It is likely that these positive factors will continue to propel stocks higher, obviously making it a good idea to pick growth stocks which have posted strong performances this month. Markets are staging a comeback, emerging out from headwinds including weak economic reports from China and the global growth worries that had led to the Fed’s decision to keep rates unchanged.
Rate Hike Unlikely in Near Term
The Federal Reserve kept rates on hold in its September meeting. The issue has likely been further delayed following September’s soft non-farm payroll reading The U.S. economy added 142,000 jobs in September, significantly lower than the consensus estimate of 202,000. Employment gains for the previous two months were also trimmed by a combined 59,000.
The report was released on Oct 2, which was also the day that the current rally began. Since then the CBOE Volatility Index (VIX) began falling and has declined from 21 to below 15 levels. This means that markets have stabilized to a large extent.
Dovish Monetary Stance from ECB, China
ECB President Mario Draghi’s dovish comments had a positive impact on broader markets last Thursday. He indicated that the central bank could expand its quantitative easing measures at its December meeting.
Separately, the People's Bank of China (PBOC) announced on Friday that they reduced the key rates in order to boost the economy. PBOC reduced the one-year benchmark bank lending rate and one-year benchmark deposit rate by 25 basis points to 4.35% and 1.5%, respectively, effective from Oct 24.
Revenue Weaknesses Attributed to Dollar
Of course, a decline in sales cannot be attributed to a strong dollar in every case. Caterpillar Inc. (CAT - Analyst Report) also reported earnings numbers last Thursday and sales had declined 19% year-over-year. However, the company said that while it suffered a 3.5% fall due to a strong dollar, most of the decline was because of low demand in Asia, Latin America and Europe.It’s not that weak revenues haven’t been attributed to a strong dollar by companies before. But it seems this time investors are willing to give a wider berth to such corporations. For instance, 3M Company (MMM - Analyst Report) said last Thursday that while sales had fallen 5.2% on a yearly basis, the strong dollar had resulted in a 7.4% reduction in sales year-over-year. This means that sales had been primarily by a rising dollar.
However, investors are giving much more leeway to companies reporting lower revenues and are taking dollar weakness into account. This is why a rising dollar has helped companies reporting lower revenues across the board.
Our Choices
The low probability of a rate hike in October and a soft monetary stance from the ECB and China’s central bank has contributed to strong gains this month. The fact that investors have gone easy on companies reporting lower revenues because of dollar strength have also boosted stocks.
Additionally, the strong showing of tech stocks on last Friday and a rebound in healthcare stocks means that gains will likely continue going forward. This is why adding growth stocks who have delivered strong performances to your portfolio will be a prudent decision. Our selection in also backed by good Zacks Growth Score and Zacks Rank.
We narrowed down our choices with the help of our new style score system.
Our research shows that stocks with Growth Style Scores of ‘A’ or ‘B’ when combined Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy) offer the best investment opportunities in the growth investing space.
Hawaiian Holdings Inc. (HA - Snapshot Report) is the holding company of Hawaiian Airlines, the largest airline headquartered in Hawaii.
Hawaiian Holdings has a Zacks Rank #1 (Strong Buy) and a Growth Style Score of ‘A.’ The estimate for EPS growth for the current year has increased 11.9% over the last four weeks. The company has expected earnings growth of 97.2% for the current year and its stock price has increased 41.2% from Oct 1 to Oct 23.
GigOptix, Inc. (GIG - Snapshot Report) is a fabless semiconductor component manufacturer which provides electronic engines for streaming on wireless and optical networks.
GigOptix has a Zacks Rank #1 (Strong Buy) and a Growth Style Score of ‘A.’ The estimate for EPS growth for the current year has increased 63% over the last four weeks. The company’s expected earnings growth for the current year is more than 100% and its stock price has increased 38.9% from Oct 1 to Oct 23.
Universal Forest Products Inc. (UFPI - Analyst Report) engineers, manufactures, treats, distributes and installs lumber, composite wood, plastic and other building products.
Universal Forest Products has a Zacks Rank #1 (Strong Buy) and a Growth Style Score of ‘A.’ The estimate for EPS growth for the current year has increased 7.1% over the last four weeks. The company has expected earnings growth of 33% for the current year and its stock price has increased 28.5% from Oct 1 to Oct 23.
New Oriental Education & Technology Group Inc. (EDU - Snapshot Report) is the largest provider of private educational services in China
New Oriental Education & Technology Group has a Zacks Rank #1 (Strong Buy) and a Growth Style Score of ‘B.’ The estimate for EPS growth for the current year has increased 5.7% over the last four weeks. The company has expected earnings growth of 23.6% for the current year and its stock price has increased 28.2% from Oct 1 to Oct 23.
A-Mark Precious Metals, Inc. (AMRK - Snapshot Report) operates as a full service precious metals trading company.
A-Mark Precious Metals has a Zacks Rank #2 (Buy) and a Growth Style Score of ‘B.’ The estimate for EPS growth for the current year has increased 11.4% over the last four weeks. The company has expected earnings growth of 17% for the current year and its stock price has increased 23.2% from Oct 1 to Oct 23.
by Swarup Gupta
Source:http://www.zacks.com/stock/news/195034/5-stocks-to-ride-octobers-rebound
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