The third and final data for real gross domestic product (GDP) is out and affirms that not only is the U.S. economy firmly on its recovery path, but that it also has enough steam to carry the momentum into 2015. And this pace will be sustained in spite of the sub-par outlook on its trading partners in Europe, Japan and China.
The economy grew at its fastest rate since the third quarter of 2003 and gave the market sufficient impetus with benchmarks settling in the green. The Dow Jones Industrial Average gained 0.4% to close at 18,024.17 and the Standard & Poor’s 500 rose 0.2% to close at 2,082.17 yesterday. This sounds as a Christmas bonus for investors.
The economy registered growth of 5% during the third quarter of 2014, according to the “advance estimate” by the Bureau of Economic Analysis. The rate fared better than the second and first projections of 3.9% and 3.5% increase, respectively. Higher business investment and export along with improved consumer spending laid the foundation for a strong GDP.
Gradual recovery in the housing market, strengthening manufacturing sector, improving labor market and falling gasoline prices also favored the economy. Consequently, the economy returned to the growth trajectory in the second quarter, when it increased 4.6%, after falling 2.1% in the first quarter due to inclement weather conditions.
The Federal Reserve found this bullishness a good reason to conclude its monthly bond buying campaign, and is now contemplating on raising interest rates. Analysts, however, still believe that the Fed will not be in any rush to increase the near-zero interest rate for fear of derailing the much-awaited recovery with a sudden rise. Market experts see the encouraging economic data finding reflection in interest rates sometime in mid-2015.
Consumer confidence – a key determinant of economic health – also improved significantly, reaching the pinnacle this December. The data released by the University of Michigan and Thomson Reuters showed that the consumer sentiment index buoyed up to 93.6 in December from the November reading of 88.8, and was at its highest since Jan 2007.
As many as 321,000 jobs were created in November, and the unemployment rate is lingering around 5.8%, its lowest level in six years, according to the Bureau of Labor Statistics. The strong jobs report confirms that the U.S. economy’s fundamentals are strong enough to sustain the momentum. And we expect this positive sentiment to encourage consumer spending, which accounts for over two-thirds of U.S. economic activity. The Commerce Department revealed that consumer spending increased 3.2% in the third quarter from the initial estimate of 2.2%.
With the economy in high gear, we could witness more upbeat numbers in the upcoming quarter. This definitely is time to enrich your portfolio with a favorably ranked stock powered by the optimism of an earnings beat before the earnings season kicks off. This increases your chance of getting higher returns.
Profitable Mix: Favorable Zacks Rank + Positive Earnings ESP
A favorable rank indicates positive estimate revisions by analysts who are optimistic on the future of companies. Moreover, Earnings ESP is our proprietary methodology for identifying stocks that have the best chance to surprise with their next earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.
Here, we have identified 3 stocks with an impressive Zacks Rank, positive Earnings ESP and long-term EPS growth rate of above 10%.
Prominent Picks
Intercontinental Exchange, Inc. (ICE) is a Zacks Rank #1 (Strong Buy) stock having an Earnings ESP of +1.19%. The current Zacks Consensus Estimate for fourth-quarter 2014 is $2.53 per share, portraying 26.5% growth from the prior-year period. This Atlanta-based operator of a network of regulated exchanges and clearing houses for financial and commodity markets in the U.S., registered an average positive earnings surprise of 2.7% over the trailing four quarters, and has a long-term earnings growth rate of 14.9%. The company is expected to report on Feb 5, 2015.
L Brands, Inc. (LB) is a Zacks Rank #2 (Buy) stock having an Earnings ESP of +3.47%. The current Zacks Consensus Estimate for the fourth quarter fiscal 2014 is $1.73 per share, which indicates an increase of 4.8% year over year. This Columbus, Ohio-based specialty retailer of women’s intimate and other apparel registered an average positive earnings surprise of 4.5% over the trailing four quarters, and has a long-term earnings growth rate of 12.2%. The company’s earnings are expected to be released on Feb 25.
Best Buy Co., Inc. (BBY) is a Zacks Rank #2 (Buy) stock with an Earnings ESP of +9.85%. The current Zacks Consensus Estimate for the fourth quarter of fiscal 2015 is pegged at $1.32 per share, reflecting an increase of 6.3% year over year. This Richfield, Minnesota-based multi-channel retailer of technology products registered an average positive earnings surprise of 41.6% over the trailing four quarters, and has a long-term earnings growth rate of 15%. The company is expected to report on Mar 3, 2015.
Bottom Line
Who doesn’t want a portfolio of stocks that have the potential to outperform and beat earnings estimate? You can use Zacks Stock Screener to find other stocks with this winning combination.
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