage, it will be prudent to invest in stocks that have momentum/growth for the near future. We have narrowed our search to five U.S. corporate giants (market capital > $50 billion). These stocks have strong potential for the rest of 2023 and have seen positive earnings estimate revisions in the last 30 days. Each of our picks sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart belolw shows the price performance of our five picks in the past three months.
Image Source: Zacks Investment Research
NVIDIA Corp. NVDA reported second-quarter fiscal 2024 adjusted earnings of $2.70 per share, surpassing the Zacks Consensus Estimate of $2.09. NVDA posted revenues of $13.51 billion for the quarter, outpacing the Zacks Consensus Estimate by 20.89%. Management sees third-quarter revenues of $16 billion versus the Zacks Consensus Estimate of $12.34 billion.
Over the years, the worldwide leader of the NVDA has shifted its focus from PC graphics to AI- based solutions that support high-performance computing, gaming, and virtual reality platforms. NVDA’s A100 and H100 AI chips are used to build and run AI applications, including OpenAI's ChatGPT.
NVIDIA has an expected revenue and earnings growth rate of 93.1% and more than 100%, respectively, for the current year (ending January 2024). The Zacks Consensus Estimate for current-year earnings has improved 30.8% over the last seven days.
Caterpillar Inc. CAT has seen year-over-year revenue and earnings growth for nine straight quarters thanks to its cost-saving actions, strong end-market demand and pricing actions that offset the impact of supply-chain snarls and cost pressures. We expect the company’s adjusted earnings per share for 2023 to grow 19.5% and revenues to rise 7.6%.
Caterpillar has an expected revenue and earnings growth rate of 11.9% and 43.1%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 10.3% over the last 30 days.
JPMorgan Chase & Co.'s JPM second-quarter 2023 results show the impacts of the First Republic Bank buyout, higher rates and worsening economic outlook. High rates, global expansion efforts and decent loan demand should support the net interest income (NII) of JPM. Our estimates for NII (managed) indicate a CAGR of 5.8% by 2025. With green shoots visible in the investment banking (IB) business, IB fees are likely to witness a turnaround soon.
JPM has an expected revenue and earnings growth rate of 22% and 30.9%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the last 30 days.
Workday Inc. WDAY has been benefiting from solid momentum in human capital and financial management portfolio. WDAY’s cloud-based business model is increasingly gaining traction. Strong emphasis on the integration of generative AI in WDAY products and developing various AI-driven applications to drive more value is a tailwind.
Workday has an expected revenue and earnings growth rate of 16.1% and 46.2%, respectively, for the current year (ending January 2024). The Zacks Consensus Estimate for current-year earnings has improved 0.4% over the last seven days.
The Sherwin-Williams Co. SHW is expected to benefit from favorable demand in domestic markets. Increased sales volumes in the Paint Stores Group division indicate a larger market share.
In addition to driving sales, SHW is implementing cost control initiatives and adopting various supply chain optimization techniques to enhance its margins. The acquisition of Valspar has also strengthened its position as a global leader in paints and coatings.
The Sherwin-Williams has an expected revenue and earnings growth rate of 3.1% and 12%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.3% over the last 30 days.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
JPMorgan Chase & Co. (JPM) : Free Stock Analysis Report
Caterpillar Inc. (CAT) : Free Stock Analysis Report
The Sherwin-Williams Company (SHW) : Free Stock Analysis Report
NVIDIA Corporation (NVDA) : Free Stock Analysis Report
Workday, Inc. (WDAY) : Free Stock Analysis Report
