The U.S. is about to celebrate its biggest secular holiday on
the Fourth of July with much fanfare. Investors' cheers will be
louder since the markets have made remarkable turnaround since the
country was troubled by the recession half a decade back. Countless
citizens will join to celebrate the 239th birthday of the country
and pay tribute to the indomitable American spirit.
That the equity market is trading at all-time highs speaks volumes
about this 'never say die' attitude. Add to it the improvement in
the labor market, rise in Consumer Confidence Index, recovery in
the housing sector and continued tapering of the bond buyback plan
- the pointers are clear and definite.
At this juncture, buying American stocks will offer one more
opportunity to the investors to contribute handsomely to the
economy. But before we guide you on which stocks to buy at this
opportune moment, let us have a peek into how patriotic spending
benefits economic growth.
Why Buy American Goods?
Despite arguments and counter-arguments, various studies have
revealed that when American-made products are bought, it directly
or indirectly creates new jobs and benefits the overall economy.
According to the Boston Consulting Group, "If every builder in
America used just 5% more Made-In-America products, it would create
220,000 American jobs." Purchase of domestically manufactured
products also minimizes imports, improves balance of trade and
leads to trade surplus.
The Federal Transportation Administration (FTA) has utilized the
"Buy America" Act to boost the job-creation potential of public
funds. The Act ensures that all final assembly of the railway
vehicles and buses purchased with FTA funding occurs within the
U.S., while all components and sub-components have over 60%
A research study by the University of Massachusetts indicate
that on an average, at least 26% more jobs are created when
manufacturers fully source the components and subcomponents of
their vehicles domestically compared to manufacturers that only
meet the 60% "Buy America" requirement.
According to private payroll processor ADP, 281,000 new jobs were
created in June, which was far higher than the consensus
expectations of 208,000. When the Bureau of Labor Statistics
releases the data for non-farm payroll numbers, it is expected to
show 213,000 job additions. Total non-farm payroll accounts for
approximately 80% of the workers who produce the entire GDP of the
U.S. The unemployment rate for June is also expected to be close to
6.3% recorded in May 2014 - the lowest since Sep 2008.
Higher employment opportunities will lead to improved consumer
confidence, which is a key determinant for the economy's health. A
recent Conference Board data suggests that Consumer Confidence
Index increased to 85.2 in June 2014 from 82.2 in May 2014. This
further leads to higher consumer spending, which accounts for over
two-third of the U.S. economic activity.
Despite inclement weather conditions and higher-than-expected
healthcare spending, U.S. consumer spending increased 1% in the
first quarter of 2014. The June PMI was recorded at 55.3% - the
13th consecutive monthly increase. A reading of above 50% generally
indicates that the manufacturing economy is expanding.
The economic uptrend is more evident from the Bull Run in the
equity market, which has charted new highs on many occasions since
last year. The Dow Jones Industrial Average, S&P 500 and NASDAQ
Composite indices gained 1.5%, 6.1% and 5.5%, respectively, in the
first half of 2014. The S&P 500 has hit record highs on 23
occasions so far this year and secured the best lead over the Dow
since 2009. With five consecutive monthly gains, the S&P 500 is
surely on a roll.
3 American Stocks to Buy
Amid such bright macroeconomic fundamentals, there are a handful of
domestic stocks with attractive valuation metrics backed by a
favorable Zacks Rank. The names of these companies start with
"American," so investing in them could help you to cash in on the
strong patriotic sentiments. Let's take a closer look at these
companies that appear to be well positioned to benefit from the
solid sector dynamics as well.
American Airlines Group Inc.
This Zacks Rank #2 (Buy) stock operates an average of nearly 6,700
flights per day to 339 destinations in 54 countries from its hubs
in Charlotte, Chicago, Dallas/Fort Worth, Los Angeles, Miami, New
York, Philadelphia, Phoenix and Washington, D.C. The earnings
estimate revision for American Airlines for both the current
quarter and year has moved up in the last 7 days, implying bullish
long-term growth sentiments.
With a forward P/E of 8.3x and long-term earnings growth
expectations of 31.4%, American Airlines is a solid pick. In
addition, American Airlines belongs to the Transportation-Airline
Industry that carries a Zacks Industry Rank #51. As a guideline,
the outlook for industries with Zacks Industry Rank #88 and lower
is 'Positive,' between #89 and #176 is 'Neutral' and #177 and
higher is 'Negative.'
American Campus Communities, Inc.
Based in Austin, TX, this company operates as an independent equity
real estate investment trust (REIT). It is the largest owner,
manager and developer of high-quality student housing properties in
the U.S. Including its owned and third-party managed properties,
the total managed portfolio of this Zacks Rank #2 (Buy) stock
comprise 200 properties with approximately 128,100 beds.
American Campus has long-term earnings growth expectation of 4.9%
and is currently trading at a forward PE of 16.7x. Furthermore,
earnings estimate revisions for the current quarter and year have
been moving up, implying bullish sentiments for the long-term
growth of the company.
American Express Company
Headquartered in New York, NY, this company offers charge and
credit payment card products and travel-related services to
consumers and businesses worldwide. Its products and services
include charge and credit cards, business credit cards, travel
services, gift cards, prepaid cards, merchant services, business
travel, and corporate cards.
The earnings estimate revision for this Zacks Rank #2 (Buy)
stock for the soon-to-be-reported quarter and full-year 2014 have
moved up in the last month, implying bullish sentiments for the
long-term growth of the company.
With a forward PE of 17.5x and long-term earnings growth
expectations of 10.6%, American Express is likely to outperform the
broader equity market. In addition, the company belongs to the
Financial Industry that carries a Zacks Industry Rank #14.
The ex-Vice President of the U.S. Hubert H. Humphrey once observed,
"What we need are critical lovers of America -- patriots who
express their faith in their country by working to improve it."
Perhaps the Fourth of July is the most opportune time to showcase
this patriotic feeling by owning these "American" stocks.
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