The journey north of Wall Street gained momentum in the first week of January. On January 7, all three major stock indices – the Dow, S&P 500 and Nasdaq Composite – reached new milestones, exceeding 31,000, 3,800 and 13,000, respectively, for the first time. All three indices recorded historical highs and close on the day.
The bull run is expected to continue in the near future, with the approval of two COVID-19 vaccines last month and their implementation across the country, starting this month. Consequently, it will be prudent to invest in top-tier stocks that are members of any of these three indices.
Other short-term motivators
First, a recently released series of strong economic data has strengthened investor confidence in the fundamentals of the US economy.
The Institute of Supply Management (ISM) manufacturing purchasing managers (PMI) index rose to 60.7% in December from 57.5% in November, marking the highest level in almost two and a half years. Manufacturing activities have expanded for seven consecutive months, challenging the economic devastation caused by the coronavirus.
The December non-manufacturing PMI (services) PMI increased to 57.2% from 55.9% in November, marking its highest increase in three months. This contrasted with the general view that the resurgence of coronavirus further slowed service sector activities.
In addition, 12.7 million units of domestic vehicles were sold in December, compared with 12.1 million units in the previous month.
Second, effective control of the US Congress by Democrats is likely to result in greater fiscal stimulus and faster implementation of vaccination across the country to contain the pandemic, along with increased allocation of funds for infrastructure developments in the near future.
Several economists and financial experts are concerned that the Democrats’ total control over Congress could result in higher corporate taxation and stricter regulations for major technology and communications providers. However, this may not happen immediately.
Consequently, investors shifted the distribution of funds from safe-haven government bonds to risky stocks. On January 6, the yield on the 10-year US Treasury Note was closed at 1.049%. The benchmark treasury yield closed above 1% for the first time since March 2020. The yield on the 30-year US Treasury Bill rose 11.4 basis points to close at 1.832%, the highest in more than eight months. On January 7, the yield on the 10-year US Treasury Note was closed at 1.07%.
Third, a second $ 900 billion trench of US Congressionally approved coronavirus aid package, an ultra-dovish monetary stance maintained by the Fed, a record base interest rate of 0-0.25% and strong demand repressed will boost corporate profits.
Currently, total earnings for S&P 500 companies are expected to decrease 16.7% in 3.6% lower revenues in 2020 affected by the pandemic. However, total earnings for the same group of companies are estimated at a jump of 22.7% in revenue 7.6% higher in 2021.
Our main choices
We reduced our survey to six stocks that are members of any of the three main indexes based on four selection criteria. First, select large cap stocks (market cap> $ 50 billion), as these companies have a stable business model. Second, these stocks have skyrocketed in the past six months and still have a strong appreciation for 2021.
Third, these actions have witnessed solid reviews of earnings estimates for 2021 over the past 7 to 30 days. Fourth, each of these shares carries a Zacks Rank # 1 (Strong Buy). You can see the complete list of today’s Zacks # 1 Rank stocks here.
The chart below shows the price performance of our six choices in the past six months.
Deere & Co. DE manufactures and distributes agricultural equipment worldwide. It operates through three segments: Agriculture and Turf, Construction and Forestry and Financial Services.
The company has an expected profit growth rate of 48.5% for the current year (ending in October 2021). Zacks’ consensus estimate for its earnings for the current year has improved 1.7% in the last 30 days. The stock price has skyrocketed 90.2% in the last six months.
General Motors Co. GM designs, builds and sells cars, trucks, crossovers and automotive parts worldwide. It operates through the GM North America, GM International, Cruise and GM Financial segments.
The company has an expected profit growth rate of 24% for the current year. Zacks’ consensus estimate for its earnings for the current year has improved 4.5% in the last 30 days. The stock price has jumped 85% in the past six months.
Micron Technology Inc. MU designs, manufactures and sells memory and storage products worldwide. It operates through four segments: Computer and Network Business Unit, Mobile Business Unit, Storage Business Unit and Embedded Business Unit.
The company has an expected profit growth rate of 31.1% for the current year (ending in August 2021). Zacks’ consensus estimate for its current year earnings has improved by 1.4% in the last 7 days. The stock price has risen 58.3% in the last six months.
FedEx Corp. FDX is a leader in global express delivery services. It offers a broad portfolio of transportation, e-commerce and business services through companies that compete collectively, operating independently and managed collaboratively, under the FedEx brand.
The company has an expected profit growth rate of 79.2% for the current year (ending May 2021). The Zacks consensus estimate for the current year has improved 10.5% in the last 30 days. The stock price has risen 58% in the past six months.
JPMorgan Chase & Co. JPM acts as a leading financial services company worldwide. It operates in four segments: Consumer & Community Banking, Corporate & Investment Bank, Commercial Banking and Asset & Wealth Management.
The company has an expected profit growth rate of 23.1% for the current year. The Zacks consensus estimate for the current year has improved 2.1% in the last 7 days. The stock price has risen 48.9% in the last six months.
The Goldman Sachs Group Inc. GS operates as an investment bank, securities and investment management company worldwide. It operates in four segments: Investment Banking, Global Markets, Asset Management and Consumption and Wealth Management.
The company has an expected profit growth rate of 31.5% for the current year. The Zacks consensus estimate for the current year has improved by 0.4% in the last 7 days. The stock price has advanced 48.2% in the last six months.
More stock news: this is bigger than the iPhone!
It can become the mother of all technological revolutions. Apple has sold just 1 billion iPhones in 10 years, but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $ 1.7 trillion market.
Zacks has just released a special report that highlights this emerging phenomenon and 6 tickers to take advantage of it. If you don’t buy now, you can kick yourself in 2021.
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JPMorgan Chase & Co. (JPM): Free Stock Analysis Report
Micron Technology, Inc. (MU): Free Stock Analysis Report
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The Goldman Sachs Group, Inc. (GS): Free Stock Analysis Report
General Motors Company (GM): Free Stock Analysis Report
FedEx Corporation (FDX): Free Stock Analysis Report
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