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The U.S. dollar posted a third week of gains on Friday, close to its highest level in two months. Gains were primarily attributable to higher chances of a Fed rate hike in June. Despite the decline versus the yen experienced on Monday, the greenback’s rise is expected to continue in the days ahead.
Companies which primarily conduct their business within the U.S. are expected to gain from the dollar’s surge. A widely expected rebound in U.S. GDP will also give such stocks an added impetus. Adding such stocks to your portfolio makes good sense at this time.
Dollar Rises on Possible Rate Hike
The dollar registered its third successive weekly gain on Thursday, increasing 0.8% over last week. Minutes of the Fed’s most recent policy meeting and last week’s comments from Fed officials have led to the increasing feeling that a rate hike is likely to occur in June. Moreover, New York Fed President William Dudley said he is "quite pleased" to see strong possibilities of a rate hike in June-July. He added that if he sees that his own forecast “is sort of on track” then he thinks that “a tightening in the summer, the June-July time frame is a reasonable expectation."
Richmond Fed President Jeffrey Lacker also showed support for a June rate hike. Earlier last week, San Francisco Fed President John Williams said that following continuing moderate growth, two to three rate hikes this year “makes sense.” Atlanta Fed President Dennis Lockhart said recent “encouraging” inflation data indicated growth in the U.S. economy.
Improving Indicators Hint at GDP Rebound
A data dependent Fed has indicated that a pickup in growth in the second quarter would lead them to hiking rates in June. Most reports released in May seem to indicate this is indeed the case. Retail sales rose 1.3% last month, reaching its highest level since Mar 2015. Industrial production rebounded from a 0.9% decline in March to rise by 0.7% in April, posting its highest percentage increase since Nov 2014.
Further, Leading Indicators Index advanced 0.6% in April, higher than the consensus estimate of 0.4%. Also, jobless claims have remained below 300,000 for 63 consecutive weeks, its longest stretch since 1973 as of the week ending May 14. Most housing indicators have also been encouraging in nature, an increase in existing homes sales being the latest of the list. This is possibly why the New York Federal Reserve has raised its estimate for second-quarter growth by half a percentage point to 1.7%.
Our Choices
Encouraging economic indicators are providing the Fed with the evidence it requires of an economic recovery to bring about a rate hike in June. The dollar is expected to rise further in this case. In such an event, companies which conduct all their business within the U.S. are likely to be in an advantageous position compared to those with substantial overseas operations.
Domestically focused companies are likely to gain further with an uptick in GDP. This is why it may be a good idea to pick such stocks. At the same time, selecting winning stocks is a difficult task.
This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score.
We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM score.
Carrols Restaurant Group, Inc. is a franchisee of Burger King restaurants across 16 states in the U.S.
Carrols Restaurant has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. The company has expected earnings growth of 54% for the current year. The forward price-to-earnings (P/E) ratio for the current financial year (F1) is 21.33, lower than the industry average of 21.42. Its earnings estimate for the current year has improved by 10.4% over the last 30 days.
Spark Energy, Inc. is an independent retail energy services company operating in the U.S.
Spark Energy has a Zacks Rank #1 and a VGM Score of A. The company has expected earnings growth of more than 100% for the current year. It has a P/E (F1) of 13.49, which is lower than the industry average of 17.36. Its earnings estimate for the current year has improved by 27.1% over the last 30 days.
SkyWest Inc. (SKYW - Free Report) is one of the larger regional airlines in the U.S.
SkyWest has a Zacks Rank #1 and a VGM Score of A. The company has expected earnings growth of 28% for the current year. Its earnings estimate for the current year has improved by 17.8% over the last 30 days.
The Kroger Co. (KR - Free Report) is one of the U.S.’s largest grocery retailers operating 2,778 retail food stores in 35 states and the District of Columbia
Kroger has a Zacks Rank #2 (Buy) and a VGM Score of B. The company has expected earnings growth of 8.5% for the current year. It has a P/E (F1) of 15.49, which is lower than the industry average of 16.55.
