5 top buy-rated stocks up for grabs in a temperamental market – September 30, 2021
There is only one trading day left in September and the myth of monthly volatility is about to repeat itself this year. This time, history is repeating itself and a storm is also blowing, making investment decisions extremely difficult for market participants.
Volatility inflicted in September from several corners. The rapid spread of the Delta variant of the coronavirus has forced a section of economists and financial experts to cut their forecasts for economic growth in the United States in the third quarter.
Higher inflationary pressure is expected to persist next year due to prolonged supply chain disruptions.
Fed Chairman Jerome Powell has signaled that the central bank will start cutting its bond buying program by $ 120 billion per month perhaps this year and that the first interest rate hike may have rise in the second half of 2022. As a result, government bond yields increased significantly.
To compound the injury, Congress’ dilemma was to find a permanent solution to raising the US government’s debt ceiling to avoid a government shutdown. In fact, the Biden administration’s $ 1 trillion infrastructure plan is also in limbo.
Finally, investors worried about the overvaluation of US stocks and were looking for reasons for a market correction.
Market volatility is expected to continue in the days to come. Despite an unpredictable market, five Dow stocks (commonly known as the blue chip index) with a favorable Zacks ranking are likely to provide good short-term returns. These stocks are currently available at attractive valuations. Investing in these stocks at this point should be successful.
Dow suffers the least this month
Since the start of the month, the three main stock indexes – the Dow, the S&P 500 and the Nasdaq Composite – have fallen by 2.7%, 3.6% and 4.9% respectively. This week’s market collapse was mostly tech-related due to the recent surge in government bond yields.
Higher market risk-free returns mean a higher discount rate for future cash flows from equity investments. This will affect growth-oriented stocks, especially technology stocks, as they typically offer higher returns over the long term.
In addition, these businesses depend on easy access to cheap credit to grow their businesses. The Fed chairman also indicated that the first hike in the key rate from the current level of 0-0.25% could take place in the second half of 2022 instead of 2023 expected in June.
Unlike the market benchmark, the S&P 500 or the Nasdaq Composite, which is very instructive, the composition of the Dow Jones is mainly oriented towards cyclical stocks. As a result, the blue chip index suffered less compared to its peers.
How Wall Street could behave in October
Volatility is expected to continue in October, at least in the first half of the year. The aforementioned market disruptors persist. At their current level, the three major stock indexes are well below their 50-day moving averages.
On the flip side, the CBOE VIX – commonly referred to as the Market Fear Gauge – is well above its 50-day moving average. In financial literature, the 50-day moving average line is widely recognized as the short-term trend factor.
Nonetheless, a major driver for stock markets in October could be the third quarter 2021 results. Corporate profits are expected to remain strong after an impressive performance in the first two quarters of this year. Growing cost pressures amid supply chain disruptions as well as labor and material shortages will keep the focus on margins, which are expected to increase year over year as well as sequentially.
Our current projection shows that the S&P 500 Index’s third quarter total earnings are expected to be up 26.1% from the same period last year, with earnings 13.8% higher. Additionally, the total earnings of the S&P 500 Index are expected to increase 42.7% on 13.6% higher earnings in 2021 and 9.6% on 6.6% higher earnings in 2022. read more: Third Quarter Profit Season Snapshot)
Our top picks
We have narrowed down our search to five Dow stocks that have strong growth potential for the remainder of 2021 and over the long term (3-5 years). These stocks have seen positive earnings estimate revisions over the past 90 days. Finally, each of our choices carries a Zacks Rank # 1 (Strong Buy) or 2 (Buy). You can see tThe full list of today’s Zacks # 1 Rank stocks here.
The chart below shows the price performance of our five picks over the past three months.
Image source: Zacks Investment Research
salesforce.com.inc. (CRM – Free Report) benefits from a robust demand environment as customers undergo a major digital transformation. The rapid adoption of its cloud-based solutions is driving demand for its products. Salesforce’s continued focus on introducing products that are more aligned with customer needs is driving revenue.
Continued business gains in the international market are the other growth drivers. Additionally, the recent acquisition of Slack would position the company as a leader in enterprise team collaboration solutions and better compete with Microsoft’s Teams product.
While this Zacks Rank # 1 company has a negative earnings growth rate for the current year (ending January 2022), it has a solid long-term growth rate of 16.8%. Zacks’ consensus estimate for current year earnings has improved 0.5% in the past 7 days.
JPMorgan Chase & Co. (JPM – Free Report) expands its presence in new regions by opening branches. Apart from that, strategic buyouts, global expansion and digitization initiatives, and decent mortgage banking are expected to continue to help the company’s finances.
JPMorgan’s impressive capital deployments reflect strong earnings and a strong balance sheet will increase shareholder value. The signal from Fed Chairman Jerome Powell of a possible slowdown in the quantitative easing program this year and a likely rate hike in the second half of 2022 bodes well for the financial sector.
This Zacks Rank # 2 company has an expected earnings growth rate of 58.8% for the current year. It has a long term growth rate of 5%. Zacks’ consensus estimate for current year earnings has improved 0.4% in the past 7 days.
Walmart inc. (WMT – Free Report) benefited from its strong same store sales record, which in turn is driven by its continued expansion efforts and splendid e-commerce performance. Walmart has undertaken several efforts to improve merchandise assortments.
The company remains focused on redesigning stores, with the goal of upgrading them with advanced in-store and digital innovations. Walmart’s e-commerce business and omnichannel penetration have increased, especially against a backdrop of social distancing brought on by the pandemic. The company is taking several e-commerce initiatives, including buyouts, alliances, improved delivery and payment systems.
This Zacks Rank # 2 company has an expected profit growth rate of 15.5% for the current year (end of January 2022). It has a long-term growth rate of 5.5%. Zacks’ consensus estimate for current year earnings has improved 0.3% in the past 30 days.
UnitedHealth Group Inc. (A H – Free Report) has a strong market position and an attractive core business that continues to be driven by new offerings, renewed agreements and the expansion of service offerings. Its strong health services segment offers significant diversification benefits.
Its health services business, under the Optum brand, is becoming more and more valuable. The main growth drivers of Optum are pharmaceutical care services, care delivery, technology, government services and international. A strong balance sheet and consistent cash flow generation enables investments in companies and guarantees dividends to shareholders.
This Zacks Rank # 2 company has an expected earnings growth rate of 11% for the current year. It has a long-term growth rate of 13.3%. Zacks’ consensus estimate for current year earnings has improved 0.8% over the past 90 days.
Microsoft Corp. (MSFT – Free Report) introduces new and improved Surface devices that could encourage businesses to stick with Windows as they move towards BYOD and cloud computing. Microsoft’s advantages in this regard are twofold.
First, the company has a very large installed base of Office users. Most legacy data is Office-based, so businesses are generally reluctant to use other productivity solutions. Second, the BYOD model depends on security and cloud integration, two strengths of Microsoft.
This Zacks Rank # 2 company has an expected earnings growth rate of 8.4% for the current year (end of June 2022). It has a long-term growth rate of 11.1%. Zacks’ consensus estimate for current year earnings has improved 3.8% in the past 90 days.