Wall Street has been reeling under severe volatility this year except for July. All three major stock indexes have slid in double digits year to date. Despite an ultra-hawkish policy adopted by the Fed to combat mounting inflation, we are still not out of the woods.
However, defying these headwinds, shares of a handful of U.S. corporate behemoths have provided double-digit returns year to date. We have selected five such with a favorable Zacks Rank and solid fundamentals for the near term. These companies are - Exxon Mobil Corp. XOM, Merck & Co. Inc. MRK, Chevron Corp. CVX, American Electric Power Co. Inc. AEP and The Southern Co. SO.
U.S. Economy Remains Rock Solid
Recently, released several economic data for June and July have reaffirmed the stability of the U.S. economy. The Department of Labor reported that non-farm payrolls in July came in at 528,000 compared to the consensus estimate of 236,000. Moreover, job additions in June were revised upward to 398,000 from 372,000 reported earlier. Job addition in July was the best since February.
The unemployment rate dropped to 3.5% in July from 3.6% in June. The consensus estimate was 3.6%. Wage rate increased 0.5% in July compared with the consensus estimate of 0.3%. Wage rate in June was also revised upward to 0.4% from 0.3% reported earlier. Year over year, wage rate increased 5.2% in July , in line with the previous month’s gain.
ISM manufacturing index and services index for July surpassed the consensus estimate. These indicate an improving economy with growing consumer demand. Retail sales in June surged unexpectedly and factory orders beat the consensus mark. Personal spending, the largest driver of the U.S. economy, climbed in June.
Moreover, we are in the middle of the second quarter 2022 earnings season. So far, earnings results have come in better than expected and corporate America is yet to reveal any major signal regarding a near-term recession.
Our Top Picks
We have narrowed our search to five U.S. corporate giants (market capital >$50 billion) as these companies have a robust business model, a solid financial position and globally acclaimed brand value. These stocks have strong potential for the rest of 2022 and have seen positive earnings estimate revisions in the last 30 days. Each of our picks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The chart below shows the price performance of our five picks year to date.
Image Source: Zacks Investment Research
Exxon Mobil made multiple world-class oil discoveries at the Stabroek Block, located off the coast of Guyana. XOM raised the estimate for discovered recoverable resources from the Stabroek Block to approximately 10 billion oil-equivalent barrels. The WTI crude oil price is hovering around $100 per barrel. The price is likely to remain elevated as the Russia-Ukraine clash continues.
Exxon Mobil’s bellwether status and an optimal integrated capital structure, which have historically led to industry-leading returns, make it a relatively lower-risk energy sector play. The integrated oil giant expects to reduce greenhouse gas emissions by 30% in its upstream business. By then, XOM expects to reduce flaring and methane emissions by 40%.
Exxon Mobil has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 3.3% over the last 7 days. The stock price has soared 44.5% year to date.
Chevron is one of the best-placed global integrated oil firms to achieve a sustainable production ramp-up. CVX’s existing project pipeline is one of the best in the industry, thanks to its premier position in the lucrative Permian Basin. The WTI crude oil price is hovering around $100 per barrel. The price is likely to remain elevated as the Russia-Ukraine conflict is yet to be resolved.
Chevron’s Noble Energy takeover has expanded its footprint in the region and the DJ Basin. CVX now has access to Noble Energy’s low-cost, proven reserves along with cash-generating offshore assets in Israel — particularly the flagship Leviathan natural gas project — thereby boosting its footing in the Mediterranean.
CVX has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 3.4% over the last 7 days. The stock price has jumped 30.9% year to date.
Merck has been benefiting from strong sales of Keytruda, Lynparza and Bridion. With continued label expansion into new indications & early-stage settings, Keytruda is expected to remain a key top-line driver of MRK.
Animal health and vaccine products are the core growth drivers. Merck’s new COVID oral antiviral pill, Lagevrio will be a key top-line driver in 2022. MRK boasts a strong cancer pipeline, including Keytruda, which should drive long-term growth.
Merck has an expected earnings growth rate of 21.4% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.3% over the last 30 days. The stock price has surged 14% year to date.
American Electric boasts a stable earnings base of approximately 5.5 million customers across more than 11 states. AEP’s investment strategy includes incremental investments in renewable generation projects.
American Electric owns the nation's largest electricity transmission system and more than 224,000 miles of distribution lines. AEP plans to invest $24.8 billion in regulated operations, contracted renewables and wires during the 2022-2026 period, which will assist it in achieving long-term earnings growth of 6-7%.
American Electric has an expected earnings growth rate of 6.3% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.4% over the last 30 days. The stock price has advanced 11.3% year to date.
The Southern Co. is one of the largest electric utility holding companies in the United States, and the premier energy firm serving the attractive Southeast market. Positioned in a niche industry with high barriers to entry, SO’s less-volatile, recession-proof business model presents a unique opportunity to earn high returns.
Southern Co. has gradually increased its customer base, ieveraging the demographics of its operating territories. With good rate-based growth and constructive regulation, SO is expected to generate steady earnings and dividend growth in the coming years.
The Southern Co. has an expected earnings growth rate of 5.9% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.1% over the last 7 days. The stock price has appreciated 12.7% year to date.
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