Yahoo Finance Top 5 Thriving Giants With Solid Upside to Tap Market Rally
U.S. stock markets have resumed momentum with much vigor in May after a brief halt in April. Market participants witnessed an impressive 15-month rally before April. The rebound in May has taken a section of financial experts by surprise as they warned of further downside due to higher stock valuations and the Fed’s decision to keep interest rates higher for longer than expected.
Favorable Economic Data
Wall Street rebounded in early May following a sharp decline in the April job additions, a notable deterioration in the U.S. GDP growth rate in first-quarter 2024, the contraction of manufacturing and services PMI in April and a less-than-hawkish statement by Fed Chairman Jerome Powell after the May FOMC meeting.
The Wall Street rally solidified further after the Department of Labor reported that the consumer price index (CPI) for the month of April rose 0.3% month over month, below the consensus estimate and March’s reading of 0.4%. Year over year, CPI increased 3.4%, in line with expectations.
The core CPI (excluding volatile food and energy items) rose 0.3% month-over-month in April, after rising 0.4% in the previous three months. April’s data showed the smallest monthly increase since December 2023. Year over year, core CPI increased 3.6%, marking the lowest monthly increase since April 2021.
Moreover, the Department of Commerce reported that retail sales in April remained flat month over month, missing the consensus estimate of a rise of 0.4%. The reading for March was also revised downward to 0.6% from 0.7% reported earlier. However, year over year, retail sales increased 3% in April.
Wall Street Gathers Pace
Following the release of a series of favorable economic data, the CME FedWatch shows a 73.2% probability that the Fed will reduce the benchmark lending rate by 25 basis points in September.
The interest rate derivative tool is also showing a 94.5% probability that the central bank will reduce the interest rate by at least 50 basis points by the end of 2024. Notably, the Fed fund rate is currently at its 23-year high in the range of 5.25-5.5%.
On May 16, the Dow crossed the crucial psychological barrier of 40,000, for the first time in history and recorded an all-time high of 40,051.05. On May 17, the blue-chip index closed at 40,0003.59, its first closing above 40,000 and 19th record closing high in 2024.
On May 15, Wall Street’s broad-market index — the S&P 500 — achieved a milestone breaching the key technical barrier of 5,300 for the first time in history. On May 16, the S&P 500 recorded an all-time high of 5,325.49. So far in 2024, the S&P 500 has posted 24 record closing highs.
On May 15, the Nasdaq Composite closed at 16,742.39, reflecting its 9th closing high in 2024. On May 16, the tech-heavy index recorded an all-time high at 16,797.83. For the week ended May 17, the Dow notched its fifth straight weekly gain while both the S&P 500 and the Nasdaq Composite clinched their longest winning streak since February.
Our Top Picks
We have narrowed our search to five U.S. corporate behemoths (market capital > $50 billion) that have strong upside left in the near term. The companies have a robust business model, a strong financial position and a globally acclaimed brand value.
Moreover, these stocks have seen positive earnings estimate revisions in the last 60 days. Finally, each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our five picks year to date.
Image Source: Zacks Investment Research
The Progressive Corp. PGR continues to gain on higher premiums, given its compelling product portfolio, leadership position and strength in both Vehicle and Property businesses. Focus on becoming a one-stop insurance destination, catering to customers opting for a combination of home and auto insurance, augurs well for PGR’s growth.
Policies in force and retention ratio should remain healthy. Competitive pricing to retain current customers and address customer needs with new offerings should continue to drive policy life expectancy.
Zacks Rank #1 The Progressive has an expected revenue and earnings growth rate of 18.2% and 84.8%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 7.6% over the last 30 days. The average price target represents an increase of 10.2% from the last closing price of $209.22.
Emerson Electric Co. EMR has been benefiting from healthy demand across end markets. Strong demand across the process and hybrid markets are driving EMR’s underlying sales. Strength in the measurement and analytical and final control businesses is aiding its Intelligent Devices’ unit.
The successive acquisitions of Afag and Flexim sparked optimism in the stock. EMR’s ability to generate strong cash flows supports its capital deployment strategy. Also, EMR’s efforts to reward its shareholders add to its appeal.
Zacks Rank #2 Emerson Electric has an expected revenue and earnings growth rate of 15.8% and 22.3%, respectively, for the current fiscal year (ending September 2024). The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the last seven days. The average price target represents an increase of 12.34% from the last closing price of $112.88.
The TJX Companies Inc.’s TJX off-price business model, strategic store locations, impressive brands and supply-chain management are working well. TJX has been benefiting from robust performance in its Marmaxx and HomeGoods segments, a trend that continued in fourth-quarter fiscal 2024. TJX’s Comparable store sales saw a rise, indicating sustained momentum.
TJX anticipates a 2-3% rise in comparable store sales for fiscal 2025. With a solid pre-tax margin, TJX is poised for steady profitability, supported by improved merchandise margins and expense leverage. Also, management is on track with expansion efforts.
Zacks Rank #2 The TJX Companies has an expected revenue and earnings growth rate of 3.9% and 9%, respectively, for the current year (ending January 2025). The Zacks Consensus Estimate for current-year earnings has improved 0.7% over the last 30 days. The average price target represents an increase of 12.69% from the last closing price of $109.29.
AutoZone Inc. AZO has been generating record sales for 34 consecutive years. AZO’s focus on increasing its market penetration via the expansion of mega hubs is set to boost long-term prospects. AZO’s expanded hub and mega-hub rollouts, along with the expansion of distribution center footprint, bode well. AZO’s robust buyback program sparks confidence.
Zacks Rank #2 AutoZone has an expected revenue and earnings growth rate of 6.6% and 15.1%, respectively, for the current year (ending August 2024). The Zacks Consensus Estimate for current-year earnings has improved 0.7% over the last 30 days. The average price target represents an increase of 11.25% from the last closing price of $2,917.50.
TransDigm Group Inc. TDG is an equipment supplier of renowned military jet maker. TDG should gain from the enhanced U.S. defense budget. Thanks to steadily growing air traffic, TDG’s commercial aftermarket revenues witnessed a 21.3% year-over-year improvement in the fiscal first quarter. This trend is expected to continue through fiscal 2024 and thereby boost its growth. TDG boasts a solid solvency position, at least in the near term.
Zacks Rank #2 TransDigm Group has an expected revenue and earnings growth rate of 18% and 25.6%, respectively, for the current year (ending September 2024). The Zacks Consensus Estimate for current-year earnings has improved 3.2% over the last 30 days. The average price target represents an increase of 10.06% from the last closing price of $1,291.95.
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Emerson Electric Co. (EMR) : Free Stock Analysis Report
The TJX Companies, Inc. (TJX) : Free Stock Analysis Report
Transdigm Group Incorporated (TDG) : Free Stock Analysis Report
The Progressive Corporation (PGR) : Free Stock Analysis Report
AutoZone, Inc. (AZO) : Free Stock Analysis Report
