The U.S. stock markets witnessed a broad-based decline in September. Although historically September is the worst-performing month on Wall Street, this year it was the most disastrous in a decade.
Mounting inflation across the world, rigorous interest rate hike and an ultra-hawkish monetary policy taken by the Fed and massive turbulence in global financial markets due to the soaring U.S. dollar were primary reasons for this pathetic performance.
The three major stock indexes – the Dow, the S&P 500 and the Nasdaq Composite – plummeted 8.8%, 9.3% and 10.5%, respectively, in September. The S&P 500 posted its worst monthly decline since March 2020. These three indexes incurred losses for three-straight weeks.
In the third quarter, the Dow, the S&P 500 and the Nasdaq Composite – tumbled 6.7%, 5.3% and 4.1%, respectively. The Dow suffered three straight quarters of losses for the first time since 2015. Both the S&P 500 and the Nasdaq Composite recorded losses in three consecutive quarters for the first time since 2009.
Wall Street Starts October on Positive Note
In the first two trading days of October, the Dow, the S&P 500 and the Nasdaq Composite –rallied 5.5%, 5.7% and 5.6%, respectively. The yield on the benchmark 10-Year U.S. Treasury Note dropped sharply to around 3.7%. The yield was more than 4% in the last week, marking its highest in more than a decade.
The ICE U.S. Dollar Index (DXY), which measures the greenback’s strength against a basket of six major currencies, came down to around 110. Last week the index reached above 114, its highest in 20 years.
Moreover, after the World Bank and the IMF, the UNCTAD – a United Nation agency – has warned major central banks, especially the Fed, that the rigorous interest rate hike and continuation of tighter monetary control will lead to a devastating global economic recession in late 2022 or in early 2023.
Recently, released economic data such as the ISM manufacturing index, job openings data, factory orders and construction spending have shown that the U.S. economy is cooling.
We are still not out of the woods. After the September FOMC meeting, Fed Chairman Jerome Powell said that the central bank will continue with tighter monetary policies so long the inflation rate drops to near the Fed’s target rate of 2%. Powell’s statement indicated that no rate cut can be expected before 2024.
A large section of economists and financial analysts are currently adjusting the cost of imminent inflation in the market’s valuation. The Fed has also warned of economic hardship going forward.
Our Top Picks
Despite these headwinds, several good stocks are available for investment. We have applied our VGM Style Score to narrow the search. We have narrowed our search to five U.S. corporates that have strong growth potential for the rest of 2022. These stocks have seen positive earnings estimate revisions in the past 60 days. Finally, each of our picks carries a Zacks Rank #1 (Strong Buy) and a VGM Score of A or B. 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
HF Sinclair Corp. DINO operates as an independent energy company. DINO produces and markets gasoline, diesel fuel, jet fuel, renewable diesel, specialty lubricant products, specialty chemicals, specialty and modified asphalt, and others.
HF Sinclair also owns and operates refineries located in Kansas, Oklahoma, New Mexico, Utah, Washington, and Wyoming. DINO markets its refined products principally in the Southwest United States and the Rocky Mountains, Pacific Northwest, and other neighboring Plains states.
HF Sinclair has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 7.1% over the past 30 days.
BJ's Wholesale Club Holdings Inc. BJ’s ability to steer the tough retail environment validates its strong customer value proposition and business model. BJ’s relentless efforts to boost its membership base, simplify assortments, enhance digital capabilities and accelerate club openings should support sales. We foresee sustained improvement in membership fee income as new club openings ramp up.
Markedly, BJ's Wholesale Club’s acquisition of the perishable supply chain from Burris Logistics puts it in an advantageous position to scale up supply chain capabilities and expand fresh food offerings. A jump of 6% in member count in the second quarter speaks of BJ’s ability to drive traffic. We estimate a 14.3% and 7.1% increase in total revenues in fiscal 2022 and 2023, respectively.
BJ's Wholesale Club has an expected earnings growth rate of 10.5% for the current year (ending January 2023). The Zacks Consensus Estimate for current-year earnings has improved 8.5% over the past 60 days.
Builders FirstSource BLDR manufactures and supplies building materials, manufactured components, and construction services to professional homebuilders, sub-contractors, remodelers, and consumers in the United States. Builders FirstSource operates through four segments: Northeast, Southeast, South and West.
Builders FirstSource benefits from its focus on cost synergies, strategic acquisition, and robust demand arising from solid housing and repair & remodeling activities. BLDR continues to focus on investing in innovations and enhancing digital solutions for its customers.
Builders FirstSource has an expected earnings growth rate of 53.7% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 8.3% over the past 60 days.
Targa Resources Corp. TRGP boasts an attractive portfolio of energy infrastructure assets, including a leading position in the Mont Belvieu NGL hub that generates stable and recurring fee and tariff-based revenues. TRGP is well-diversified geographically with its assets serving some of the most attractive oil and gas formations across the United States, and linked with major NGL hubs and logistics centers.
TRGP’s integrated business model and downstream presence offers an attractive upside opportunity compared to most of its peers. Moreover, Targa Resources’ sizeable presence in the booming Permian Basin enhances its growth potential. Another plus is that TRGP is largely immune to commodity price fluctuations.
Targa Resources has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 11.2% over the past 60 days.
Chesapeake Energy Corp. CHK is an independent exploration and production company, engaged in the acquisition, exploration, and development of properties for the production of oil, natural gas, and natural gas liquids from underground reservoirs in the United States.
CHK holds interests in natural gas resource plays in the Marcellus Shale in the northern Appalachian Basin in Pennsylvania, the Haynesville/Bossier Shales in northwestern Louisiana, and the liquids-rich resource play in the Eagle Ford Shale in South Texas.
Chesapeake Energy has an expected earnings growth rate of 46.1% for next year. The Zacks Consensus Estimate for next-year earnings has improved 11.5% over the past 30 days.
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