On Monday, the Dow posted its longest stretch of consecutive gains in thirty years. All key benchmarks either closed at all-time highs or marginally short of such milestones before giving back gains on Tuesday, underlining the momentum behind the Trump-fueled rally.
With the President set to address a joint session of Congress, it is likely that he will be setting the market’s agenda once again.
At this point, investors and market watchers alike are assessing recent gains and wondering whether the market’s successful run will continue in March. Adding to such concerns is the possible impact of key events lined up over the next few days, such as the speeches to be delivered by Trump and the Fed Chair.
However, data shows that March has been the best month for stocks for a decade. Additionally, there are signs that the rally is being powered by strong fundamentals, which makes it a good idea to invest in recent stock winners which retain significant upside potential.
Best Performing Month Since 2007
According to data from broker-dealer LP Financial, the S&P 500 has returned 2.7% during 2007-2016, which means that it has been the best performing month on the basis of average returns. In contrast, January has been the worst performer over the same time period, losing 1.7% on an average. Coming in second is June, losing in excess of 1.5% on an average over this ten year period.
However, this January, the S&P 500 has actually gained 1.8%. February’s performance has been even better, with the S&P 500 close to ending the month 4% higher. This would be the index’s best performance since Mar 2016, when it gained 6.6%. Additionally, the Dow and Nasdaq are also likely to end the month with gains in excess of 4%.
Buffet Backs Rally, Range-Bound Trading Persists
Such a furious pace of gains has raised some eyebrows, but leading voices on Wall Street believe that the rally still has some steam left. Warren Buffett recently dismissed the idea that a market bubble had been created. Speaking on CNBC yesterday, he said that stocks are currently priced below their historical valuations.
Another concern has been the recent trend of range bound trading. Over the last 53 sessions, the Dow has travelled neither northward nor southward by more than 1%. This apparent lack of volatility has once again led to concerns about the rally’s longevity.
However, several market watchers now believe the absence of volatility is a sign that the rally is being powered by fundamentals instead of pure sentiment. An improving economy and strong earnings numbers lend further weight to such a proposition. Additionally, the positive impact of Trump’s policies has possibly yet to be priced in since this rally began well before the election.
Going by the trends set over the last decade, March is likely to be a promising month for stocks. The catalysts for the current rally are still firmly in place and likely to power further gains in the days ahead.
This is why it is important to seek out value picks which carry the potential for significant upside.
However, picking winning stocks may be difficult.
This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score.
We have narrowed down our search to the following four stocks, each of which has a Zacks Rank #1 (Strong Buy), a VGM score of A as well as a Value Score of A.
Walker & Dunlop, Inc. (WD) is engaged in providing commercial real estate financial services in the U.S., with a primary focus on multifamily lending.
Walker & Dunlop has expected earnings growth of 6.7% for the current year. Its earnings estimate for the current year has improved by 20.4% over the last 30 days. The forward price-to-earnings (P/E) ratio for the current financial year (F1) is 10.29, lower than the industry average of 10.84.
WD stock has returned 38.1% over the last three months and 35.7% over the last one month, outperforming the Zacks Financial – Mortgage & Related Services sector, which has gained 9.5% and 2.6% over these periods.
Kforce Inc. (KFRC) is a full-service, web-based specialty staffing firm providing flexible and permanent staffing solutions for organizations.
Kforce has expected earnings growth of 27% for the current year. Its earnings estimate for the current year has improved by 7.4% over the last 30 days. It has a P/E (F1) of 15.71, which is lower than the industry average of 16.40.
KFRC stock has returned 14.6% over the last three months and 11.6% over the last one month, outperforming the Zacks Staffing Firms sector, which has gained 10.2% and 4.6% over these periods.
AMERIGO RESOURCES COM NPV (ARREF) is engaged in producing and selling copper and molybdenum concentrates primarily in Chile.
Amerigo Resources has expected earnings growth of more than 100% for the current year. Its earnings estimate for the current year has improved by more than 100% over the last 30 days. It has a P/E (F1) of 8.61, which is lower than the industry average of 11.64.
ARREF stock has returned 100.1% over the last three months and 47.6% over the last one month, outperforming the Zacks Mining – Non Ferrous sector, which has gained 7.1% and lost 5.1% over these periods.
Boise Cascade Co (BCC) operates as a wood products manufacturer and building materials distributor.
Boise Cascade has expected earnings growth of 49.5% for the current year. Its earnings estimate for the current year has improved by 15.1% over the last 30 days. It has a P/E (F1) of 16.53, which is lower than the industry average of 21.82.
BCC stock has returned 16.5% over the last three months and 8% over the last one month, outperforming the Zacks Building Products – Wood sector, which has gained 7.6% and 7.5% over these periods.
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