Wall Street witnessed a strong rally in July recording its best month since November 2020. The bull run is likely to continue in August supported by better-than-expected second quarter earnings results and solid economic data. These two positives have eased to some extent the growing concern of a near-term recession.
At this stage, it should be prudent to invest in growth stocks with a favorable Zacks Rank. Growth investors are primarily focused on stocks with aggressive earnings or revenue growth, which should propel their stock price higher in the future. Five such stocks are - Cadence Design Systems Inc. CDNS, Exxon Mobil Corp. XOM, HF Sinclair Corp. DINO, Marathon Petroleum Corp. MPC and Valero Energy Corp. VLO.
Rally Likely to Continue
Recently, released several economic data for June and July have reaffirmed the stability of the U.S. economy. ISM manufacturing Index and services index for July surpassed the consensus estimate. These indicate an improving economy with growing consumer demand.
Retail sales in June surged unexpectedly and factory orders beat the consensus mark. Personal spending, the largest driver of the U.S. economy, climbed in June. Mortgage Bankers Association reported that total mortgage demand increased 1.2% last week buoyed by the largest weekly drop in the average 30-year fixed mortgage rate. This was the first increase since the week ended Jun 24.
Moreover, we are in the middle of the second quarter 2022 earnings season. So far, earnings results have come in better than expected and corporate America is yet to reveal any major signal regarding a near term recession.
As of Aug 3, before the opening bell, 357 companies within the S&P 500 Index reported their financial numbers. Total earnings of these companies are up 7.3% year over year on 14.7% higher revenues, with 77.3% beating EPS estimates and 66.7% beating revenue estimates.
Our latest projection is that for the second quarter as a whole, total earnings of the S&P 500 Index will rise 6.3% year over year on 13.2% higher revenues. These show a notable improvement over 2.1% growth in earnings year over year on 9.7% higher revenues estimated at the beginning of the reporting cycle.
Our Top Picks
We have narrowed our search to five large-cap (market capital > $10 billion) growth stocks that have solid upside left for the rest of 2022. These stocks have also witnessed positive earnings estimate revisions in the last 30 days. Each of our picks carries a Zacks Rank #1 (Strong Buy) and has a 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 three months.
Image Source: Zacks Investment Research
Cadence Design Systems offers products and tools that help customers design electronic products. Through the System Design Enablement strategy, CDNS offers software, hardware, services and reusable IC design blocks to electronic systems and semiconductor customers.
Cadence’s performance is being driven by strength across segments like digital & signoff solutions and functional verification suite. CDNS is also gaining from higher investments in emerging trends like IoT and autonomous vehicle sub-systems along with strength in the semiconductor end-market. Frequent product launches are expected to help CDNS sustain top-line growth.
Cadence Design Systems has an expected earnings growth rate of 24.9% for the current year. The Zacks Consensus Estimate for current-year earnings improved 5.7% over the last 30 days.
Exxon Mobil made multiple world-class oil discoveries at the Stabroek Block, located off the coast of Guyana. XOM raised the estimate for discovered recoverable resources from the Stabroek Block to approximately 10 billion oil-equivalent barrels. The WTI crude oil price is hovering around $100 per barrel. The price is likely to remain elevated as the Russia-Ukraine clash continues.
Exxon Mobil’s bellwether status and an optimal integrated capital structure, which have historically led to industry-leading returns, make it a relatively lower-risk energy sector play. The integrated oil behemoth expects to reduce greenhouse gas emissions by 30% in its upstream business. By then, XOM expects to reduce flaring and methane emissions by 40%.
Exxon Mobil has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 2% over the last 7 days.
HF Sinclair operates as an independent energy company. DINO produces and markets gasoline, diesel fuel, jet fuel, renewable diesel, specialty lubricant products, specialty chemicals, specialty and modified asphalt, and others.
HF Sinclair also owns and operates refineries located in Kansas, Oklahoma, New Mexico, Utah, Washington, and Wyoming, and markets its refined products principally in the Southwest United States and Rocky Mountains, Pacific Northwest, and in other neighboring Plains states.
HF Sinclair has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 42.9% over the last 30 days.
Marathon Petroleum is poised for further price gains based on a slew of positives. MPC’s $21 billion sales of its Speedway retail business provided it with a much-needed cash infusion. The deal also comes with a 15-year fuel supply agreement under which Marathon Petroleum will supply 7.7 billion gallons of gasoline per year to 7-Eleven, thus ensuring a steady revenue stream.
MPC’s exposure to more stable cash flows from the logistics segment diversifies the earnings stream and offers a buffer against the volatile refining business. Consequently, Marathon Petroleum is primed for significant capital appreciation and is viewed as a preferred downstream operator to own now.
Marathon Petroleum has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 3% over the last 30 days.
Valero Energy is the largest independent refiner and marketer of petroleum products in the United States. VLO offers the most diversified refinery base with a capacity of 3.2 million barrels per day in its 15 refineries throughout the United States, Canada and the Caribbean.
The majority of Valero Energy’s refining plants are situated in the Gulf coast area from where there is easy access to the export facilities. VLO’s Gulf coast presence helped it to expand export volumes over the past years and gain from high distillate margins.
Moreover, Valero Energy intends to quadruple renewable diesel production capacity by 2023. With low-carbon fuel policies being adopted by the economies around the globe, demand for renewable fuel is expected to rise in the coming days. Also, VLO is expected to capitalize on the increasing demand for distillate fuel.
Valero Energy has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 7.4% over the last 7 days.
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Exxon Mobil Corporation (XOM) : Free Stock Analysis Report
Valero Energy Corporation (VLO) : Free Stock Analysis Report
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Cadence Design Systems, Inc. (CDNS) : Free Stock Analysis Report
HF Sinclair Corporation (DINO) : Free Stock Analysis Report
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