Market participants got a pleasant surprise last week as the major stocks indexes recorded their second-best weekly performance in 2022. Wall Street remained extremely volatile in the first half of 2022 and is heading toward one of its worst performances after World War II. In the week prior to last week, these indexes posted their worst weekly performances since 2020.
Wall Street is currently in a bear market. However, this relief rally is likely to extend in the near-term. At this stage, it will be prudent to invest in beaten-down large-cap stocks with a favorable Zacks Rank. Five of them are — Dell Technologies Inc. DELL, Nucor Corp. NUE, Marathon Petroleum Corp. MPC, The Kroger Co. KR and Valero Energy Corp. VLO.
A Relief Rally
Last week was an impressive one for Wall Street. The three major stock indexes – the Dow, the S&P 500 and the Nasdaq Composite – have rallied 5.4%, 6.55 and 7.5%, respectively. Despite the rally, year to date, the Dow, the S&P 500 and the Nasdaq Composite have tumbled 13.3%, 17.9% and 25.8%, respectively.
At the same time, the valuation of most of the stocks, irrespective of market capitalization, sector and industry, has corrected significantly. U.S. stocks are no longer overvalued. In fact, for a large section of the equity market, chances of a further decline are limited.
This week will end the second-quarter as well as the first-half of 2022 and will start the third-quarter and the second-half of 2022. Major institutional investors generally rebalance their portfolio at this time. Although we are not expecting a rebound from the current bear market anytime soon, a pullback is long overdue as equities are highly lucrative at their current valuations.
Most of these stocks have significant short build-up in the first half. Therefore, a sharp short-covering is expected that is likely to strengthen the rally. Moreover, recently, several major investment bankers and portfolio managers have said that the U.S. economy may not fall into a recession anytime soon despite slowing GDP growth. Even if there is a recession, the effect may be mild.
Our Top Picks
We have narrowed our search to five U.S. large-cap corporates with strong growth potential for the rest of 2022. These stocks have seen positive earnings estimate revisions in the last 30 days. Moreover, these companies are regular dividend payers. Finally, each of our picks carries a Zacks Rank #1 (Strong Buy) and a VGM Style 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 month.
Image Source: Zacks Investment Research
Dell Technologies offers personal computers, computer hardware, and cloud and data management services. DELL’s operating segment consists of Client Solutions CS), Enterprise Solutions Group (ESG) and Dell Software Group (DSG).
The CS segment includes sales to commercial and consumer customers of desktops, thin client products, notebooks as well as services and third-party software and peripherals of Client Solutions hardware.
The ESG segment includes servers, networking and storage as well as services and third-party software and peripherals of ESG hardware. The DSG segment includes systems management, security software solutions and information management software offerings.
Dell Technologies has an expected earnings growth rate of 13.1% for the current year (ending January 2023). The Zacks Consensus Estimate for current-year earnings has improved 8% over the last 30 days. DELL has a current dividend yield of 2.63%.
Nucor is committed to expanding its production capabilities and growing its business through strategic acquisitions. NUE has already commissioned some of its growth projects. These should drive growth and strengthen Nucor’s position as a low-cost producer.
NUE is also seeing strong momentum in the non-residential construction market and strong demand in the heavy equipment market. NUE remains focused on achieving greater penetration of the automotive market because of the segment’s long-term growth opportunities. Higher steel prices due to tight supply and higher end-market demand should also drive Nucor’s margins.
Nucor has an expected earnings growth rate of 28.5% for the current-year. The Zacks Consensus Estimate for current-year earnings improved 17.1% over the last 30 days. NUE has a current dividend yield of 1.80%.
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 25.5% over the last 30 days. MPC has a current dividend yield of 2.71%.
The Kroger has been undertaking efforts to strengthen its position not only with respect to products but also in terms of the way consumers shop. KR has been making investments to enhance product freshness and quality as well as expand digital capabilities. Further, The Kroger has been augmenting “Our Brands” portfolio by launching new products.
Management provided an upbeat outlook for fiscal 2022 projecting identical sales, without fuel, in the band of 2-3%. KR remains committed to doubling its digital business and profitability by the end of 2023.
The Kroger has an expected earnings growth rate of 6.3% for the current fiscal year (ending January 2023). The Zacks Consensus Estimate for current-year earnings improved 0.5% over the last 7 days. KR has a current dividend yield of 1.73%.
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 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 18.4% over the last 30 days. VLO has a current dividend of 3.77%.