S&P 500 Posts 5th Straight Weekly Gain: 5 Great Picks

Wall Street’s bullish wave, which commenced in July, continues in the first week of August despite the presence of trade war concerns and geopolitical conflicts. The benchmark S&P 500 index — generally used by market participants as the barometer of the broad market movement — was up for fifth straight week.

Robust U.S. economy, strong labor market, solid consumer and business spending along with government’s deregulation policies is likely to pave the way for further upside. Massive tax cut and fiscal stimulus will act as catalysts. Consequently, investment in S&P 500 stocks, which provided significant return in the last one month with favorable Zacks Rank and have further upside potential, will be a prudent move.

The S&P 500 Riding on Bull Run

In the last five weeks, the S&P 500 gained 1.5%, 1.5%, 0.1%, 0.6% and 0.8%, respectively. This marks the broad-market index’s longest weekly winning streak so far this year. Year to date, the S&P 500 is up 6.2%.

This indicates that the U.S. stock markets momentum remained largely unhindered in spite of recent volatility, signaling a recovery for Wall Street in the second half of 2018.

U.S. GDP for Second Quarter Soars

U.S. GDP grew at 4.1% in the second-quarter of 2018, marking its highest gain since the third quarter of 2014 and the third-best growth rate since the Great Recession of 2008-2009.

In the second-quarter, consumer spending increased 4%, business investment grew 7.3% and government spending rose 3.5%. Notably, first-quarter 2018 GDP growth rate was revised to 2.2% from 2% reported earlier.

Strong Labor Market

On Aug 3, the Labor Department reported that the U.S. non-firm job addition increased by 157,000 for the month of July. Moreover, data for May and June were revised upwards to add 59,000 more jobs in the economy.

Unemployment rate in July fell 0.1% from June to 3.9%, its lowest level in nearly 50 years. Average hourly earnings increased by 0.3% to 2.7% over the same period a year ago, reducing investor’s fear of a hyper-inflation.

Robust Earnings Momentum

U.S. corporates have so far posted robust results for second-quarter 2018, maintaining the terrific earnings momentum which has begun since the first-quarter 2018.

Notably, in the second-quarter, total earnings of S&P 500 companies are expected to be up 23.9% from the same period last year on 9.3% higher revenues. (Read More: Should We Worry About the Downtrend in Earnings Estimates?)

Our Top Picks

Solid macro-economic fundamentals, government’s tax reform and deregulation proposals along with sustained strong earnings performance are major tailwinds for the U.S. economy. Such factors are unlikely to disappear in the near term. At this stage, investment in the S&P 500 stocks which provided significant return in the last month and still have solid upside potential will be lucrative. However, picking winning stocks can be a difficult task.

This is where our VGM Score comes in handy. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select the winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score.

We have narrowed down our search to five stocks each carry either a Zacks Rank #1 (Strong Buy) or #2 (Buy) along with strong earnings growth, estimate revision and a VGM Score of A or B.

The chart below depicts price performance of our five picks in the last three months.

HCA Healthcare Inc. HCA is a non-governmental hospital in the United States providing health care and related services. The company provided 25.8% return in the last four weeks. It has a Zacks Rank #1 and a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.

HCA Healthcare has expected earnings growth of 40.1% for current year. The Zacks Consensus Estimate for the current year has improved by 4.5% over the last 30 days.

KLA-Tencor Corp. KLAC designs, manufactures, and markets process control and yield management solutions for the semiconductor and related nano-electronics industries worldwide. The company provided 15.6% return in the last four weeks. It has a Zacks Rank #1 and a VGM Score of B.

KLA-Tencor has expected earnings growth of 16% for current year. The Zacks Consensus Estimate for the current year has improved by 4.7% over the last 30 days.

Robert Half International Inc. RHI is the world's first and largest firm in professional staffing and consulting services. The company provided 17.7% return in the last four weeks. It has a Zacks Rank #2 and a VGM Score of A.

Robert Half International has expected earnings growth of 32.7% for current year. The Zacks Consensus Estimate for the current year has improved by 2.4% over the last 30 days.

Fastenal Co. FAST is engaged in the wholesale distribution of industrial and construction supplies in the United States, Canada, and internationally. The company provided 17% return in the last four weeks. It has a Zacks Rank #2 and a VGM Score of B.

Fastenal has expected earnings growth of 32.6% for current year. The Zacks Consensus Estimate for the current year has improved by 2.4% over the last 30 days.

Biogen Inc. BIIB is a leading biopharmaceutical company engaged in the research, development and marketing of targeted therapies for the treatment of cancer, autoimmune and inflammatory diseases. The company provided 15.2% return in the last four weeks. It has a Zacks Rank #2 and a VGM Score of B.

Biogen has expected earnings growth of 13.3% for current year. The Zacks Consensus Estimate for the current year has improved by 3.8% over the last 30 days.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

See the pot trades we're targeting>>

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

Fastenal Company (FAST) : Free Stock Analysis Report

Biogen Inc. (BIIB) : Free Stock Analysis Report

HCA Healthcare, Inc. (HCA) : Free Stock Analysis Report

KLA-Tencor Corporation (KLAC) : Free Stock Analysis Report

Robert Half International Inc. (RHI) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research