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Dow Out of Its Second Longest Correction Territory: 5 Picks
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On Aug 27, one of the equity markets’ most closely watched indexes — the Dow 30 — ventured out of correction territory for the first time in more than six months. Wall Street’s bullish wave, which commenced in July, continues in August as the blue-chip index registered a gain in seven of the trailing eight weeks.
Recent optimism related to global trade war concerns, a robust U.S. economy and strong earnings results bolstered investors’ confidence in the stock markets enabling the Dow to climb out of the rut. Such factors are likely to pave the way for further upside. Consequently, investment in some of the Dow 30 stocks with favorable Zacks Rank and strong growth potential will bode well.
The Dow Out of Correction Territory
On Aug 27, the Dow 30 gained 259.29 points or a little above 1% to close at 26,049.64. The index closed above 26,000 for the first time since Feb 1. This marks the blue-chip index’s successful break out from the correction territory. Technically a stock breaks out of correction territory when it rises 10% from its correction low.
The index had entered correction territory on Feb 8, when it declined more than 10% from its all-time closing high of 26,616.71 recorded on Jan 26. In order to bust out of the correction territory, the Dow needed to close 10% higher of its recent closing low of 23,533.20 on Mar 23. Finally, on Aug 27, the index managed to achieve that level.
The blue-chip index had remained under correction zone for 138 trading sessions. This was the Dow’s second longest stint in correction territory after a 223-days session in 1961. At present, the index is just 2.2% away to from its all-time high closing level recorded on Jan 26.
Despite severe stock market volatility, the index is up 5.4% year to date. Moreover, a strong bunch of 16 stocks in the total portfolio of 30 have provided positive returns so far this year. Nine stocks have provided positive double-digit returns.
Trade-Related Concerns Ease
On Aug 27, President Donald Trump announced that the United States and Mexico have reached an agreement to enter into a new trade deal. The new deal would be called “The United States-Mexico Trade Agreement” and will replace the 24-year old "North American Free Trade Agreement" (NAFTA) which was formulated between the United States, Mexico and Canada.
Notably, Canada’s Foreign Minister Chrystia Freeland, is scheduled to reach Washington on Aug 28 to resume talks between the two neighbors to formulate a new agreement replacing NAFTA. Infact, Canada is the second largest trading partner of the United States after China.
Although the details of the U.S. – Mexico deal is yet to be made public, market participants generally believe that the U.S. automobile industry will largely benefit from the deal. It is worth mentioning that the trading relationship between the United States, Canada and Mexico took a hit on Jun 1, when the Trump administration imposed 25% tariff on imported steel and 10% tariff on imported aluminum from the two neighboring countries.
Strong U.S. Economic Fundamentals
U.S. GDP grew at 4.1% in the second-quarter of 2018, marking its highest gain since the third quarter of 2014 and the third-best growth rate since the Great Recession of 2008-2009. In the second-quarter, consumer spending increased 4%, business investment grew 7.3% and government spending rose 3.5%. Moreover, unemployment rate in July fell 0.1% from June to 3.9%, its lowest level in nearly 50 years.
Our Picks
Stock markets momentum remained largely unhindered despite volatility. Massive tax cut, business-friendly policies and steady economic activities resulted in robust earnings results. U.S. markets are well positioned to attract investors’ attention by offering high yields.
At this stage, we narrowed down our search to four stocks within the Dow 30, each having either a Zacks Rank #1 (strong Buy) or 2 (Buy) and strong growth potential.
The chart below shoes price performance of our five picks in the last three months.
Microsoft Corp. (MSFT - Free Report) : The stock provided a positive earnings surprise of 11.4% in the trailing four quarters. Microsoft has expected earnings growth of 9.5% for current year. The Zacks Consensus Estimate for the current year has improved by 7.3% over the last 60 days. The stock flaunts a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Apple Inc. (AAPL - Free Report) : The stock provided a positive earnings surprise of 5.5% in the trailing four quarters. Apple has expected earnings growth of 26.8% for current year. The Zacks Consensus Estimate for the current year has improved by 2.5% over the last 60 days. The stock carries a Zacks Rank #2.
The Goldman Sachs Group Inc. (GS - Free Report) : The stock provided a positive earnings surprise of 20.8% in the preceding four quarters. The Goldman Sachs has expected earnings growth of 26.5% for current year. The Zacks Consensus Estimate for the current year has improved by 6.9% over the last 60 days. The stock has a Zacks Rank #2.
UnitedHealth Group Inc. (UNH - Free Report) : The stock provided a positive earnings surprise of 3.7% in the last four quarters. UnitedHealth has expected earnings growth of 26.3% for current year. The Zacks Consensus Estimate for the current year has improved by 0.8% over the last 60 days. The stock carries a Zacks Rank #2.
