Barring a few hiccups in the month of May, thanks to sudden escalation of trade tensions between the United States and China and fears of an economic slowdown, the market did not disappoint investors in the first half of 2019. Major indices — the Dow, S&P 500 and Nasdaq Composite — advanced 14.4%, 18.1% and 21.4%, respectively, in the said time frame.
Now it remains to be seen how the second half of the year unfolds. For the time being, the two largest economies are in discussion to resolve the trade impasse but uncertainty looms. Also, all eyes are on Jerome Powell as to when the Fed Chairperson will go for a rate cut. Another concern is the emerging earnings picture for corporates that does not look quite encouraging.
Per the latest Earnings Preview, total 2019 earnings for the S&P 500 Index are expected to be up 0.9% on the back of 2.6% increase in revenues. This follows 23.3% earnings growth on 9.2% higher revenues in 2018. Tough comparisons with last year, when growth was boosted by the tax cut legislation, were expected to weigh on earnings all along. Moderating economic growth and uncertainty about the global trade regime are not helping matters either.
Investors are hoping that nothing unusual happens in the second half that may throw the market out of gear. But they still prefer to play safe. Given the current scenario, adding a few top-ranked stocks with a favorable VGM Score and solid earnings growth potential seems prudent. Among the 16 Zacks sectors, we are focusing on Retail & Wholesale that has gained 18.5% year to date.
A strengthening labor market, rising disposable income and an upbeat consumer environment are favoring the sector. The space seems to be faring better than a host of other sectors, at least in terms of earnings and revenues. This is clearly visible from the picture unfolding for 2019. Per the report, the sector is likely to register top and bottom-line growth of 7.5% and 4.3%, respectively. It also suggests that the sector is likely to witness growth across both ends in the third and fourth quarters.
4 Prominent Picks
We have shortlisted stocks on the basis of a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score of A or B. Further, the Zacks Consensus Estimate for earnings indicates growth rate of 10% or more for the current fiscal year. Also, the stocks have outperformed the sector so far in the year.
We suggest investing in Chipotle Mexican Grill, Inc. CMG with a long-term earnings growth rate of 19.2% and a VGM Score of B. This restaurant operator delivered average positive earnings surprise of 12% in the trailing four quarters. The stock has estimated earnings per share growth rate of 43.6% for the current fiscal year. Shares of this Zacks Rank #1 company have soared roughly 68% so far this year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Another stock worth considering is Aaron's, Inc. AAN, which has a long-term earnings growth rate of 15% and VGM Score of A. This omnichannel provider of lease-purchase solutions delivered average positive earnings surprise of 4.4% in the trailing four quarters. The stock has an estimated earnings per share growth rate of 14% for the current fiscal year. Shares of this Zacks Rank #1 company have increased approximately 49.6% year to date.
Investors can also count on Lithia Motors, Inc. LAD, which operates as an automotive retailer. This Zacks Rank #2 company has a long-term earnings growth rate of 7.1% and a VGM Score of A. The company delivered average positive earnings surprise of 3.5% in the trailing four quarters. The stock with estimated earnings per share growth rate of 11.7% for the current fiscal year has surged about 57% so far in the year.
AutoZone, Inc. AZO, which retails and distributes automotive replacement parts and accessories, is a solid bet with a Zacks Rank #2 and VGM Score of A. The company with a long-term earnings growth rate of 12.2% posted average positive earnings surprise of 8.6% in the trailing four quarters. The stock with estimated earnings per share growth rate of 24.1% for the current fiscal year has risen roughly 31.1% year to date.
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Lithia Motors, Inc. (LAD) : Free Stock Analysis Report
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Chipotle Mexican Grill, Inc. (CMG) : Free Stock Analysis Report
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