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Recent Volatility Indicates a Base Formation: Top 5 Picks
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U.S. stock markets suffered a bloody blow in the first week of August after 19 months of an impressive bull run. Wall Street’s turmoil was triggered by weak labor market data, which heightened concerns of a near-term recession. The massive unwinding of Yen-carry trade due to an unexpected rate hike by the Bank of Japan aggravated the situation.
However, U.S. stock markets recovered their lost ground to a great extent within the next 3-4 trading sessions as more released data showed the fundamentals of the U.S. economy remain firm. Market participants started to buy on the dip.
No Market Rout – A Bull Market Correction
On Aug 5, the tech-heavy Nasdaq Composite entered correction territory falling more than 10% (here 13.2%) from its recent high recorded on Jul 11. The broad-market index — the S&P 500 — declined 8.5% from its recent high posted on Jul 16.
In 2023, the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — jumped 13.7%, 23.9% and 43.4%, respectively. Continuing the bull run, the Nasdaq Composite was up more than 20% and the S&P 500 advanced more than 16%, year to date.
Therefore, the question is whether this is a market rout. After such an astonishing rally, these declines are welcome corrections. Even after an early August meltdown, year to date, the Dow, the S&P 500 and the Nasdaq Composite are up 4.4%, 12.7% and 13.6%, respectively.
A Base Formation Likely
Over the last three weeks, U.S. stock markets remained rangebound. The three major stock indexes are trading below their 50-week moving average, which is currently acting as resistant. At the same time, these indexes are currently trading well above the 200-day moving average, which is acting as a support level.
This indicates Wall Street is trying to form a base, a positive development for market participants. Short-term traders may be affected by day-to-day fluctuations, but investors (with a holding period of at least the next year) should gain from this stage.
2024 Investment Moto: Buy on the Dip
On Jan 5, I wrote that buying on the dip would be the best strategy this year. (read: Best Investment Strategy for 2024: Buy on the Dip). In the first half, this strategy proved right. Every dip in stocks, especially in tech giants, has resulted in more aggressive returns in a short span. This trend is likely to last in the second half, too.
The recent rebounds of the U.S. stock markets is the latest example that buy-on-the-dip should be the moto for Wall Street investors this year (read: Catch These 5 Big Fishes at Next Dips for Long-Term Gains). Any dip should be considered as a good buying opportunity. Just a single positive catalyst, such as a lower-than-expected weekly jobless claims data, will lead to a spike in stock prices.
Wall Street has plenty of liquidity. At the beginning of 2024, a preliminary estimate revealed that a massive $1.4 trillion entered U.S. money market funds primarily due to an extremely high-interest rate regime, with cash yielding around 5%. (read: What Tesla's Recent Rally Implies for the Broader Market). A systematic decline in the market interest rate will shift a major part of these gigantic funds to equity markets.
Our Top Picks
We have narrowed our search to five growth stocks that have solid upside left for the rest of 2024. These stocks have witnessed positive earnings estimate revisions in the last 30 days. Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy) and has a Growth Score 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 year to date.
Image Source: Zacks Investment Research
Royal Caribbean Cruises Ltd. (RCL - Free Report) reported impressive second-quarter 2024 results, with earnings and revenues beating the Zacks Consensus Estimate. RCL benefited from stronger pricing on close-in demand and continued strength in onboard revenues.
During the second quarter, RCL reported solid booking volumes across all key itineraries. It also stated a rise in consumer spending onboard and pre-cruise purchases (exceeding 2023 levels) driven by higher participation at increased prices. In second-quarter 2024, load factors were 108%.
Royal Caribbean Cruises is highly optimistic about the demand and pricing landscape for 2024. RCL emphasized investing in a modern digital travel platform to streamline the vacation booking process for customers and expand wallet share. Also, it highlighted new innovative ships and onboard experiences to boost its offering and deliver superior yields and margins.
Zacks Rank #1 Royal Caribbean Cruises has an expected revenue and earnings growth rate of 17.8% and 69.7%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.4% in the last seven days. The average price target of brokerage firms represents an increase of 19.6% from the last closing price of $153.86. The brokerage target price is currently in the range of $154-$210.
Vertiv Holdings Co. (VRT - Free Report) designs, manufactures, and services critical digital infrastructure technologies and life cycle services for data centers, communication networks, and commercial and industrial environments in the Americas, the Asia Pacific, Europe, the Middle East, and Africa. VRT offers hardware, software, analytics and ongoing services.
Zacks Rank #1 Vertiv Holdings has an expected revenue and earnings growth rate of 12.8% and 45.8%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 6.2% in the last 30 days. The average price target of brokerage firms represents an increase of 43.2% from the last closing price of $72.94. The brokerage target price is currently in the range of $92-$115.
Quanta Services Inc. (PWR - Free Report) is benefiting from robust demand for its services, propelled by customers' multi-year initiatives aimed at modernizing and fortifying utility infrastructure, expanding renewable energy generation and transmission infrastructure, and transitioning toward a low-carbon economy.
