6 Best Momentum Picks to Profit From 2021 Economic Rebound
The President’s $1.9 trillion Coronavirus Relief bill passed by both the House and Senate and other stimulus promises (like the $2-trillion proposal under American Jobs Plan) in 2021 targeting mainly the poorest class as well as the working population indicate an improvement in economic condition in the United States.
Added to this is the ongoing process of mass vaccination that has boosted market sentiment, which was dampened over the last few months by the resurgence of a new wave and emergence of new strains.
IMF Encourages the Fiscal Stimulus
In April, IMF came out with its World Economic Outlook stating that the additional fiscal support in large economies, particularly the United States, has improved the overall projection. IMF currently projects a stronger recovery for the global economy compared with its January forecast, with 2021 and 2022 growth estimates being 6% and 4.4%, respectively following an estimated historic contraction of 3.3% in 2020.
Fed’s Prediction Adds Further Boost
Further, the Mar 17 ‘Economic Projection’ by the Federal Reserve (Fed) stating possibility of faster-than-expected U.S. economic recovery in 2021 along with projection of near-zero interest rates at least through 2023 has once again lifted market sentiment.
Per Fed, average economic growth is expected to be 6.5% in 2021, a significant rise from December 2020 prediction of 4.2%. Unemployment rate is projected to be 4.5% for 2021, a reduction from the December prediction of 5%. Core PCE inflation (the percentage rates of change in the price index for personal consumption expenditures excluding food and energy) is now expected to be 2.2% (up from 1.8% projected earlier).
The Fed’s upbeat forecast has significantly bolstered investors’ confidence across all major sectors.
According to a Global Times article, "Following a moderation in the pace of the recovery, indicators of economic activity and employment have turned up recently, although the sectors most adversely affected by the pandemic remain weak," the Fed said.
March Job Data Promising
Per the Bureau of Labor Statistics report released on Apr 2, the unemployment rate in March declined 6% from the year-ago figure (with Total nonfarm payroll employment gaining by 916,000 in March). Although the number is still 2.5 percentage points higher than the pre-pandemic level, this situation is likely to improve any time soon, banking on all the fiscal and monetary impetus.
Per the report, there was widespread job growth in March with largest gains occurring in leisure and hospitality, public and private education, and construction.
Market Momentum Picking Up Strongly
Since the beginning of the year till Feb 26 (the previous day of the $1.9 trillion stimulus approval by the House), all three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — gained a mere 1.2%, 1.9% and 2.3%, respectively.
However, post the stimulus approval, followed by Fed and IMF’s progressive economic outlook announcements, along with the latest labor market trend, this situation has changed drastically with gains almost quadrupling in the Dow and the S&P 500 (up 8.3% and 7.2%, respectively) and more than doubling in the Nasdaq Composite (up 4.8%) till yesterday’s close.
Momentum Investing - The Right Choice Now
The coronavirus–battered U.S. market still has much to endure with global trade once again in jeopardy on severe resurgence in coronavirus cases in many of the developed and densely-populated nations. However, looking at the general economic trend of the United States, we expect overall market sentiment in this part of the world to remain buoyant over the next few months.
In such a situation, investors may focus on momentum investing for short-term gains. We however warn investors against picking stocks, which are in free fall due to the nature of their business. Momentum investors buy high on the anticipation that a stock will only rise in the short to intermediate term.
Our Top Picks
We have narrowed down our search to six momentum stocks that have gained year to date. All these stocks witnessed robust earnings estimate revisions in the past month and have strong growth potential. Each of our picks carries a Zacks Rank #1 (Strong Buy) and has a Momentum Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
YTD Price Performance
ExxonMobil Corporation XOM is a prominent name in the global energy space. Its industry-leading returns and management's track record of capex discipline across the commodity price cycle make it a relatively lower-risk energy sector play. The company has an expected earnings growth rate of 1039.4% for 2021. The Zacks Consensus Estimate for its current-year earnings has improved 25% over the past 30 days. The stock price has improved 35.9% year to date.
Alcoa Corp. AA is a global industry leader in bauxite, alumina and aluminum products with a strong portfolio of value-added cast and rolled products and substantial energy assets. The company has an expected earnings growth rate of 10.9% for 2021. The Zacks Consensus Estimate for its current-year earnings has improved 67.3% over the past 30 days. The stock price has advanced 36.5% year to date.
L Brands, Inc. LB is a segment leader focused on women’s intimate and other apparel, personal care, beauty and home fragrance products. The company has an expected earnings growth rate of more than 39.6% for 2021. The Zacks Consensus Estimate for its current-year earnings has moved up 18.3% over the past 30 days. The stock price has climbed 75.3% year to date.
Nucor Corporation NUE is a leading producer of structural steel, steel bars, steel joists, steel deck and cold finished bars in the United States. It also produces direct reduced iron (DRI) that is used in its steel mills. The company has an expected earnings growth rate of 40.4% for 2021. The Zacks Consensus Estimate for its current-year earnings has improved 65.5% over the past seven days. The stock price has rallied 49.6% year to date.
Micron Technology, Inc.’s MU global brands include Micron, Crucial and Ballistix, Micron manufactures and markets high-performance memory and storage technologies including Dynamic Random Access Memory (DRAM), NAND flash memory, NOR Flash, 3D XPoint memory and other technologies. The company has an expected earnings growth rate of more than 98% for fiscal 2022 (ending Aug 2022). The Zacks Consensus Estimate for its fiscal 2022 earnings has improved 19.8% over the past 30 days. The stock price has jumped 26.8% year to date.
Louisiana-Pacific LPX is a leading manufacturer of sustainable, quality engineered wood building materials, structural framing products as well as exterior siding for use in residential, industrial and light commercial construction. The company has an expected earnings growth rate of 68.7% for 2021. The Zacks Consensus Estimate for its 2021 earnings has improved 22.8% over the past seven days. The stock price has jumped 65.8% year to date.
Zacks Names “Single Best Pick to Double”
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.
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