Caterpillar Inc. (CAT - Free Report) : The stock provided a positive earnings surprise of 31.8% in the last four quarters. Caterpillar has expected earnings growth of 67.7% for current year. The Zacks Consensus Estimate for the current year has improved by 7.5% over the last 60 days. The stock carries a Zacks Rank #2.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
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Dow Out of Its Second Longest Correction Territory: 5 Picks
On Aug 27, one of the equity markets’ most closely watched indexes — the Dow 30 — ventured out of correction territory for the first time in more than six months. Wall Street’s bullish wave, which commenced in July, continues in August as the blue-chip index registered a gain in seven of the trailing eight weeks.
Recent optimism related to global trade war concerns, a robust U.S. economy and strong earnings results bolstered investors’ confidence in the stock markets enabling the Dow to climb out of the rut. Such factors are likely to pave the way for further upside. Consequently, investment in some of the Dow 30 stocks with favorable Zacks Rank and strong growth potential will bode well.
The Dow Out of Correction Territory
On Aug 27, the Dow 30 gained 259.29 points or a little above 1% to close at 26,049.64. The index closed above 26,000 for the first time since Feb 1. This marks the blue-chip index’s successful break out from the correction territory. Technically a stock breaks out of correction territory when it rises 10% from its correction low.
The index had entered correction territory on Feb 8, when it declined more than 10% from its all-time closing high of 26,616.71 recorded on Jan 26. In order to bust out of the correction territory, the Dow needed to close 10% higher of its recent closing low of 23,533.20 on Mar 23. Finally, on Aug 27, the index managed to achieve that level.
The blue-chip index had remained under correction zone for 138 trading sessions. This was the Dow’s second longest stint in correction territory after a 223-days session in 1961. At present, the index is just 2.2% away to from its all-time high closing level recorded on Jan 26.
Despite severe stock market volatility, the index is up 5.4% year to date. Moreover, a strong bunch of 16 stocks in the total portfolio of 30 have provided positive returns so far this year. Nine stocks have provided positive double-digit returns.
Trade-Related Concerns Ease
On Aug 27, President Donald Trump announced that the United States and Mexico have reached an agreement to enter into a new trade deal. The new deal would be called “The United States-Mexico Trade Agreement” and will replace the 24-year old "North American Free Trade Agreement" (NAFTA) which was formulated between the United States, Mexico and Canada.
Notably, Canada’s Foreign Minister Chrystia Freeland, is scheduled to reach Washington on Aug 28 to resume talks between the two neighbors to formulate a new agreement replacing NAFTA. Infact, Canada is the second largest trading partner of the United States after China.
Although the details of the U.S. – Mexico deal is yet to be made public, market participants generally believe that the U.S. automobile industry will largely benefit from the deal. It is worth mentioning that the trading relationship between the United States, Canada and Mexico took a hit on Jun 1, when the Trump administration imposed 25% tariff on imported steel and 10% tariff on imported aluminum from the two neighboring countries.
Strong U.S. Economic Fundamentals
U.S. GDP grew at 4.1% in the second-quarter of 2018, marking its highest gain since the third quarter of 2014 and the third-best growth rate since the Great Recession of 2008-2009. In the second-quarter, consumer spending increased 4%, business investment grew 7.3% and government spending rose 3.5%. Moreover, unemployment rate in July fell 0.1% from June to 3.9%, its lowest level in nearly 50 years.
Our Picks
Stock markets momentum remained largely unhindered despite volatility. Massive tax cut, business-friendly policies and steady economic activities resulted in robust earnings results. U.S. markets are well positioned to attract investors’ attention by offering high yields.
At this stage, we narrowed down our search to four stocks within the Dow 30, each having either a Zacks Rank #1 (strong Buy) or 2 (Buy) and strong growth potential.
The chart below shoes price performance of our five picks in the last three months.
Microsoft Corp. (MSFT - Free Report) : The stock provided a positive earnings surprise of 11.4% in the trailing four quarters. Microsoft has expected earnings growth of 9.5% for current year. The Zacks Consensus Estimate for the current year has improved by 7.3% over the last 60 days. The stock flaunts a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Apple Inc. (AAPL - Free Report) : The stock provided a positive earnings surprise of 5.5% in the trailing four quarters. Apple has expected earnings growth of 26.8% for current year. The Zacks Consensus Estimate for the current year has improved by 2.5% over the last 60 days. The stock carries a Zacks Rank #2.
The Goldman Sachs Group Inc. (GS - Free Report) : The stock provided a positive earnings surprise of 20.8% in the preceding four quarters. The Goldman Sachs has expected earnings growth of 26.5% for current year. The Zacks Consensus Estimate for the current year has improved by 6.9% over the last 60 days. The stock has a Zacks Rank #2.
UnitedHealth Group Inc. (UNH - Free Report) : The stock provided a positive earnings surprise of 3.7% in the last four quarters. UnitedHealth has expected earnings growth of 26.3% for current year. The Zacks Consensus Estimate for the current year has improved by 0.8% over the last 60 days. The stock carries a Zacks Rank #2.
Caterpillar Inc. (CAT - Free Report) : The stock provided a positive earnings surprise of 31.8% in the last four quarters. Caterpillar has expected earnings growth of 67.7% for current year. The Zacks Consensus Estimate for the current year has improved by 7.5% over the last 60 days. The stock carries a Zacks Rank #2.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
See Them Free>>