After rallying for four months, following the exit from the coronavirus-induced short bear market in April, Wall Street ended the first week of August on a positive note. The market's impressive rally is not out of logic.
First, a series of economic data for the second quarter of 2020 (April to June) indicated that the fundamentals of the U.S. economy remained stable and the pandemic-led economic devastations were not as severe as initially feared.
Second, a few important economic data for July, released so far, reflect that the economy is maintaining its foothold even in the face of the second wave of the coronavirus pandemic.
Solid Economic Data for July
On Aug 7, the Department of Labor reported that non-farm payrolls increased by 1.763 million in July compared with the consensus estimate of an increase of 1.525 million. The U.S. economy added 9.3 million jobs in the last three months and the total employment level remained 12.9 million below its February level. The unemployment rate was 10.2% in July, down from 11.1% in June. The consensus estimate was 10.4%.
On Aug 6, the Department of Labor reported that weekly jobless claims came in at 1.186 million for the week ended Aug 1 compared with 1.435 million in the previous week. This marked the lowest level of initial claims since the pandemic hit. Moreover, continuing claims — those who have collected benefits for two straight weeks — dropped by 844,000 to 16.1 million.
On Aug 5, the Institute for Supply Management reported that the U.S. services (nonmanufacturing) purchasing managers' index (PMI) for July came in at 58.1 compared with 57.1 in June. The consensus estimate was 55. Notably, any reading above 50 indicates an expansion in services activities.
Furthermore, 15 of the 18 industries tracked by ISM expanded in July. The ISM reported that services production increased to 67.2 in July from 66 in June. Meanwhile, services orders rose to 67.6 in July from 61.6 in June.
On Aug 4, the Department of Commerce reported that sales of domestic vehicles grew to 11.2 million in July from 9.6 million in June. Total vehicle sales rose to 14.5 million in July from 13.1 million in June. The consensus estimate was 14 million.
On Aug 3, the ISM reported that the U.S. manufacturing PMI for July came in at 54.2, its highest reading since March 2019. The consensus estimate was 53.5 while June's PMI was 52.6. Notably, any reading above 50 indicates expansion in manufacturing activities.
Moreover, a manufacturing uptrend was noted for the third consecutive month in July after the index touched an 11-year low of 41.5% in April. Furthermore, 13 of the 18 industries tracked by ISM expanded in July. Notably, the manufacturing sector constitutes 12% of the U.S. GDP.
The ISM reported that manufacturing production jumped to 62.1 in July from 57.3 in June. July's reading was the highest since August 2018 buoyed by the reopening of more factories. Meanwhile, manufacturing orders climbed to 61.5 in July from 56.4 in June, marking the highest level since September 2019.
Our Top Picks
At this stage, it will be prudent to invest in stocks with strong growth potential and robust earnings estimate revisions in the past 7 to 30 days that have also skyrocketed in the past month. Growth investors are primarily focused on stocks with aggressive earnings or revenue growth, which should propel their prices higher in the future.
We have narrowed down our search to five such stocks each having a Zacks Rank #1 (Strong Buy) and Growth Score A. 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 the past month.
M/I Homes Inc. MHO operates as a builder of single-family homes in the United States. It operates through four segments: Midwest Homebuilding, Southern Homebuilding, Mid-Atlantic Homebuilding and Financial Services.
The company has an expected earnings growth rate of 36.7% for the current year. The Zacks Consensus Estimate for the current year has improved by 91.2% over the past 30 days. The stock price has jumped 29.1% in the past month.
Ultra Clean Holdings Inc. UCTT designs, develops, prototypes, engineers, manufactures, and tests production tools, modules and subsystems for the semiconductor and display capital equipment industries primarily in North America, Asia, and Europe.
The company has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for its current-year earnings has risen 66.9% over the past 30 days. The stock price has climbed 23.7% in the past month.
TRI Pointe Group Inc. TPH is engaged in the design, construction and sale of single-family detached and attached homes in the United States. The company has an expected earnings growth rate of 12.2% for the current year. The Zacks Consensus Estimate for the current year has improved by 32% over the past 30 days. The stock price has surged 18.3% in the past month.
Boise Cascade Co. BCC manufactures wood products and distributes building materials in the United States and Canada. It operates in two segments, Wood Products and Building Materials Distribution.
The company has expected earnings growth of 59.8% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 35.2% over the past 30 days. The stock price has appreciated 17.8% in the past month.
Evoqua Water Technologies Corp. AQUA provides a range of water and wastewater treatment systems and technologies and mobile and emergency water supply solutions. It operates in two segments: Integrated Solutions & Services and Applied Product Technologies.
The company has expected earnings growth of 96.6% for the current year (ending September 2020). The Zacks Consensus Estimate for current-year earnings has improved by 26.7% over the past 30 days. The stock price has advanced 16.2% in the past month.
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>
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Ultra Clean Holdings, Inc. (UCTT) : Free Stock Analysis Report
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