Yahoo Finance 5 Must-Buy High-Flying U.S. Giants on Favorable Economic Data
On May 15, U.S. stock markets soared following the release of two key economic data. Market participants’ confidence in risky assets like equities was boosted as expectations of the first reduction in the Fed fund rate in September heightened.
Lighter-Than-Expected CPI
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.
Weak Retail Sales
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.
Core retail sales (excluding auto) rose 0.2% month over month in April, in line with the consensus estimate. The metric for March was revised downward to 0.9% from 1.1% reported earlier.
U.S. Economy is Cooling
The Department of Commerce reported that U.S. GDP grew at a 1.6% annualized rate in first-quarter 2024, well below the consensus estimate of 2.5%. Moreover, the Institute of Supply Management (ISM) reported that both manufacturing and services PMIs (purchasing managers’ index) contracted in April. Weak retail sales and lower-than-expected CPI data are also in line with this trend.
Expectations of Interest Rate Cut
Following the release of CPI and retail sales 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%.
Our Top Picks
We have narrowed our search to five U.S. corporate behemoths (market capital > $100 billion) that have provided more than 20% returns year to date with more upside left. 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 30 days. Finally, 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 below shows the price performance of our five picks year to date.
Image Source: Zacks Investment Research
Alphabet Inc.’s GOOGL first-quarter results were driven by a solid momentum in the cloud business. Further, improving Search performance on the back of major Search updates, was a positive. Also, the strength in YouTube favored the stock. Notably, a robust cloud division remains the key catalyst for GOOGL.
Expanding data centers will continue to bolster GOOGL’s presence in the cloud space. Strengthening generative AI capabilities should aid business growth in the long term. GOOGL’s deepening focus on the wearables category remains a tailwind. Expanding presence in the autonomous driving space is also a positive.
Alphabet has an expected revenue and earnings growth rate of 15.1% and 30.5%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 11.7% over the last seven days. The stock price of GOOGL has rallied 24.7% year to date.
NVIDIA Corp.’s NVDA Compute & Networking revenues are gaining from the strong growth of AI, high-performance and accelerated computing. The data center end-market business is likely to benefit from the growing demand for generative AI and large language models using graphic processing units based on NVIDIA Hopper and Ampere architectures.
A surge in hyperscale demand and higher sell-ins to partners across the Gaming and ProViz end markets following the normalization of channel inventory are acting as tailwinds for NVDA. Collaborations with Mercedes-Benz and Audi are likely to advance NVDA’s presence in autonomous vehicles and other automotive electronics spaces.
NVIDIA has an expected revenue and earnings growth rate of 75.6% and 86.2%, respectively, for the current year (ending January 2025). The Zacks Consensus Estimate for current-year earnings has improved 0.8% over the last seven days. The stock price of NVDA has soared 90.6% year to date.
Netflix Inc. NFLX added 9.33 million paid subscribers globally in first-quarter 2024, with a rise of 1% in average revenue per subscription. NFLX attributed the robust top-line growth to its paid subscription-sharing offering (part of its password-sharing crackdown), recent price changes and the strength of its business in general.
NFLX is expected to continue dominating the streaming space, courtesy of its diversified content portfolio, which is attributable to heavy investments in the production and distribution of localized and foreign-language content.
Netflix has an expected revenue and earnings growth rate of 14.7% and 52.1%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 7.3% over the last 30 days. The stock price of NFLX has surged 25.4% year to date.
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.
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 stock price of PGR has jumped 30% year to date.
Wells Fargo & Co.’s WFC first-quarter 2024 results show improvement in non-interest income and a decline in provisions. Progress on efficiency initiatives, such as branch footprint reduction, will continue to support expense reduction and drive WFC’s bottom line.
A decent deposit balance will keep supporting WFC’s financials, given the strength in the consumer banking and lending segment, and aid its liquid profile. Additionally, WFC’s strong liquidity position will support its capital distribution activities.
Wells Fargo has an expected revenue and earnings growth rate of 2% and 9.7%, respectively, for next year. The Zacks Consensus Estimate for next-year earnings has improved 1.7% over the last 30 days. The stock price of WFC has climbed 24.1% year to date.
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Wells Fargo & Company (WFC) : Free Stock Analysis Report
Netflix, Inc. (NFLX) : Free Stock Analysis Report
NVIDIA Corporation (NVDA) : Free Stock Analysis Report
The Progressive Corporation (PGR) : Free Stock Analysis Report
Alphabet Inc. (GOOGL) : Free Stock Analysis Report
