Wall Street has entered the second half of 2020 with lot of vigor after completing a fabulous second quarter. Last quarter, a new bull market developed exiting the coronavirus-induced short bear market. Since then, the bulls are raging forward, establishing record after record.
However, year to date, the market is yet to fully recover from the pandemic-led devastations. Out of the three major stock indexes, only Nasdaq Composite is currently in positive territory. The tech-laden index is up 13.2% so far. On the other hand, both the blue-chip Dow and the market's benchmark the S&P 500 are down 9.8% and 3.6%, respectively, year to date.
Meanwhile, a handful of corporate behemoths (market capital > $100 billion) has provided double-digit returns so far this year, defying the outbreak of the deadly virus. Some of these stocks carry a favorable Zacks Rank and have rallied more than 20% year to date.
No More Full Lockdowns
All 50 states reopened in some form in the last week of May. However, as many as 24 states have reported a second wave of coronavorus infections as they relaxed social distancing norms. Moreover, 12 states have again closed some parts of the economy.
Despite this, a full lockdown is not likely to be imposed again. The Trump administration is in no mood to for a second lockdown. Furthermore, several large Eurozone economies, Asia giants and various important emerging economies are also facing the second wave of the deadly virus. But none of these countries have decided to re-impose full lockdowns.
The U.S. government has injected around $3 trillion in fiscal stimulus into the economy and the Federal Reserve has injected another $7 billion of monetary stimulus. The benchmark interest rate was kept as low as 0-0.25% and is likely to remain so till 2022.
On Jun 16, Bloomberg reported that the Trump administration is preparing a $1 trillion infrastructure project including construction of roads, bridges, 5G wireless networks and rural broadband. On Jun 30, President Donald Trump said that he supports another round of direct payments to Americans.
Better-Than-Expected Economic Data
Better-than-expected economic data of May and June, despite the fact that the aggregate economy is still way below its pre-lockdown level of activities, have shown fundamental stability of the U.S. economy.
The Department of Commerce reported that U.S. consumer spending jumped 8.2% in May, the largest monthly increase since early 1959. The Trump administration's decision to give unemployment insurance and stimulus checks for retirees greatly helped in reviving consumer spending, which constitutes around 68% of the U.S. GDP. Impressive job additions in May, a jump in retail sales and a quickly recovering housing market clearly indicate that consumer spending is gaining momentum.
The Institute of Supply Management reported that the U.S. manufacturing purchasing managers index jumped to 52.6% in June from 43.1% in May. Any reading above 50 means expansion in U.S. manufacturing, which constitutes 12% of the GDP. The Conference Board's consumer confidence index for June climbed to 98.1 in June from 85.9 in May.
Our Top Picks
We have narrowed down our search to five corporate behemoths that have rallied more than 20% year to date. These stocks have strong long-term (3-5 years) earnings growth potential and witnessed robust earnings estimates revisions in the last 60 days. Each of our picks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The chart below shows the price performance of our five picks year to date.
Tesla Inc. TSLA has acquired a substantial market share within the electric car segment. Strong performance and impressive design of the firm’s products are ramping up sales volumes. Increasing Model 3 delivery, which forms a major chunk of the automaker’s overall deliveries, is aiding the company’s top-line. Along with Model 3, Model Y is set to boost its prospects, going forward.
The company has an estimated long-term earnings growth rate of 40.1%. The Zacks Consensus Estimate for current-year earnings has improved by 0.7% over the past 60 days. The stock has soared 167.6% year to date.
NVIDIA Corp. NVDA is gaining decent market share among gaming service providers. The strong line-up of advanced graphics cards has made it a favorite graphics card provider among PC makers. Its foray into the autonomous vehicles space is a major positive. NVIDIA’s GPUs are rapidly gaining from the proliferation of artificial intelligence.
The company has an estimated long-term earnings growth rate of 16.9%. The Zacks Consensus Estimate for current-year earnings has improved by 4.9% over the past 60 days. The stock has jumped 62% year to date.
Amazon.com Inc.'s AMZN flagship Amazon Web Services (AWS) has become a dominant name in the cloud-computing market. The expanding customer base of AWS will continue to aid the company’s dominance in the global cloud space. Its current focus is on building video content, primarily for Prime subscribers because growth prospects in that market are ample.
The company has an estimated long-term earnings growth rate of 24.5%. The Zacks Consensus Estimate for current-year earnings has improved by 0.4% over the past 7 days. The stock has climbed 55.8% year to date.
T-Mobile US Inc. TMUS has officially closed its long-pending merger with Sprint on Apr 1 to create a new wireless giant that rivals AT&T and Verizon in terms of subscribers. The deal, which allows T-Mobile and Sprint to join their high- and low-band spectrum for a faster nationwide 5G rollout, will undeniably disrupt the competitive landscape of the U.S. telecom market.
The company has an estimated long-term earnings growth rate of 23%. The Zacks Consensus Estimate for current-year earnings has improved by 0.7% over the past 30 days. The stock has rallied 35.3% year to date.
Eli Lilly and Co. LLY has a strong portfolio of medicines to treat diabetes that includes drugs like Tradjenta, Jardiance, Trulicity, Synjardy, Synjardy XR, Glyxambi, Basalgar and Humalog U-200 KwikPen. It is also developing an automated insulin delivery system (phase II) to automate insulin dosing in type I diabetes in order to make diabetes management easier.
The company has an estimated long-term earnings growth rate of 15.8%. The Zacks Consensus Estimate for current-year earnings has improved by 0.1% over the past 60 days. The stock has surged 24.2% year to date.
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