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Wall Street Rallies Ignoring Mounting Inflation: 5 Top Picks
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Wall Street is firing on all cylinders maintaining an impressive bull run this year even though a key inflation gauge reached its highest level in almost four decades last month. Market participants are overwhelmingly expecting the Fed to take a more hawkish stance in its December FOMC meeting and that seems already priced in the stocks markets’ valuation.
At this stage, it will be prudent to invest in U.S. corporate behemoths (market capital > $50 billion) with a favorable Zacks Rank. These companies have well-established business models and globally acclaimed brand recognition. Plus, their solid financial position should help them to cope with higher market interest rates. Five stocks that meet these criteria are: Alphabet Inc. (GOOGL - Free Report) , Tesla Inc. (TSLA - Free Report) , ConocoPhillips (COP - Free Report) , Xilinx Inc. and Marvell Technology Inc. (MRVL - Free Report) .
Markets Jump Amid Soaring Inflation
On Dec 10, the Department of Labor reported that the consumer price index (CPI) rose 0.8% in November compared with the consensus estimate of 0.7%. However, in October, CPI rose 0.9%. Year-over-year, CPI climbed 6.8%, marking its fastest monthly rise since June 1982. The consensus estimate was 6.7%. CPI rose 6.2% year over year in October.
Core CPI (excluding the volatile food and energy items) increased 0.5% in November, in line with the consensus estimate. In October, core CPI increased 0.6%. Year over year, core CPI advanced 4.9%, marking its fastest monthly rise since June 1991.
Although both CPI and core CPI soared in November, the rate of increase actually declined in November compared with October. In fact, a section of market participants has been anticipating the CPI to jump 7% year over year in November. Consequently, the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — advanced 0.6%, 1% and 0.7%, respectively. On the same day, the S&P 500 posted a new closing high.
Markets Likely Factored in Fed's Policy Change
On Nov 30, in his testimony before a Senate committee, Fed Chairman Jerome Powell said that the central bank would discuss speeding up the tapering process of its quantitative easing program in the upcoming FOMC meeting scheduled Dec 14-15.
Investors are overwhelmingly expecting the Fed to raise the tapering amount of its monthly bond-buy program from $15 billion to $30 billion. At this rate, the quantitative easing program will terminate in March 2022 instead of June targeted earlier.
The central bank has maintained the benchmark lending rate in the range of 0-0.25% since March 2020. With accelerated tapering, the first rate hike is now expected in second-quarter 2022 instead of second half of 2022 anticipated earlier. Per CME FedWatch, market participants are currently expecting three rate hikes of 25 basis points each in 2022.
However, it seems that a likely change in the central bank’s monetary policies has already been incorporated in U.S. stock markets’ valuation. The gradual fading out of Omicron-led concerns and the reopening of U.S. and global economies resulted in Wall Street rally.
Last week, the Dow surged 4%, reflecting the index’s biggest weekly percentage gain since March. The blue-chip index snapped a four-week losing streak. The S&P 500 and the Nasdaq Composite appreciated 3.8% and 3.6%, respectively. Both indexes posted their biggest weekly percentage gain since February.
Moreover, the University of Michigan reported that the preliminary data of the U.S. consumer sentiment index for December climbed 4.5% to a reading of 70.4 from November’s final reading of 67.4. The sub-index for current economic condition increased 1.4% to 74.6 in December and the sub-index for consumer expectations (what consumers are thinking about the near future) jumped 6.8% to 67.8 in December.
Our Top Picks
We have narrowed our search to five U.S. corporate giants that have popped more than 40% year to date. These companies have strong growth potential for the rest of 2021 and seen solid earnings estimate revisions in the last 30 days. 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 has been strongly emphasizing AI techniques and the home automation space, which should aid business growth over the long term. Solid momentum across search, advertising, cloud and YouTube businesses aided the results of Alphabet. Further, the growing proliferation of consumers’ online activities and rising advertiser spending remained as tailwinds.
Alphabet's robust cloud division continues to be the key catalyst. Expanding data centers will continue to bolster its presence in the cloud space. Further, major updates in its search segment are enhancing the search results. Moreover, GOOGL’s mobile search is constantly gaining traction.
Alphabet has an expected earnings growth rate of 84.8% for the current year. The Zacks Consensus Estimate for current-year earnings improved 0.4% over the last 30 days. The stock price of GOOGL has climbed 68.9% year to date.
Tesla has acquired a substantial market share within the electric car segment. Increasing Model 3 delivery, which forms a significant chunk of TSLA’s overall deliveries, is aiding its top line. Along with Model 3, Model Y is contributing to its revenues.