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4 Stocks to Buy on the Dollar's Surge
The U.S. dollar posted a third week of gains on Friday, close to its highest level in two months. Gains were primarily attributable to higher chances of a Fed rate hike in June. Despite the decline versus the yen experienced on Monday, the greenback’s rise is expected to continue in the days ahead.
Companies which primarily conduct their business within the U.S. are expected to gain from the dollar’s surge. A widely expected rebound in U.S. GDP will also give such stocks an added impetus. Adding such stocks to your portfolio makes good sense at this time.
Dollar Rises on Possible Rate Hike
The dollar registered its third successive weekly gain on Thursday, increasing 0.8% over last week. Minutes of the Fed’s most recent policy meeting and last week’s comments from Fed officials have led to the increasing feeling that a rate hike is likely to occur in June. Moreover, New York Fed President William Dudley said he is "quite pleased" to see strong possibilities of a rate hike in June-July. He added that if he sees that his own forecast “is sort of on track” then he thinks that “a tightening in the summer, the June-July time frame is a reasonable expectation."
Richmond Fed President Jeffrey Lacker also showed support for a June rate hike. Earlier last week, San Francisco Fed President John Williams said that following continuing moderate growth, two to three rate hikes this year “makes sense.” Atlanta Fed President Dennis Lockhart said recent “encouraging” inflation data indicated growth in the U.S. economy.
Improving Indicators Hint at GDP Rebound
A data dependent Fed has indicated that a pickup in growth in the second quarter would lead them to hiking rates in June. Most reports released in May seem to indicate this is indeed the case. Retail sales rose 1.3% last month, reaching its highest level since Mar 2015. Industrial production rebounded from a 0.9% decline in March to rise by 0.7% in April, posting its highest percentage increase since Nov 2014.
Further, Leading Indicators Index advanced 0.6% in April, higher than the consensus estimate of 0.4%. Also, jobless claims have remained below 300,000 for 63 consecutive weeks, its longest stretch since 1973 as of the week ending May 14. Most housing indicators have also been encouraging in nature, an increase in existing homes sales being the latest of the list. This is possibly why the New York Federal Reserve has raised its estimate for second-quarter growth by half a percentage point to 1.7%.
Our Choices
Encouraging economic indicators are providing the Fed with the evidence it requires of an economic recovery to bring about a rate hike in June. The dollar is expected to rise further in this case. In such an event, companies which conduct all their business within the U.S. are likely to be in an advantageous position compared to those with substantial overseas operations.
Domestically focused companies are likely to gain further with an uptick in GDP. This is why it may be a good idea to pick such stocks. At the same time, selecting winning stocks is a difficult task.
This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score.
We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM score.
Carrols Restaurant Group, Inc. is a franchisee of Burger King restaurants across 16 states in the U.S.
Carrols Restaurant has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. The company has expected earnings growth of 54% for the current year. The forward price-to-earnings (P/E) ratio for the current financial year (F1) is 21.33, lower than the industry average of 21.42. Its earnings estimate for the current year has improved by 10.4% over the last 30 days.
Spark Energy, Inc. is an independent retail energy services company operating in the U.S.
Spark Energy has a Zacks Rank #1 and a VGM Score of A. The company has expected earnings growth of more than 100% for the current year. It has a P/E (F1) of 13.49, which is lower than the industry average of 17.36. Its earnings estimate for the current year has improved by 27.1% over the last 30 days.
SkyWest Inc. (SKYW - Free Report) is one of the larger regional airlines in the U.S.
SkyWest has a Zacks Rank #1 and a VGM Score of A. The company has expected earnings growth of 28% for the current year. Its earnings estimate for the current year has improved by 17.8% over the last 30 days.
The Kroger Co. (KR - Free Report) is one of the U.S.’s largest grocery retailers operating 2,778 retail food stores in 35 states and the District of Columbia
Kroger has a Zacks Rank #2 (Buy) and a VGM Score of B. The company has expected earnings growth of 8.5% for the current year. It has a P/E (F1) of 15.49, which is lower than the industry average of 16.55.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>