There are signs that stocks, which have rallied on hopes that President Donald Trump’s slew of policies will prove favorable for the Wall Street, may have to scale down from the recent highs. Trump’s signing of an executive order to temporarily restrict immigration saw much of an uprising, eventually affecting stocks and bolstering traditionally safe heaven assets such as bonds and gold. In the wake of such widespread chaos, investors are bracing for more political upheavals across Europe.
The U.S. economy registered tepid growth during the last three months of 2016. Meanwhile, the gauge of consumer confidence retreated from its highest level in 15 years in the month of January. Consumer confidence data slipped from 113.3 in December to a reading of 111.8 in January. Notably, the month of February has traditionally seen weak numbers just after the election. In such a scenario, it is judicious to invest in stocks which have strong fundamentals, are protected against market vagaries and tend to increase capital value.
Trump’s Stock-Market Honeymoon Ends
Market bulls argue that Trump’s business-friendly policies focused on tax cuts, deregulation and infrastructure spending bode well for the economy, but, investors have got a whiff that the path higher will not be quite smooth. Investors haven’t been able to recover from Trump’s recent executive order to tighten immigration rules. The order will temporarily ban immigration into the U.S. of Iraqi, Syrian, Iranian, Sudanese, Libyan, Somali and Yemeni citizen while seeking “extreme vetting” procedures for those allowed to enter the nation. Trump has also pledged to “keep radical Islamic terrorists out of the United States of America”.
This decision has drawn congressional criticism and widespread protests. These protectionist measures may also cloud the path for pro-business initiatives as several world and corporate leaders condemn the ban. Airlines bore the brunt as well as several airports across the country saw violent protests, disrupting operations to a great extent. Tech firms also faced obstacles in sourcing labor from foreign lands.
Geopolitical Risks Surface
While a highly polarized political environment and Trump’s confrontational approach are expected to fuel volatility in the market, investors are also preparing for political cataclysms across Europe including French and German elections later this year.
French Socialist Member of Parliament and supporters have started to break ranks with their party after the primary election win of leftwing presidential nominee Benoît Hamon, offering support to independent candidate Emmanuel Macron. In Germany, Martin Schulz is to run as the Social Democrat candidate for chancellor after Sigmar Gabriel turned down the chance to oppose Angela Merkel in parliamentary election.
Domestic Growth Tepid
The U.S. economy, in the meanwhile, slowed down more than expected in the fourth quarter after a plunge in shipments of soyabeans affected exports. Annual growth failed to reach 3% for the 11th straight year, indicating the hurdles Trump administration faces to speed up expansion.
The fourth-quarter output of goods and services increased at a seasonally adjusted annual rate of 1.9% from the previous three months. It was lower than the consensus estimate of 2.2% growth. A widening of the foreign-trade deficit marred growth during the final three months of 2016. In the fourth quarter, exports fell 4.3%, the steepest decline since the first quarter of 2015.
February Weak in Post-Election Years
Seasonal patterns also support the notion of a downturn. February has been the weakest month for stocks over the past four decades, averaging just a 0.06% gain. In fact, in post-election years, February tends to be weaker. The average return has decreased 1.85% since 1977.
Lest we forget, markets have gone 74 days without a 1% daily decline, hence, the seasonality pattern increases the odds for a worse decline in February.
5 Best Stocks to Buy in February
Amid such uncertainties, it seems sensible to invest in companies that are well-established and financially sound and will continue to do business even in the worst of times. The best way to go about doing so is by creating a portfolio of Zacks Rank #1 (Strong Buy) stocks. You can see the complete list of today’s Zacks #1 Rank stocks here.
We have selected five such stocks that also boast a VGM score of ‘A’. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.
Top Stocks for a Tricky February: Best Buy Co Inc (BBY)
Best Buy Co Inc (BBY) operates as a retailer of technology products, services and solutions in the U.S. In the last one-year period, the company soared 59.4%. Best Buy’s expected earnings growth rate for the current year is 17.74%, in contrast to the industry’s projected negative return of 5.53%. The Zacks Consensus Estimate for its current year earnings rose 7.6% over the last 90 days.
Best Buy Co., Inc. Price and Consensus
Top Stocks for a Tricky February: NCI Building Systems Inc (NCS)
NCI Building Systems Inc (NCS) designs, engineers, manufactures and markets metal products for the nonresidential construction industry in North America. Over the last one year, the company rallied 54.6%. NCI Building Systems’ expected earnings growth rate for the current year is 37.3%, more than the industry’s projected return of 21.54%. The Zacks Consensus Estimate for its current year earnings climbed 8.9% over the last 90 days.
NCI Building Systems, Inc. Price and Consensus
Top Stocks for a Tricky February: Teck Resources Ltd (USA) (TECK)
Teck Resources Ltd (USA) (TECK) explores, develops and produces natural resources in the Americas, the Asia Pacific, and Europe. In the last one-year period, the company skyrocketed 557.9%. Teck Resources’ expected earnings growth rate for the current year is 177.47%, way ahead of the industry’s estimated return of 67.68%. The Zacks Consensus Estimate for its current year earnings soared 92.9% over the last 90 days.
Teck Resources Ltd Price and Consensus
Top Stocks for a Tricky February: Childrens Place Inc (PLCE)
Children’s Place Inc (PLCE) operates as a children’s specialty apparel retailer. Over the last one year, the company has gained 49%. Children’s Place’s expected earnings growth rate for the current year is 43.67%, in contrast to the industry’s projected negative return of 6.72%. The Zacks Consensus Estimate for its current year earnings climbed 10.2% over the last 90 days.
Children’s Place, Inc. (The) Price and Consensus
Top Stocks for a Tricky February: Rogers Corporation (ROG)
Rogers Corporation (ROG) designs, develops, manufactures and sells engineered materials and components worldwide. In the last one-year period, the company climbed 68.4%. Rogers’ expected earnings growth rate for the current year is 20.82%, higher than the industry’s estimated return of 12.28%. The Zacks Consensus Estimate for its current year earnings rose 11.9% over the last 90 days.
Rogers Corporation Price and Consensus
Zacks’ Top 10 Stocks for 2017
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