According to the “advance estimate” of the U.S. Department of Commerce, the economy has grown at an annualized rate of 2.9%, the highest pace of growth witnessed over the past two years. It was also significantly higher than the second-quarter growth rate of only 1.4% and the consensus estimate of an increase of 2.5%.
Rebound in inventory and strong gains in exports during the quarter played a major role in boosting the economy. Favorably ranked undervalued stocks, which also come with impressive growth prospects, are prudent choices for investors who are interested to make profits from this improving economic scenario.
Rebound in Inventory & Exports
As per the “advance estimate” report, not only the GDP, some of the important contributors also witnessed record gains during the quarter. For an instance, it was the first time since the first quarter of 2015 that changes in business inventories made a positive contribution to the GDP number. It had contributed 0.61 percentage point to third quarter GDP.
Meanwhile, a 1.2% increase in business investment last quarter compared with a 1% rise in the second, along with a rebound in inventories, helped gross private domestic investment rise 3.1%, the highest in more than a year.
Separately, a 10% surge in exports during the quarter was the highest since the fourth quarter of 2013. It was also significantly higher than the second quarter growth rate of 1.8%. Strong gains in exports, which were in turn primarily boosted by a significant jump in exports of soybeans, helped net exports to contribute 0.83 percentage points to third quarter GDP, despite 2.3% increase in imports. This was also the highest contribution of the segment in nearly three years. Moreover, disposable personal income rose 2.2% during the third quarter, higher than 2.1% rise recorded in the second quarter.
Though personal consumption expenditures (PCE) remained the highest contributor in the third quarter GDP, it significantly slowed down in the last quarter. PCE increased at a rate of 2.1% last quarter compared with 4.3% in the second quarter. Meanwhile, its contribution of 1.47% to third quarter GDP also came in significantly below the second quarter’s contribution of 2.88%. Moreover, two consecutive declines in residential investment remained one of the few dark spots in the third quarter GDP report.
After declining 7.7% in the second quarter, investment in residential activities dropped 6.2% in the last quarter. Meanwhile, the PCE Price Index witnessed a gain of 1.4% during the third quarter compared to a 2% increase in the second quarter, indicating a slowdown in inflation. Also, the core PCE Price Index, which is closely watched by the Fed, increased at a rate of 1.7% last quarter, slower than a 1.8% rise registered in the second.
4 Stocks to Buy
Despite these concerns, recently released data indicates that the U.S. economy is poised to witness an impressive second half of 2016. Moreover, rising speculations of record holiday sales in the ongoing quarter are also likely to boost the economy in the days ahead. Potential stocks that are available at discounted prices as well as have strong growth prospects are poised to gain from this encouraging backdrop and thus selecting them may prove to be prudent investment options in current scenario.
With this objective in mind, we have selected four stocks that carry either a Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy) and also have Value and Growth Scores of ‘A’ or ‘B.’ Our research shows that stocks with a Style Score of A or B when combined with a Zacks Rank #1 or 2 offer the best upside potential.
Moreover, these stocks also come with impressive fundamentals and thus are poised to gain in the days ahead.
NN, Inc. (NNBR): This Zacks Rank #1 precision steel balls and rollers maker has Value and Growth Scores of ‘B’ and ‘A,’ respectively. NNBR has forward price-to-earnings (P/E) ratio for the current financial year (F1) and PEG ratio of 10.38 and 0.52, compared with the industry averages of 13.78 and 1.67, respectively. Its expected earnings and sales growth rates for the current year are 4.8% and 28.9%, respectively.
PCM Inc (PCMI): This Zacks Rank #1 technology products and solutions provider has Value and Growth Scores of ‘A.’ PCMI has a P/E ratio for the current financial year (F1) and PEG ratio of 11.92 and 0.40, compared with the industry averages of 14.07 and 1.15, respectively. It has expected earnings and sales growth rates for the current year of more than 100% and 33.2%, respectively. You can see the complete list of today’s Zacks #1 Rank stocks here.
Green Plains Partners LP (GPP): This Zacks Rank #2 company provides ethanol and fuel storage, terminal and transportation services and has Value and Growth Scores of ‘B’ and ‘A,’ respectively. GPP has a P/E ratio for the current financial year (F1) and PEG ratio of 12.51 and 0.83, compared with industry averages of 20.99 and 2.25, respectively. It has expected earnings and sales growth rates for the current year of more than 100%.
CONE Midstream Partners LP (CNNX): This Zacks Rank #2 midstream energy company has Value and Growth Scores of ‘A’ and ‘B,’ respectively. CNNX has P/E ratio for the current financial year (F1) and PEG ratio of 13.48 and 1.01, compared with the industry averages of 16.99 and 2.09, respectively. Its expected earnings and sales growth rates for the current year are 28.9% and 20.3%, respectively.
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