Wall Street had a dream run in July as major indexes recorded their best monthly performance since November 2020. The U.S. stock markets suffered a bloody blow in the first half of 2022. Except for the second half of March, Wall Street failed to see any rally.  

Complete devastation of the global supply-chain system, mounting inflation, a higher interest rate regime together with tighter monetary control, the war between Russia and Ukraine and lockdowns in China due to the resurgence of COVID-19 infections significantly dented investors’ confidence in risky assets like equities in the first half of 2022.

However, throughout July stocks saw an impressive northbound journey. At this stage, it should be prudent to invest in momentum stocks with a favorable Zacks Rank. Five such stocks are —- C.H. Robinson Worldwide Inc. (CHRW Quick QuoteCHRW - Free Report) , Valero Energy Corp. (VLO Quick QuoteVLO - Free Report) , Carlisle Companies Inc. (CSL Quick QuoteCSL - Free Report) , Phillips 66 (PSX Quick QuotePSX - Free Report) and Fair Isaac Corp. (FICO Quick QuoteFICO - Free Report) .

Momentum Likely to Continue

In July, the Dow, the S&P 500 and the Nasdaq Composite have rallied 6.7%, 9.15 and 12.4%, respectively. This fabulous performance is highly commendable as the Fed raised the benchmark interest rate by 75 basis points in the July FOMC to the range of 2.25-2.50%. The range of the lending rate was a mere 0.-0.25% in early March.

The Fed hiked the interest rate by 75 basis points in June too. The moves in June and July represent the most stringent consecutive action since the early 1990s. Most importantly, the Fed Chairman Jerome Powell indicated that the central bank may reduce the magnitude of rate hikes going forward depending on data.

Additionally, the U.S. GDP growth rate contracted by 0.9% in second-quarter 2022 after declining 1.6% in the first half. Theoretically, contraction of the economy in two consecutive quarters is generally recognized as a strong sign of recession.

However, Powell said that he does not think the economy is in recession or will be in recession in the near future. Moreover, Treasury Secretary Janet Yellen said that the economy is not in recession. She said recession is a “broad-based weakening of our economy.”

Yellen said that a recession means substantial layoffs, business closures, strains in household finances and a slowdown in private sector activity. But none of these symptoms are visible now.

Finally, we are in the middle of the second quarter 2022 earnings season. So far, earnings reports of corporate America are better than expected with no visible sign of a recession. Consequently, Wall Street witnessed an impressive bull run.

On the other hand, momentum investing calls for the continued appraisal of stocks, ensuring that an investor does not pick a beaten-down name or overlook a thriving one. Momentum investors buy high on the anticipation that a stock will only ascend in the short to intermediate term. Therefore, momentum stocks with a favorable Zacks Rank are likely to become an ideal combination of investment at this stage.

Out Top Picks

We have narrowed our search to five large-cap (market capital > $10 billion) momentum stocks that have solid upside left for the rest of 2022. These stocks have seen strong earnings estimate revisions in the last 30 days.  Each of our picks carries a Zacks Rank #1 (Strong Buy) and has a Momentum Score of A.  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 in the past three months.

Image Source: Zacks Investment Research

C.H. Robinson is benefiting from favorable freight market conditions, such as increased volumes and higher pricing, amid tight capacity. CHRW’s growth-by-acquisition policy is also impressive.

To this end, in May 2021, C.H. Robinson acquired freight forwarding company Combinex Holding B.V. to strengthen its European Surface Transportation business. The acquisition not only broadens its customer base but also improves customer services by clubbing Combinex’s expertise.

C.H. Robinson has an expected earnings growth rate of 27.6% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 8.2% over the last 7 days.

Valero Energy is the largest independent refiner and marketer of petroleum products in the United States. VLO offers the most diversified refinery base with a capacity of 3.2 million barrels per day in its 15 refineries throughout the United States, Canada and the Caribbean.

The majority of Valero Energy’s refining plants are situated in the Gulf coast area from where there is easy access to the export facilities. VLO’s Gulf coast presence helped it to expand export volumes over the past years and gain from high distillate margins.

Moreover, Valero Energy intends to quadruple renewable diesel production capacity by 2023. With low-carbon fuel policies being adopted by economies around the globe, demand for renewable fuel is expected to rise in the coming days. Also, VLO is expected to capitalize on the increasing demand for distillate fuel.

Valero Energy has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 0.9% over the last 7 days.

Phillips 66 is a leading player in each of its operations like refining, chemicals and midstream in terms of size, efficiency and strength. PSX is a leader in the midstream business, which generates stable fee-based revenues. Phillips 66, is well-positioned to make massive profits from higher demand for distillate fuels.

Contributions from the olefins and polyolefins business, backed by high demand, continue to drive PSX’s chemicals segment. Phillips 66’s moves of expanding its footprint in the battery supply chain through its NOVONIX investment is praiseworthy.

Phillips 66 has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 10% over the last 30 days.

Carlisle is set to gain from strength in the U.S. reroofing end markets along with acquired assets. Strength in the medical technologies business and recovery in the commercial aerospace business is likely to drive CSL’s performance.

Carlisle’s focus on product launches and an improved outlook for industrial capital spending should be beneficial. For 2022, Carlisle expects revenues to grow more than 30% year over year. CSL’s shareholder-friendly policies are likely to act as tailwinds.

Carlisle has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 14.5% over the last 7 days.

Fair Isaac develops analytic, software, and data management products and services that enable businesses to automate, enhance and connect decisions in North America, Latin America, Europe, the Middle East, Africa and the Asia Pacific.

FICO’s solutions and technologies for Enterprise Decision Management give businesses the power to automate more processes, and apply more intelligence to every customer interaction. Fair Isaac powers hundreds of billions of decisions each year in financial services, insurance, telecommunications, retail, consumer branded goods, healthcare and the public sector.

Fair Isaac has an expected earnings growth rate of 29.1% for the current year (ending September 2022). The Zacks Consensus Estimate for current-year earnings improved 7% over the last 7 days.