After a disappointing 2018, Wall Street has rebounded in January. Positive developments on trade war front, Fed’s dovish monetary stance and stabilization of oil prices acted as primary catalysts behind the stock market rally.
Consequently, it will be prudent to invest in those stocks which gained significantly in the last month with a favorable Zacks Rank and strong growth potential.
Best January in Three Decades
Since the beginning of 2019, stock market rally has had a sustained run in January except for some minor hiccups. All three major stock indexes gained significantly. The Dow advanced 7.2%, marking its best January since 1989. The S&P 500 gained 7.9%, its best performance in January since 1987. The Nasdaq Composite surged 9.7%, reflecting highest gain in January since 2001.
Positive Developments on Trade War Front
On Jan 31, President Donald Trump told reporters that he is hopeful of forging a deal with China before the March deadline. Notably, the two countries are currently observing a trade truce which will come to end on Mar 1. Moreover, CNBC reported citing sources that officials of the two countries are trying for a meeting between President Trump and his Chinese counterpart Xi Jinping in late February. This will be the second meeting between the two leaders in less than three months.
Temporary Removal of Partial Government Shutdown
The U.S. government has removed partial government shutdown temporarily which continued for a record high 35 days. The shutdown took place after the Democrat controlled U.S. House of Representative rejected President Trump’s request for the approval of $5 billion to fend the United States – Mexico border.
Several economists had warned that continuation of government shutdown will result in zero economic growth in the first quarter of 2019.
Fed to Remain Patient Regarding Monetary Policy
On Jan 30, the Federal Reserve decided to keep the federal funds target rate unchanged in the range of 2.25% – 2.50%. Fed Chairman Jerome Powell stated that the central bank will be patient while taking a call on future rate hike.
Instead of following a predetermined path, Fed will consider all economic parameters and market conditions carefully. The central bank’s bond portfolio reduction strategy will also consider macro-economic metrics and trade related disruptions, and is not on “autopilot”, as suggested by the Fed Chair in December.
Crude Oil Prices Stabilize
On Jan 31, the U.S. benchmark West Texas Intermediate (WTI) crude closed at $53.79 a barrel on the New York Mercantile Exchange. WTI crude price rose 18.5% in January, marking its best monthly gain since April 2016 and best January performance since 1984. On Jan 31, the global benchmark Brent crude closed at $61.89 a barrel on ICE Futures Europe. Brent crude price rose 15% in January, marking its best monthly gain since April 2016.
Decision by the OPEC and its allies to cut production 1.2 million barrels per day (bpd) in 2019 and supply disruption due to U.S. sanctions on Iran and Venezuela are the primary reasons for oil price stabilization.
Solid Fourth Quarter Earnings
As of Jan 29, 136 S&P S&P 500 index members have reported earnings results. These results already are up 12.6% from the same period last year on 5.9% higher revenues. Apple Inc. AAPL, The Boeing Co. BA and Facebook Inc. FB are some major companies which reported strong earnings results.
Our Picks
At this stage, investment in strong performers of January with a favorable Zacks Rank and strong growth potential will be lucrative. However, picking winning stocks may be difficult.
This is where our VGM Score comes in handy. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score.
We have narrowed our search on five such stocks each carrying a Zacks Rank #1 (Strong Buy) and VGM Score of either A. You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows price performance of our five picks in the last three months.
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Banco Macro S.A. BMA provides various banking products and services to individuals and corporate customers in Argentina. The stock price moved up 30.3% in last four weeks. The company has expected earnings growth of 22.8% for current year. The Zacks Consensus Estimate for the current year has improved by 7.5% over the last 60 days.
AdvanSix Inc. ASIX manufactures and sells polymer resins in the United States. The stock price moved up 25.2% in last four weeks. The company has expected earnings growth of 44.4% for current year. The Zacks Consensus Estimate for the current year has improved by 11.4% over the last 60 days.
Sotherly Hotels Inc. SOHO is a self-managed and self-administered lodging REIT focused on the acquisition, renovation, rebranding and repositioning of upscale to upper-upscale full-service hotels in the Southern United States. The stock price moved up 16.2% in last four weeks. The company has expected earnings growth of 9.7% for current year. The Zacks Consensus Estimate for the current year has improved by 2.7% over the last 60 days.
Rio Tinto plc RIO is a mining and metals company which explores, develops, produces and processes minerals and metals worldwide. The stock price moved up 16.5% in last four weeks. The company has expected earnings growth of 8.4% for current year. The Zacks Consensus Estimate for the current year has improved by 10.2% over the last 60 days.
Resources Connection Inc. RECN provides business consulting services under the Resources Global Professionals name in North America, Europe, and the Asia Pacific. The stock price moved up 18.7% in last four weeks. The company has expected earnings growth of 13% for current year. The Zacks Consensus Estimate for the current year has improved by 14.9% over the last 60 days.
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