The United States and several other important countries across the world are currently assessing the magnitude and scale of a possible second surge of coronavirus. Meanwhile, a series of important economic data released in May and June so far, clearly indicates that the U.S. economy has already bottomed out and the worst is behind us.
Better-than-expected data, despite the fact that the economy started reopening in the last week of May and the aggregate economy is still way below its pre-lockdown level of activities, have shown fundamental stability of the U.S. economy.
Encouraging Economic Data
May's job additions recorded a historic high of 2.5 million and unemployment rate dropped to 13.3% from 14.7% in April. Although, unemployment rate remained well above the pre-coronavirus level of 3.5%, the metric is likely to drop sharply as economic activities gather more pace. Notably, for the week ended Jun 6, initial jobless claims declined for 10th consecutive week from its peak recorded in the last week of March.
Retail sales in May jumped 17.7%, its highest since October 2001 and surpassed the consensus estimate of 8.2%. Excluding volatile auto sales, core retail sales climbed 12.4%, its highest gain since 1967.
U.S. housing starts grew 4.3% in May and building permits increased by 14.4% to an annualized pace of 1.22 million. Moreover, the National Association of Home Builders/Wells Fargo Housing Market Index has revealed that builder sentiment jumped an astonishing 21 points in June to 58, the largest monthly increase ever.
Impressive job additions, a jump in retail sales and a quickly recovering housing market clearly indicate that consumer spending, which constitutes nearly 68% of the U.S. economy is gaining momentum.
Furthermore, increase in the ISM manufacturing index in May and industrial production data of last month are showing that the sagging U.S. manufacturing sector, which generates around 12% of the GDP, is slowly returning to its own track.
Skyrocketing Stimulus Create Strong Pent-Up Demand
The U.S. government has injected around $3 trillion in fiscal stimulus into the economy to give unemployment insurance and stimulus checks for retirees as well as a massive $800 billion restructuring package to small businesses.
On Jun 16, Bloomberg reported that the Trump administration is preparing a $1 trillion infrastructure project including construction of roads, bridges, 5G wireless networks and rural broadband.
Federal Reserve’s balance sheet skyrocketed to $7.21 trillion as of Jun 3 as it poured money into the economy. On Jun 15, the Fed expanded the scope of its $750 billion emergency corporate debt loan facility to buy individual corporate bonds that have remaining maturities of five years or less in the secondary market.
The Fed further initiated a lending program of up to $600 billion to small and mid-sized businesses. The central bank will encourage retail banks to lend to struggling companies and will purchase 95% of each loan extended under the facility. Moreover, the benchmark interest rate has been reduced to the range of 0%-0.25% and is likely to stay within it till 2022.
Our Top Picks
At this stage, when the U.S. and important global economies are reopening in a phased manner, it would be prudent to invest in stocks with a favorable Zacks Rank, strong growth potential and robust earnings estimate revision.
We have narrowed down our search to five stocks with a Growth Score of A. Each of our picks carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our five picks in past month.
Zoom Video Communications Inc. ZM provides a video-first communications platform worldwide. It is a major gainer of the coronavirus-induced remote working trend. Demand for its platform and solutions is expected to remain robust as some form of social distancing will be required until a vaccine or any effective treatment for coronavirus is developed.
The company has an expected earnings growth rate of 237.1% for the current year (ending January 2021). The Zacks Consensus Estimate for current-year earnings has improved by 174.4% over the past 30 days.
Sprouts Farmers Market Inc. SFM is a healthy grocery store that provides fresh, natural and organic food products in the United States. It has a unique model that features fresh produce at the center of the store, an expansive bulk food section and a vitamin department focused on overall wellness.
The company has an expected earnings growth rate of 33.6% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 3.1% over the last 30 days.
BJ's Wholesale Club Holdings Inc. BJ is an operator of membership warehouse clubs primarily in East United States. It operates clubs and BJ's Gas locations in several states. The company has an expected earnings growth rate of 51.4% for the current year (ending January 2021). The Zacks Consensus Estimate for current-year earnings has improved 27.8% over the last 30 days.
Big Lots Inc. BIG is a broad-line closeout retailer in the United States. It offers products under various merchandising categories, which include Food, Consumables, Furniture, Seasonal, Soft Home, Hard Home, Electronics and Toys & Accessories. The company has an expected earnings growth rate of 21% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 54.2% over the last 30 days.
The Kroger Co. KR operates as a retailer in the United States. It operates supermarkets, multi-department stores, marketplace stores and price impact warehouse stores. The company has an expected earnings growth rate of 22.3% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 8% over the last 7 days.
Zacks’ Single Best Pick to Double
From thousands of stocks, 5 Zacks experts each picked their favorite to gain +100% or more in months to come. From those 5, Zacks Director of Research, Sheraz Mian hand-picks one to have the most explosive upside of all.
This young company’s gigantic growth was hidden by low-volume trading, then cut short by the coronavirus. But its digital products stand out in a region where the internet economy has tripled since 2015 and looks to triple again by 2025.
Its stock price is already starting to resume its upward arc. The sky’s the limit! And the earlier you get in, the greater your potential gain.
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