After logging a record performance in October, stocks have continued to rise higher. Markets gained significantly on Monday and stuck to their winning ways on Tuesday.
Yesterday’s highlight was the remarkable performance of the Nasdaq 100. The index gained 0.3% yesterday to reach 4,719.05, breaching the previous high set during the dotcom bubble in 2000. The technology-heavy index had set a record closing high of 4,704.73 on Mar 27, 2000.
There are clear indications that markets may continue to move upward for the rest of the month. In this situation, betting on stocks which have made impressive price gains recently and have significant momentum may be a prudent move.
Economic Indicators Boost Broader Markets
Firstly, the index, which comprises the largest non-financial stocks listed on the Nasdaq Composite, has been lifted by broader market optimism. Construction spending increased 0.3% in September while the final Markit manufacturing PMI increased to 54.1, its highest level in six months.
Apart from positive economic indicators, familiar fears about the economic situation in China have eased following last month’s rate cut. Dovish signals from the European Central Bank have also boosted investor sentiment.
Tech, Healthcare Stocks on Upswing
Tech and healthcare stocks staged a spectacular rebound at the end of October, thanks to strong results from the likes of Alphabet Inc. GOOGL, Amazon.com, Inc. AMZN and Microsoft Corp. MSFT. Excellent earnings performance from Apple Inc. AAPL has pushed both the tech sector and broader markets higher.
Earnings results from key healthcare companies have aided the sector recovery. Healthcare stocks gained on Monday following news of a potential acquisition of Dyax Corp. DYAX by Shire plc SHPG. Shire declared that it will buy Dyax in an all-cash deal valued at $5.9 billion. Meanwhile, Pfizer PFE and Allergan AGN have made progress in their deal related discussions, according to Bloomberg.
Our Choices
While healthcare is on a rebound, it is the tech sector which has lifted the broader markets recently. This trend is likely to continue going forward, unless a December rate hike is announced. Even this is unlikely to faze investors, who may have already priced in such a situation.
There are some fears that the Nasdaq 100 may slide lower, given that it has exceeded its dotcom bubble levels. Though valuations are high, they are not even close to those witnessed at the time of the millennial crash. Additionally, yesterday’s intraday high of 4,735.31 was well short of the record intraday high of 4,816.35 attained on Mar 24, 2000.
This is why it may be a good idea to latch onto the index’s strong momentum and invest in some of its best performing stocks. Our selection in also backed by a good Zacks Momentum Score and Zacks Rank.
We narrowed down our choices with the help of our new style score system.
The Zacks Momentum Style Score indicates the perfect timing to grab a stock and take advantage of its momentum with the highest probability of success. Back-tested results show that stocks with Style Scores of 'A' or 'B,' when combined with a Zacks Rank #1 (Strong Buy) or #2 (Buy) handily outperform other stocks.
Texas Instruments Inc. TXN reported impressive third quarter earnings of 76 cents that sailed past the Zacks Consensus Estimate of 67 cents. Revenue of $3.43 billion beat the Zacks Consensus Estimate by 4.3%.
Texas Instruments has a Zacks Rank #1 (Strong Buy) and a Momentum Style Score of ‘A’. The company’s stock price has gained 14.2% over the last four weeks, higher than the industry average of 12.6%. Its earnings estimate for the current year has increased by 5.6% over the last 30 days, whereas the industry expects a decline of 0.1%.
Expedia Inc.’s EXPE shares have gained 6.6% in extended trading on Oct 29 despite disappointing earnings numbers. This is because the business continued to show strong growth prospects
Expedia has a Zacks Rank #2 (Buy) and a Momentum Style Score of ‘A.’ The company’s stock price has gained 8% over the last four weeks, higher than the industry average of 4.1%. Its earnings estimate for the current year has increased by 1.7% over the last 30 days, whereas the industry expects earnings to remain flat over the same period.
Amazon reported earnings of 17 cents in the third quarter while the Zacks Consensus had estimated a loss of 10 cents per share. The results were even more robust given Amazon’s loss of 95 cents per share in the year-ago quarter, hinting at the scale of improvement in the past one year.
Amazon has a Zacks Rank #2 (Buy) and a Momentum Style Score of ‘A.’ The company’s stock price has gained 22.4% over the last four weeks, exceeding the industry average of 4.1% by a wide margin. Its earnings estimate for the current year has increased by 13.6% over the last 30 days, whereas the industry expects earnings to remain flat over the same period.
Citrix Systems, Inc.’s CTXS third quarter earnings (excluding special items) came in at 87 cents per share, ahead of the Zacks Consensus Estimate by 20 cents and up 53% from the year-ago quarter. Higher-than-expected revenues contributed to this cloud computing company’s earnings beat.
Citrix Systems has a Zacks Rank #2 (Buy) and a Momentum Style Score of ‘A.’ The company’s stock price has gained 17.9% over the last four weeks, exceeding the industry average of 4.1% by a wide margin. Its earnings estimate for the current year has increased by 6.7% over the last 30 days, whereas the industry expects earnings to remain flat over the same period.
KLA-Tencor Corporation KLAC reported first quarter fiscal 2016 earnings of 71 cents a share, topping the Zacks Consensus Estimate of 56 cents by 26.8%.
KLA-Tencor has a Zacks Rank #2 (Buy) and a Momentum Style Score of ‘A.’ The company’s stock price has gained 32.6% over the last four weeks, exceeding the industry average of 5.9% by a wide margin. Its earnings estimate for the current year has increased by 5.6% over the last 30 days, whereas the industry expects a decline of 0.3%.
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