Strong corporate results and data indicative of economic strength helped stocks move upward in April. These factors helped override the selloff in biotech and Internet stocks. With the exception of the Nasdaq, all indices gained over the month. The month’s performance was more or less similar to stock movements in March.
April’s Performance
The S&P 500 gained 0.6% and the Dow moved up 0.8% in April. However, intense selling pressure in biotech and Internet stocks dragged the Nasdaq down. The tech-heavy index declined significantly for the second consecutive month, by 2%. Incidentally, the Nasdaq has moved up 1% so far this week and the S&P 500 and Dow have each gained 0.8%
The S&P 500 and the blue-chip index ended in the green as investors received better-than-expected corporate earnings results. Also, encouraging economic data on factory activities, retail sales, domestic industrial production and durable goods helped the benchmarks finish higher.
A gauge of manufacturing sentiment in the Philadelphia region and an increase in Conference Board’s leading economic index also added to the bullish sentiment. New deals in the health care sector were also welcomed by the investors. Federal Reserve Chairwoman Janet Yellen’s assurance to keep the key interest rates low for some time was also well received by the investors.
GDP Data and the FOMC Policy Statement
At 0.1%, first quarter GDP growth was drastically lower than expected. Harsh winter weather was cited as the primary reason for slow growth in the first quarter. Economic activity is expected to pick up pace on the back of strong retail numbers and manufacturing data.
Meanwhile, the Federal Open Market Committee (FOMC) indicated that economic activity has picked up since its last meeting in March. The Federal Reserve said that despite harsh winter weather in January and February, the economy has recovered of late.
The FOMC’s policy statement also confirmed that the bond-buyback program will be brought down to $45 billion a month. The committee agreed to keep its federal funds rate low even after the end of the quantitative easing program in order to support the economy for some more time.
Earlier in April, the central bank had said the economic stimulus program may end this fall and the key lending rates will then be raised six months later. The central bank also mentioned that it will rely on a ‘wide range of information’ on jobs as well as inflation and not just the unemployment rate while deciding on raising interest rates.
3 Star Performers for April
I ran a screen on Research Wizard for companies with the following parameters:
(Click here to sign up for a free trial to the Research Wizard today):
- Percentage price change over the last 4 weeks greater than or equal to 20
- Forward price-to-earnings ratios (P/E) for the current financial year (F1) less than or equal to 25%. This picks out stocks that are good value choices
- Expected earnings growth for the current financial year greater than or equal to 20
- Zacks Rank less than or equal to 2: This ascertains stocks that have shown above-average returns over the last 26 years.
(See the performance of Zacks’ portfolios and strategies here: About Zacks Performance).
Here are the top 3 stocks among the 5 that made it through this screen:
Vertex Energy, Inc.
Vertex Energy, Inc. (VTNR) operates in the environmental services domain. The company specializes in recycling industrial waste streams and those commercial chemicals which are off-specification. It also operates as a consolidator, refiner, and re-refiner of petroleum streams in the United States.
Percentage price gain over the last 4 weeks = 33.28%
Expected earnings growth for FY2014 = 81.25%
Smart Technologies Inc. holds a Zacks Rank #1 (Strong Buy). The stock’s forward price-to-earnings Ratios (P/E) for the current financial year (F1) is 15.53.
Abraxas Petroleum Corp.
Abraxas Petroleum Corp. (AXAS) is an independent energy company engaged primarily in the acquisition, exploration, exploitation and production of crude oil and natural gas. It seeks to complement acquisition and development activities by selectively participating in exploration projects with experienced industry partners.
Percentage price change over the last 4 weeks = 32.66%
Expected earnings growth for FY2014 = 211.67%
Currently the company holds a Zacks Rank #2 (Buy) and has a P/E (F1) of 14.01.
Alliance Fiber Optic Products Inc.
Alliance Fiber Optic Products Inc. (AFOP) designs, manufactures and markets a broad range of high performance fiber optic components. AFOP's products are used by leading and emerging communications equipment manufacturers to deliver optical networking systems to the long-haul, enterprise, metropolitan and last mile access segments of the communications network.
Percentage price change over the last 4 weeks = 29.22%
Expected earnings growth for FY2014 = 42.7%
Besides a Zacks Rank #1 (Strong Buy), Alliance Fiber Optic Products Inc. has a P/E (F1) of 15.08.
The Momentum for These Stocks Remain
Despite the decline in GDP growth, the economy is expected to pick up momentum over the month. This has also been reflected in other economic reports released recently. Only the Nasdaq continues to play spoilsport, given the selloff in bio-tech and Internet stocks.
In this context, the fact that the best performing stocks for the month belong to other industry groups comes as no surprise. Going forward the reasonably low price to earnings ratios and top Zacks rank make these stocks good additions to your portfolios.
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