In addition to increasing automotive revenues, Tesla’s energy generation and storage revenues boost its earnings prospects. The automaker said that its overall deliveries surged 20% in the third quarter from its previous record in the second quarter, marking the sixth consecutive quarter-on-quarter gain.
Tesla has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 1% over the last 30 days. The stock price of TSLA has surged 44.2% year to date.
ConocoPhillips holds a bulk of acres in the three big unconventional plays, namely Eagle Ford shale, Delaware basin and Bakken shale, which are rich in oil. COP also has a foothold in Canada’s oil sand resources and exposure to developments related to liquefied natural gas.
Recently, ConocoPhillips announced an agreement to purchase all of Royal Dutch Shell’s assets in the prolific Permian. The deal reflects COP’s aim of broadening its Permian presence. The transaction is highly accretive and involves the acquisition of roughly 225,000 net acres in the heart of the core Delaware basin.
ConocoPhillips has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 0.3% over the last 7 days. The stock price of COP has jumped 83.8% year to date.
Xilinx designs and develops programmable devices and associated technologies worldwide. The growing demand for Xilinx’s 16-nanometer UltraScale+ family and Zynq platform will likely remain the major growth driver. Moreover, a ramp-up in 5G rollout across multiple regions remains a catalyst.
Strong momentum for the Vitis software development platform should act as a tailwind for Xilinx. Additionally, the Solarflare acquisition will bring in incremental revenues in the subsequent quarters.
XLNX has an expected earnings growth rate of 33.1% for the current year (ending March 2022). The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the last 30 days. The stock price of Xilinx has appreciated 53.2% year to date.
Marvell Technology is benefiting from solid demand for its storage and networking chips from the 5G infrastructure and data-center end markets. Strong supply-chain executions are helping MRVL to address the strong demand from cloud datacenters for its Smart NICs and security adapters.
Moreover, the wireless infrastructure business of Marvel Technology is showing signs of improvements. Recent acquisition of Inphi is boosting the top line of MRVL. Further, the storage business is steadily recovering from coronavirus impacts.
Marvel Technology has an expected earnings growth rate of 68.5% for the current year (ending January 2022). The Zacks Consensus Estimate for current-year earnings improved 0.6% over the last 7 days. The stock price of MRVL has soared 87.3% year to date.
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Wall Street Rallies Ignoring Mounting Inflation: 5 Top Picks
Wall Street is firing on all cylinders maintaining an impressive bull run this year even though a key inflation gauge reached its highest level in almost four decades last month. Market participants are overwhelmingly expecting the Fed to take a more hawkish stance in its December FOMC meeting and that seems already priced in the stocks markets’ valuation.
At this stage, it will be prudent to invest in U.S. corporate behemoths (market capital > $50 billion) with a favorable Zacks Rank. These companies have well-established business models and globally acclaimed brand recognition. Plus, their solid financial position should help them to cope with higher market interest rates. Five stocks that meet these criteria are: Alphabet Inc. (GOOGL - Free Report) , Tesla Inc. (TSLA - Free Report) , ConocoPhillips (COP - Free Report) , Xilinx Inc. and Marvell Technology Inc. (MRVL - Free Report) .
Markets Jump Amid Soaring Inflation
On Dec 10, the Department of Labor reported that the consumer price index (CPI) rose 0.8% in November compared with the consensus estimate of 0.7%. However, in October, CPI rose 0.9%. Year-over-year, CPI climbed 6.8%, marking its fastest monthly rise since June 1982. The consensus estimate was 6.7%. CPI rose 6.2% year over year in October.
Core CPI (excluding the volatile food and energy items) increased 0.5% in November, in line with the consensus estimate. In October, core CPI increased 0.6%. Year over year, core CPI advanced 4.9%, marking its fastest monthly rise since June 1991.
Although both CPI and core CPI soared in November, the rate of increase actually declined in November compared with October. In fact, a section of market participants has been anticipating the CPI to jump 7% year over year in November. Consequently, the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — advanced 0.6%, 1% and 0.7%, respectively. On the same day, the S&P 500 posted a new closing high.
Markets Likely Factored in Fed's Policy Change
On Nov 30, in his testimony before a Senate committee, Fed Chairman Jerome Powell said that the central bank would discuss speeding up the tapering process of its quantitative easing program in the upcoming FOMC meeting scheduled Dec 14-15.
Investors are overwhelmingly expecting the Fed to raise the tapering amount of its monthly bond-buy program from $15 billion to $30 billion. At this rate, the quantitative easing program will terminate in March 2022 instead of June targeted earlier.
