Top 5 picks to take from the Wall Street Omicron-Relief rally
Wall Street rebounded on November 29, recovering much of the lost ground it suffered on November 26. U.S. stock markets resumed their northward journey as concerns over the omicron variant of the coronavirus abated. Confidence among market players has increased thanks to good news on the virus front and assurances from President Joe Biden not to block immediately.
With investor sentiment strengthened on risky assets like stocks, we selected five stocks with favorable Zacks rankings to take advantage of the recovery. These are – Exxon Mobil Corp. XOM, Avis Budget Group Inc. AUTO, FirstSource Builders Inc. BLDR, Westlake Chemical Corp. WLK and Devon Energy Corp. DVN.
Wall Street bounces back as virus problems ease
On November 29, stock markets around the world recovered lost ground after the market rout caused by coronaviruses on Black Friday November 26. The Dow, S&P 500 and Nasdaq Composite rose 0.7%, 1.3% and 1.9%, respectively. The CBOE VIX – Wall Street’s fear gauge – fell nearly 20% to 22.96.
Global stock markets fell on November 26, fearing another lockdown as a new variant of the coronavirus – Omicron – was detected in South Africa. The World Health Organization (WHO) has warned that it may be more transmissible than previous variants.
As a result, the Dow Jones recorded its worst single-day drop since October 2020 and the biggest Black Friday drop since 1931. The S&P 500 and Nasdaq Composite recorded the biggest Black Friday drop in history.
Positive news surfaces
On November 29, the South African doctor who first sounded the alarm about the omicron variant described the symptoms of COVID-19 linked to the new variant as “extremely mild.” A section of medical scientists, after analyzing the first data, concluded that omicron may prove to be less infectious but more transmissible than Delta.
On the same day, President Biden said he does not expect the United States to impose additional travel restrictions to stem the spread of the Omicron and any possibility of an immediate lockdown. âI don’t anticipate that at this point,â Biden said.
Additionally, several biotech and pharmaceutical companies that have already received FDA clearance for COVID-19 vaccines or are in the process of developing new vaccines have said they have already started R&D to modify their vaccines to fight Omicron. The new vaccines could be available on the markets early next year.
Strong fundamentals of the US economy
The fundamentals of the US economy remain strong. Consumer spending and business spending remain strong despite rising inflation and supply chain disruptions. Manufacturing and services PMIs remained high. The struggling labor market shows a systematic recovery. The latest weekly jobless claims for the week ending November 20 are the lowest since November 15, 1969.
In addition, in its latest projection on November 24, the Atlanta Fed announced that the US economy would grow 8.4% in the fourth quarter of 2021. US GDP grew by 6.4%, 6.7% and 2.1%, in the first, second and third quarters of this year, respectively.
Third-quarter total earnings of the market’s benchmark – the S&P 500 Index – are expected to jump 40.3% from the same period last year, with earnings 17.2% higher. In addition, in the fourth quarter of 2021, the total profits of the S&P 500 Index are expected to increase 19.4% year-on-year on revenues up 11.1%.
Our top picks
Several good stocks are available for investment for the remainder of this year. However, we have applied our VGM Style Score to restrict the search to the five actions mentioned above. These stocks have strong growth potential for the remainder of 2021 and have undergone strong earnings estimate revisions over the past 30 days. Each of our picks sports a Zacks # 1 (strong buy) rating and VGM score of A or B. You can see The full list of today’s Zacks # 1 Rank stocks here.
The chart below shows the price performance of our five picks over the past three months.
Image source: Zacks Investment Research
Exxon Mobil Corp. made several world-class oil discoveries at the Stabroek block, located off the coast of Guyana. XOM has increased the estimate of recoverable resources discovered from the Stabroek block to approximately 10 billion barrels of oil equivalent.
Exxon Mobile’s barometer status and an optimal integrated capital structure, which has historically produced some of the best returns in the industry, make it a relatively low-risk energy sector game. The integrated oil giant plans to reduce greenhouse gas emissions by 30% in its upstream activities. At the same time, XOM plans to reduce flaring and methane emissions by 40%.
Exxon Mobil has an expected profit growth rate of over 100% for the current year. Zacks’ consensus estimate for current year earnings has improved 1% over the past 30 days. XOM’s share price has risen 11.7% in the past three months.
Budget Opinion Group offers car and truck rentals, carsharing and ancillary services to businesses and consumers. Avis Budget Group’s ability to meet a wide range of mobility demands helps it expand and strengthen its global footprint through organic growth.
Avis Budget Group operates through distinct global brands that focus on different market segments and complement other brands in their respective regional markets. The expansion of the fleet and efforts to improve technology by CAR are likely to improve its offerings.
Avis Budget Group has an expected profit growth rate of over 100% for the current year. Zacks’ consensus estimate for current year earnings has improved 7.6% in the past 7 days. CAR’s stock price has climbed 240% in the past three months.
Devon Energy Corp. is targeting strong oil production from the Delaware Basin holdings. Devon Energy’s presence in Delaware has grown as a result of its merger agreement with WPX Energy. DVN uses new technology in the production process to reduce expenses.
Devon Energy’s divestiture of the Canadian gas assets and Barnett Shale will allow it to focus on its five high quality US oil assets. DVN’s stable free cash flow generation enables it to pay dividends and repurchase shares. Devon Energy has sufficient liquidity to meet its short-term obligations.
Devon Energy has an expected earnings growth rate of over 100% for the current year. Zacks’ consensus estimate for current year earnings has improved 0.9% in the past 7 days. The DVN share price has jumped 47.5% in the past three months.
FirstSource builders manufactures and supplies building materials, manufactured components and construction services to professional home builders, contractors, renovators and consumers in the United States. Manufacturers FirstSource operates through four segments: North East, South East, South and West.
Builders FirstSource benefits from the focus on cost synergies, strategic acquisition and strong demand arising from the solid housing and repair and renovation businesses. BLDR continues to focus on investing in innovations and improving digital solutions for its customers.
Builders FirstSource has an expected profit growth rate of over 100% for the current year. Zacks’ consensus estimate for current year earnings has improved 31.1% in the past 30 days. BLDR’s share price has climbed 34.5% in the past three months.
Westlake Chemistry benefits from the synergies of the Axiall acquisition. The takeover diversified its product portfolio and geographic operations. The acquisition of NAKAN has also enabled Westlake Chemical to increase its compounding business globally. In addition, Westlake Chemical sees favorable trends in demand for polyethylene and polyvinyl chloride resin.
Strong demand in the polyethylene business is expected to continue, particularly in food packaging. In addition, higher housing starts in the United States bode well for WLK’s downstream vinyl products business and for domestic demand for PVC. Westlake Chemical is also expected to benefit from its capacity expansion plans.
Westlake Chemical has an expected profit growth rate of over 100% for the current year. Zacks’ consensus estimate for current year earnings has improved 11.6% in the past 30 days. The WLK share price has jumped 12.2% in the past three months.
Technological IPOs with huge profit potential: Last year, major IPOs jumped 299% in the first two months. With record amounts of cash flowing in IPOs and a record stock market, this year could be even more lucrative.
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