The major benchmarks are about to register this year’s best monthly performances for March after being beaten down in the first two months of 2016. The Dow, the S&P 500 and the Nasdaq added 7.3%, 6.8% and 6.8%, respectively, since Mar 1. Factors including an impressive rebound in oil prices, gradual reduction in rate hike fears and a recovery in domestic economic conditions boosted investors’ sentiment throughout this month.
Markets are expected to continue this positive trend in the coming month as these factors are likely to continue to boost investor confidence. Against this backdrop, investing in stocks that gained significantly over the past one-month period and have the potential to move further north over the next one month may prove to be profitable.
Factors Behind the March Surge
Rebound in Oil Prices
A strong recovery in crude prices since the second half of February emerged as one of the most important catalysts to the surge in markets over the past one-month period. While WTI crude surged 11.4% since Mar 1, Brent crude jumped 9.2% during the same period. Rising possibilities of a production freeze, a weaker-than-expected rise in crude inventories and a decline oil rig count played major roles in boosting oil prices in March.
The major oil producing companies will be meeting on Apr 17 to discuss an oil production freeze in order to boost oil prices. Meanwhile, Iran, which previously showed an unwillingness to enter into any such agreement, recently expressed interest in joining the meeting.
Moreover, the U.S. Energy Information Administration (EIA) reported on Wednesday that the U.S. commercial crude oil inventories rose 2.3 million barrels to 534.8 million for the week ended March 25. It was lower than an increase of 2.6 million barrels reported by the American Petroleum Institute (API) a day earlier.
Additionally, rigs engaged in exploration and production in the U.S. plunged by 12 units from the previous week to an all-time low of 464 during the week ended Mar 24, according to Baker Hughes Inc. BHI. Also, oil rig counts fell by 15 from the previous week to 372, which is well below the previous year’s rig count of 813.
Rate Hike Fears Reducing
In the latest two-day policy meeting, the Federal Open Market Committee (FOMC) decided to keep the interest flat between 0.25% and 0.50% and forecast that the number of rate hikes this year will be two instead of four as projected in its December meeting. FOMC highlighted "global and financial developments continue to pose risks," which remain one of the main reasons for the no rate-hike decision.
Separately, in a speech to the Economic Club of New York, Fed Chair Janet Yellen said that less favorable global economic and financial conditions “have increased the risks” to the Fed’s outlook. Given the risky outlook, she considers “it appropriate for the Committee to proceed cautiously in adjusting policy.” This further abated fears of an immediate rate hike.
Improving U.S. Economy
Recently released economic data indicated that the U.S. economy is on the path of gradual recovery. The U.S. Department of Commerce reported that the U.S. economy expanded at a rate of 1.4% in the fourth quarter of 2015 compared with the earlier estimate of a 1% rise. Strong labor market conditions, improving consumer sentiment and a recovering housing market played major roles in boosting the economy in recent times.
According to Automatic Data Processing, Inc. ADP, the economy generated 200,000 private jobs in March, in addition to 205,000 jobs added last month. While the economy got a boost from 242,000 job additions in February, unemployment remained in line with January’s rate of 4.9%, according to the Bureau of Labor Statistics.
Additionally, the Conference Board reported that the Consumer Confidence Index advanced to 96.2 in March from 92.2 in February, higher than the consensus estimate of 94.9. A steady increase in consumer spending was mainly behind the economy’s expansion in the fourth quarter. Moreover, pending home sales increased 3.5% from January to a seven-month high of 109.1 in February. The S&P/Case-Shiller Home Price Index revealed that the 20-City composite index rose 5.7% year over year in January with prices reaching its highest level since late 2007.
4 Top-Ranked Stocks to Buy
Given this favorable environment, we highlight four Zacks Rank #1 (Strong Buy) stocks with a VGM score ‘A’ that gained significantly gained over the past one-month period. VGM score is a weighted combination of Value, Growth and Momentum scores. Such a score allows one 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.
Express Inc. EXPR is a specialty retailer of women's and men's apparel in the United States. EXPR gained 20.6% in the past four weeks.
The company has a current year expected EPS growth rate of 16.6%, which is higher than the industry average of 11.7%. The earnings estimate for the current year increased by 7.9% over the last 30 days. It also has a price-to-earnings ratio (P/E) of 12.29, which is lower than the industry average of 16.23.
Thor Industries Inc. THO manufactures a wide range of recreational vehicles (RVs) at various manufacturing facilities located in Indiana and Ohio and sold through independent dealers in the U.S. and Canada. THO added 11.6% in the last four weeks.
The company has a current year expected EPS growth rate of 25.7%, which is higher than the industry average of 16.1%. The earnings estimate for the current year increased by 7.9% over the last 30 days. It also has a P/E of 12.97, which is lower than the industry average of 13.07.
MaxLinear, Inc. MXL is a provider of radio-frequency analog and mixed signal semiconductor SoC solutions for broadband communication applications throughout the globe. MXL gained 10.9% in the past four weeks.
The company has a current year expected EPS growth rate of 45.2%, which is significantly higher than the industry average of 6.7%. The earnings estimate for the current year increased by 36.5% over the last 30 days. It also has a P/E of 13.07, which is lower than the industry average of 21.21.
Insperity, Inc. NSP is engaged in providing an array of human resources and business solutions. NSP gained 7.8% in the past four weeks.
The company has a current year expected EPS growth rate of 53.8%, which is higher than the industry average of 18.3%. The earnings estimate for the current year increased by 30.3% over the last 30 days.
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