The central bank has maintained the benchmark lending rate in the range of 0-0.25% since March 2020. With accelerated tapering, the first rate hike is now expected in second-quarter 2022 instead of second half of 2022 anticipated earlier. Per CME FedWatch, market participants are currently expecting three rate hikes of 25 basis points each in 2022.
However, it seems that a likely change in the central bank’s monetary policies has already been incorporated in U.S. stock markets’ valuation. The gradual fading out of Omicron-led concerns and the reopening of U.S. and global economies resulted in Wall Street rally.
Last week, the Dow surged 4%, reflecting the index’s biggest weekly percentage gain since March. The blue-chip index snapped a four-week losing streak. The S&P 500 and the Nasdaq Composite appreciated 3.8% and 3.6%, respectively. Both indexes posted their biggest weekly percentage gain since February.
Moreover, the University of Michigan reported that the preliminary data of the U.S. consumer sentiment index for December climbed 4.5% to a reading of 70.4 from November’s final reading of 67.4. The sub-index for current economic condition increased 1.4% to 74.6 in December and the sub-index for consumer expectations (what consumers are thinking about the near future) jumped 6.8% to 67.8 in December.
Our Top Picks
We have narrowed our search to five U.S. corporate giants that have popped more than 40% year to date. These companies have strong growth potential for the rest of 2021 and seen solid earnings estimate revisions in the last 30 days. 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.
Alphabet has been strongly emphasizing AI techniques and the home automation space, which should aid business growth over the long term. Solid momentum across search, advertising, cloud and YouTube businesses aided the results of Alphabet. Further, the growing proliferation of consumers’ online activities and rising advertiser spending remained as tailwinds.
Alphabet's robust cloud division continues to be the key catalyst. Expanding data centers will continue to bolster its presence in the cloud space. Further, major updates in its search segment are enhancing the search results. Moreover, GOOGL’s mobile search is constantly gaining traction.
Alphabet has an expected earnings growth rate of 84.8% for the current year. The Zacks Consensus Estimate for current-year earnings improved 0.4% over the last 30 days. The stock price of GOOGL has climbed 68.9% year to date.
Tesla has acquired a substantial market share within the electric car segment. Increasing Model 3 delivery, which forms a significant chunk of TSLA’s overall deliveries, is aiding its top line. Along with Model 3, Model Y is contributing to its revenues.
In addition to increasing automotive revenues, Tesla’s energy generation and storage revenues boost its earnings prospects. The automaker said that its overall deliveries surged 20% in the third quarter from its previous record in the second quarter, marking the sixth consecutive quarter-on-quarter gain.
Tesla has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 1% over the last 30 days. The stock price of TSLA has surged 44.2% year to date.
ConocoPhillips holds a bulk of acres in the three big unconventional plays, namely Eagle Ford shale, Delaware basin and Bakken shale, which are rich in oil. COP also has a foothold in Canada’s oil sand resources and exposure to developments related to liquefied natural gas.
Recently, ConocoPhillips announced an agreement to purchase all of Royal Dutch Shell’s assets in the prolific Permian. The deal reflects COP’s aim of broadening its Permian presence. The transaction is highly accretive and involves the acquisition of roughly 225,000 net acres in the heart of the core Delaware basin.
ConocoPhillips has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 0.3% over the last 7 days. The stock price of COP has jumped 83.8% year to date.
Xilinx designs and develops programmable devices and associated technologies worldwide. The growing demand for Xilinx’s 16-nanometer UltraScale+ family and Zynq platform will likely remain the major growth driver. Moreover, a ramp-up in 5G rollout across multiple regions remains a catalyst.
Strong momentum for the Vitis software development platform should act as a tailwind for Xilinx. Additionally, the Solarflare acquisition will bring in incremental revenues in the subsequent quarters.
XLNX has an expected earnings growth rate of 33.1% for the current year (ending March 2022). The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the last 30 days. The stock price of Xilinx has appreciated 53.2% year to date.
Marvell Technology is benefiting from solid demand for its storage and networking chips from the 5G infrastructure and data-center end markets. Strong supply-chain executions are helping MRVL to address the strong demand from cloud datacenters for its Smart NICs and security adapters.
Moreover, the wireless infrastructure business of Marvel Technology is showing signs of improvements. Recent acquisition of Inphi is boosting the top line of MRVL. Further, the storage business is steadily recovering from coronavirus impacts.
Marvel Technology has an expected earnings growth rate of 68.5% for the current year (ending January 2022). The Zacks Consensus Estimate for current-year earnings improved 0.6% over the last 7 days. The stock price of MRVL has soared 87.3% year to date.