Accretive acquisitions and a solid growth strategy are additional benefits. Owing to the improving trend, PWR increased its 2024 guidance. PWR expects revenues of $23.5-$24.1 billion, adjusted EBITDA of $2.21-$2.33 billion and adjusted EPS of $8.32-$8.87 versus the prior estimates of $22.5-$23 billion, $2.13-$2.25 billion, and $8.15-$8.65, respectively.
Zacks Rank #2 Quanta Services has an expected revenue and earnings growth rate of 14.2% and 18.2%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.2% in the last 30 days. The average price target of brokerage firms represents an increase of 12% from the last closing price of $260.04. The brokerage target price is currently in the range of $260-$319.
Deckers Outdoor Corp. (DECK - Free Report) has shown robust growth through its strategic focus on expanding its brand presence and strengthening direct-to-consumer channels. This approach, along with a commitment to innovation in product development and a keen focus on international market expansion, has positioned DECK for continued success.
DECK’s commitment to elevating renowned brands like UGG and HOKA into global lifestyle icons enhances brand equity and market reach. Looking ahead, DECK maintained its fiscal 2025 sales guidance, while raising its earnings forecast.
Zacks Rank #2 Deckers Outdoor has an expected revenue and earnings growth rate of 11.5% and 8.3%, respectively, for the current year (ending March 2025). The Zacks Consensus Estimate for current-year earnings has improved 0.02% in the last 30 days. The average price target of brokerage firms represents an increase of 19.8% from the last closing price of $918.30. The brokerage target price is currently in the range of $860-$1,350.
The Allstate Corp. (ALL - Free Report) is witnessing consistent growth in premiums, thanks to strategic acquisitions and expanding ventures. Rate hikes to counter inflationary pressures on loss costs are expected to continue in ALL’s auto insurance business for 2024.
ALL’s focus on optimizing core operations has allowed it to redirect resources toward high-growth areas. The sale of ALL’s Health & Benefits division is expected to free up capital. Cost-saving initiatives are projected to boost profits. ALL’s cash generating abilities are crucial for returning capital to its shareholders.
Zacks Rank #2 The Allstate has an expected revenue and earnings growth rate of 9.6% and more than 100%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 3.5% in the last seven days. The average price target of brokerage firms represents an increase of 12% from the last closing price of $171.36. The brokerage target price is currently in the range of $140-$226.
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Recent Volatility Indicates a Base Formation: Top 5 Picks
U.S. stock markets suffered a bloody blow in the first week of August after 19 months of an impressive bull run. Wall Street’s turmoil was triggered by weak labor market data, which heightened concerns of a near-term recession. The massive unwinding of Yen-carry trade due to an unexpected rate hike by the Bank of Japan aggravated the situation.
However, U.S. stock markets recovered their lost ground to a great extent within the next 3-4 trading sessions as more released data showed the fundamentals of the U.S. economy remain firm. Market participants started to buy on the dip.
No Market Rout – A Bull Market Correction
On Aug 5, the tech-heavy Nasdaq Composite entered correction territory falling more than 10% (here 13.2%) from its recent high recorded on Jul 11. The broad-market index — the S&P 500 — declined 8.5% from its recent high posted on Jul 16.
In 2023, the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — jumped 13.7%, 23.9% and 43.4%, respectively. Continuing the bull run, the Nasdaq Composite was up more than 20% and the S&P 500 advanced more than 16%, year to date.
Therefore, the question is whether this is a market rout. After such an astonishing rally, these declines are welcome corrections. Even after an early August meltdown, year to date, the Dow, the S&P 500 and the Nasdaq Composite are up 4.4%, 12.7% and 13.6%, respectively.
A Base Formation Likely
Over the last three weeks, U.S. stock markets remained rangebound. The three major stock indexes are trading below their 50-week moving average, which is currently acting as resistant. At the same time, these indexes are currently trading well above the 200-day moving average, which is acting as a support level.
This indicates Wall Street is trying to form a base, a positive development for market participants. Short-term traders may be affected by day-to-day fluctuations, but investors (with a holding period of at least the next year) should gain from this stage.
2024 Investment Moto: Buy on the Dip
On Jan 5, I wrote that buying on the dip would be the best strategy this year. (read: Best Investment Strategy for 2024: Buy on the Dip). In the first half, this strategy proved right. Every dip in stocks, especially in tech giants, has resulted in more aggressive returns in a short span. This trend is likely to last in the second half, too.
The recent rebounds of the U.S. stock markets is the latest example that buy-on-the-dip should be the moto for Wall Street investors this year (read: Catch These 5 Big Fishes at Next Dips for Long-Term Gains). Any dip should be considered as a good buying opportunity. Just a single positive catalyst, such as a lower-than-expected weekly jobless claims data, will lead to a spike in stock prices.
