U.S. equity markets maintained their northward course during the first week of June, although the month is historically known as one of the weakest on Wall Street. Since the start of the month, the three main stock indexes – the Dow, the S&P 500 and the Nasdaq Composite – are up 0.3%, 0.5% and 1% respectively.
However, Wall Street has faltered under an inflationary threat for the past two months despite its overall uptrend. Over the past 7 trading days, the market’s benchmark – the S&P 500 Index – hovers around (
Meanwhile, several corporate giants (market capital> $ 50 billion) have seen sharp revisions to their earnings per share (EPS) estimates over the past 7 days. Investing in those stocks with a favorable Zacks ranking may be fruitful in the future.
Growing concerns about inflation
Market participants are very concerned about inflation in the last two months of the year. The Consumer Price Index (CPI) – commonly known as household inflation – jumped 4.2% year on year in April, its highest since September 2008. Year on year, core PCE inflation – l The Fed’s favorite inflation indicator – climbed 3.1% in April, marking the highest monthly gain since July 1992. The figure was well above the Fed’s target rate of 2%.
Meanwhile, commodity prices have skyrocketed around the world since 2008. Lumber, iron ore and copper prices are currently at all-time highs. Prices for corn, soybeans and wheat hit eight-year highs. Crude oil prices are hovering around their two-and-a-half-year highs. Prices for high-tech chips have skyrocketed mainly due to the breakdown of the global supply chain system due to the pandemic.
The negative points mentioned above along with the shortage of skilled labor which results in a higher wage rate have dramatically increased the input costs of producers and hence the price of finished products. In addition, strong pent-up demand from Americans, supported by record forced savings of several trillions of dollars during closures, is injecting demand-driven inflation into the economy.
The Fed has so far maintained that any inflation above its 2% target in 2021 will be transient. The recently released higher inflation data may be due to the extremely weak base last year when the pandemic rocked the entire economy.
However, the Fed’s next FOMC meeting on June 15-16 will be well attended by market participants, as a large chunk of economists and financial experts have said Fed officials may discuss the need to continue the process. quantitative easing program. Any indication of a phasing out of the central bank’s purchasing of $ 120 billion of Treasury bonds or mortgage-backed bonds per month by the central bank will have an immediate impact on the stock markets.
Upgrading EPS Estimates – A Crucial Indicator
An upward revision to the 2021 EPS estimate for any stock simply means that the market expects these companies to do well this year. A positive estimate revision in the last 7 days means that the market is thinking positively about the business.
Therefore, a positive revision of the EPS estimate under increasing inflation threats highlights a strong business model and robust growth potential of a company. Investors can certainly take a look at these stocks which currently have strong earnings momentum.
Our top picks
We narrowed down our search to five US giants as these companies have well-established business models and brand values recognized around the world. These stocks have strong growth potential for 2021 and long-term (3 to 5 years) growth forecasts well above the 11% growth rate of the S&P 500. Each of our picks carries either a Zacks Rank # 1 (buy strong) or 2 (purchase). You can see The 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
Alphabet Inc. GOOGL has shown an increased appetite in the Home Assistant space. The company is focused on innovation, launching products and services for multiple industries. Google has experienced rapid growth in the highly competitive and growing cloud market.
This Zacks Rank # 1 company has an expected earnings growth rate of 52.6% for the current year. It shows a long-term growth rate of 18.1%. Zacks’ consensus estimate for the current year has improved 1.8% in the past 7 days.
Apple IncThe AAPL Services and Wearables activities of. are expected to generate revenue growth in fiscal 2021 and beyond. Its focus on autonomous vehicles and augmented reality / virtual reality (AR / VR) technologies present long-term growth opportunities.
This Zacks Rank # 2 company has an expected profit growth rate of 57.6% for the current year (ending September 2021). It has a long term growth rate of 12.5%. Zacks’ consensus estimate for the current year has improved 1.4% over the past 7 days.
Dow Inc. DOW provides a variety of materials science solutions for the consumer care, infrastructure and packaging markets in the United States, Canada, Europe and internationally. It remains focused on investing in attractive areas through highly accretive projects. Dow is investing in several high yield growth projects, including expanding capacity downstream silicones.
This Zacks Rank # 1 company has an expected profit growth rate of over 100% for the current year. It has a long-term growth rate of 27.7%. Zacks’ consensus estimate for the current year has improved 1.6% over the past 7 days.
Zoom Video Communications Inc. ZM is arguably the biggest winner in the coronavirus-induced remote working trend. Demand for its platform and solutions is expected to remain strong as health experts believe some form of social distancing will remain to prevent the recurrent transmission of COVID-19 infections. In addition, its freemium business model allows it to quickly gain customers, which can then be converted into paying customers.
This Zacks Rank # 1 company has an expected profit growth rate of 39.52% for the current year (ending January 2022). It has a long-term growth rate of 15.6%. Zacks’ consensus estimate for the current year has improved 27% over the past 7 days.
The Sherwin-Williams Company. SHW sees favorable demand in domestic markets and remains committed to expanding its retail business. The acquisition of Valspar enabled it to strengthen its position as the world leader in paints and coatings, by relying on highly complementary offers, brands and strong technologies.
This company Zacks Rank # 2 has an expected profit growth rate of 13.6% for the current year. It shows a long-term growth rate of 11.3%. Zacks’ consensus estimate for the current year has improved 0.6% over the past 7 days.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.