After an exponential rise for more than five months in a row, Wall Street is on a correction mode in September. Intraday volatility has jumped this month. Notably, CBOE VIX — the best fear gauge of Wall Street — is already on a northbound trajectory.
Nevertheless, the fundamentals of the U.S. economy remain stable. After a resurgence of coronavirus infections, it seems that new COVID-19 cases have stabilized in the United States. The reopening of the economy will limit the stock market's downside potential irrespective of the fact that recent fluctuations may persist for a few more days. As more parts of the economy reopen, the level of activities will systematically move toward the pre-pandemic level.
At this juncture, it makes good sense to buy those stocks on the dip that could prove to be valuable once the rally resumes.
Reasons for Recent Volatility
First, the technology sector pulled down the overall market in September after being the predominant driver of the impressive showing over the last five months. However, in the due course of the market's V-shaped recovery, technology stocks got overvalued, as stated by many financial experts. The technology sector tumbled 11% in the last 10 trading days.
Second, the Fed has provided a grim outlook for the U.S. economy in 2020 which was the primary driver to pursue an ultra-dovish monetary stance. Although the continuation of the zero or near-zero benchmark interest rate least up to 2023 will be a long-term positive for the market, the Fed Chairman Jerome Powell also said "overall activity remains well below its level before the pandemic and the path ahead remains highly uncertain."
Third, a delay in the second round of fiscal stimulus has started showing its effects in economic data like job data, retail sales, housing data and consumer confidence. Market participants are concerned that the pace of the economic recovery might have lost momentum. The first trench of stimulus in which $600 per week per individual unemployment benefit was provided along with massive support to the small business segment, ended in July.
On Sep 17, President Donald Trump has supported a $1.5 trillion stimulus package unveiled by a bipartisan group of 50 House lawmakers — 25 from each party. However, Congress is yet to take any decision on the new proposal.
Fourth, conflicting news are appearing on the coronavirus treatment front. On Sep 16, President Trump said that his administration is planning to distribute vaccine for COVID-19 since mid-October or a little later. However, earlier that day, Dr. Robert Redfield, the Director of Centers for Disease Control and Prevention told Congress under oath that a vaccine may not be available to the general public until next year.
Our Top Picks
At this stage, investors should be prepared to minimize fluctuations in their portfolio and consequently rebalance it with suitable financial assets to maintain stability. Thus, it would be prudent to pick up value stocks with a favorable Zacks Rank.
We have narrowed down our search to five stocks. Each of them carries a Zacks Rank #1 (Strong Buy) and a Value Score of 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 three months.
Hibbett Sports Inc. HIBB is engaged in the retail of athletic-inspired fashion products through its stores. Its stores offer a range of merchandise, including athletic footwear, athletic and fashion apparel, sports equipment, and related accessories. It operates in two segments, Lawson and Bolt.
The forward price-to-earnings ratio (P/E) for the current financial year is 9.1X, lower than the industry average of 13X. It has a PEG ratio of 1.4, lower than the industry average of 3.3. The Zacks Consensus Estimate for the current-year earnings has improved 48.1% over the last 30 days. The stock price has jumped 93.2% in the past three months.
Aaron's Inc. AAN operates as an omnichannel provider of lease-purchase solutions to underserved and credit-challenged customers. It operates in three segments: Progressive Leasing, Aaron's Business, and DAMI.
The forward P/E for the current financial year is 12.5X, lower than the industry average of 15X. It has a PEG ratio of 0.8, lower than the industry average of 1.2. The Zacks Consensus Estimate for the current-year earnings has improved 15.4% over the last 7 days. The stock price has soared 30.8% in the past three months.
General Motors Co.'s GM strong demand for profitable trucks and SUVs is aiding the company's revenues. Its hot-selling brands in the United States like Chevrolet Silverado, Equinox and GMC Sierra are also driving the top line..
The forward P/E for the current financial year is 13X, lower than the industry average of 27.4X. It has a PEG ratio of 1.5, lower than the industry average of 4.2. The Zacks Consensus Estimate for the current-year earnings has improved 61.6% over the last 60 days. The stock price has climbed 17.9% in the past three months.
WESCO International Inc. WCC distributes electrical, industrial, and communications maintenance, repair and operating and original equipment manufacturers products and construction materials in North America and internationally.
The forward P/E for the current financial year is 9.2X, lower than the industry average of 12.4X. It has a PEG ratio of 0.9, lower than the industry average of 1. The Zacks Consensus Estimate for the current-year earnings has improved 11.5% over the last 30 days. The stock price has surged 17.1% in the past three months.
Zumiez Inc. ZUMZ operates as a specialty retailer of apparel, footwear, accessories, and hardgoods for young men and women. Its hardgoods include skateboards, snowboards, bindings, components, and other equipment.
The forward P/E for the current financial year is 12.5X, lower than the industry average of 31.3X. It has a PEG ratio of 0.9, lower than the industry average of 2.2. The Zacks Consensus Estimate for the current-year earnings has improved 37.2% over the last 7 days. The stock price has advanced 10.1% in the past three months.
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 >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
WESCO International, Inc. (WCC) : Free Stock Analysis Report
Aarons, Inc. (AAN) : Free Stock Analysis Report
General Motors Company (GM) : Free Stock Analysis Report
Hibbett Sports, Inc. (HIBB) : Free Stock Analysis Report
Zumiez Inc. (ZUMZ) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research