Wall Street has plenty of liquidity. At the beginning of 2024, a preliminary estimate revealed that a massive $1.4 trillion entered U.S. money market funds primarily due to an extremely high-interest rate regime, with cash yielding around 5%. (read: What Tesla's Recent Rally Implies for the Broader Market). A systematic decline in the market interest rate will shift a major part of these gigantic funds to equity markets.
Our Top Picks
We have narrowed our search to five growth stocks that have solid upside left for the rest of 2024. These stocks have witnessed positive earnings estimate revisions in the last 30 days. Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy) and has a Growth Score 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 year to date.
Image Source: Zacks Investment Research
Royal Caribbean Cruises Ltd. (RCL - Free Report) reported impressive second-quarter 2024 results, with earnings and revenues beating the Zacks Consensus Estimate. RCL benefited from stronger pricing on close-in demand and continued strength in onboard revenues.
During the second quarter, RCL reported solid booking volumes across all key itineraries. It also stated a rise in consumer spending onboard and pre-cruise purchases (exceeding 2023 levels) driven by higher participation at increased prices. In second-quarter 2024, load factors were 108%.
Royal Caribbean Cruises is highly optimistic about the demand and pricing landscape for 2024. RCL emphasized investing in a modern digital travel platform to streamline the vacation booking process for customers and expand wallet share. Also, it highlighted new innovative ships and onboard experiences to boost its offering and deliver superior yields and margins.
Zacks Rank #1 Royal Caribbean Cruises has an expected revenue and earnings growth rate of 17.8% and 69.7%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.4% in the last seven days. The average price target of brokerage firms represents an increase of 19.6% from the last closing price of $153.86. The brokerage target price is currently in the range of $154-$210.
Vertiv Holdings Co. (VRT - Free Report) designs, manufactures, and services critical digital infrastructure technologies and life cycle services for data centers, communication networks, and commercial and industrial environments in the Americas, the Asia Pacific, Europe, the Middle East, and Africa. VRT offers hardware, software, analytics and ongoing services.
Zacks Rank #1 Vertiv Holdings has an expected revenue and earnings growth rate of 12.8% and 45.8%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 6.2% in the last 30 days. The average price target of brokerage firms represents an increase of 43.2% from the last closing price of $72.94. The brokerage target price is currently in the range of $92-$115.
Quanta Services Inc. (PWR - Free Report) is benefiting from robust demand for its services, propelled by customers' multi-year initiatives aimed at modernizing and fortifying utility infrastructure, expanding renewable energy generation and transmission infrastructure, and transitioning toward a low-carbon economy.
Accretive acquisitions and a solid growth strategy are additional benefits. Owing to the improving trend, PWR increased its 2024 guidance. PWR expects revenues of $23.5-$24.1 billion, adjusted EBITDA of $2.21-$2.33 billion and adjusted EPS of $8.32-$8.87 versus the prior estimates of $22.5-$23 billion, $2.13-$2.25 billion, and $8.15-$8.65, respectively.
Zacks Rank #2 Quanta Services has an expected revenue and earnings growth rate of 14.2% and 18.2%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.2% in the last 30 days. The average price target of brokerage firms represents an increase of 12% from the last closing price of $260.04. The brokerage target price is currently in the range of $260-$319.
Deckers Outdoor Corp. (DECK - Free Report) has shown robust growth through its strategic focus on expanding its brand presence and strengthening direct-to-consumer channels. This approach, along with a commitment to innovation in product development and a keen focus on international market expansion, has positioned DECK for continued success.
DECK’s commitment to elevating renowned brands like UGG and HOKA into global lifestyle icons enhances brand equity and market reach. Looking ahead, DECK maintained its fiscal 2025 sales guidance, while raising its earnings forecast.
Zacks Rank #2 Deckers Outdoor has an expected revenue and earnings growth rate of 11.5% and 8.3%, respectively, for the current year (ending March 2025). The Zacks Consensus Estimate for current-year earnings has improved 0.02% in the last 30 days. The average price target of brokerage firms represents an increase of 19.8% from the last closing price of $918.30. The brokerage target price is currently in the range of $860-$1,350.
The Allstate Corp. (ALL - Free Report) is witnessing consistent growth in premiums, thanks to strategic acquisitions and expanding ventures. Rate hikes to counter inflationary pressures on loss costs are expected to continue in ALL’s auto insurance business for 2024.
ALL’s focus on optimizing core operations has allowed it to redirect resources toward high-growth areas. The sale of ALL’s Health & Benefits division is expected to free up capital. Cost-saving initiatives are projected to boost profits. ALL’s cash generating abilities are crucial for returning capital to its shareholders.
Zacks Rank #2 The Allstate has an expected revenue and earnings growth rate of 9.6% and more than 100%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 3.5% in the last seven days. The average price target of brokerage firms represents an increase of 12% from the last closing price of $171.36. The brokerage target price is currently in the range of $140-$226.