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Fund Managers Shower Love on American Stocks: 5 Top Picks


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Global fund managers poured money into U.S. stocks in June for the first time in 15 months, encouraged by a compelling profit outlook. An upbeat labor market, uptick in consumer confidence and a marked improvement in service sector performance last month made investors bullish on U.S. stocks. On the contrary, emerging market and Eurozone stocks lost their charm due to rise in trade protectionism and interest rate hikes by the US. Federal Reserve.

Thus, investing in stocks with high domestic exposure in terms of revenue generation seems sensible at the moment.

Global Equity Investors Invest in U.S. Stocks

As per Bank of America Merrill Lynch' June survey of 235 global fund managers with $684 billion of assets under management, U.S. stocks are now in focus. Almost two-third of them said that the United States has the best outlook for corporate profits, now at a 17-year high. The other regions, in particular, Eurozone and emerging markets have a net negative profit outlook.

Thanks to such a robust domestic profit outlook, equity investors have increased their allocation to American stocks by 16 percentage points, making them overweight for the first time in 15 months. And why not? The broader S&P 500 after hitting a series of highs in January was knocked back into correction territory in February. But, the broader index did bounce back later and is up 4.3% so far this year. In contrast, the pan-European Stoxx 600 index has fallen 0.4%.

Emerging Market Equities Out of Favor

Emerging markets are also losing their appeal compared to their U.S. counterparts. The survey showed that "emerging market equities allocation falls again after massive drop last month, down -5% to net 22% overweight & well off the April'18 high of 43% as investors sell emerging market equities to buy US equities."

Possibility of a trade war between the United States and other countries affected emerging market equities. By the way, an imminent rate hike by the Fed doesn't bode well for emerging market assets. Fund flow tracker EPFR Global's report dated Jun 6 said that "with another hike in US interest rates expected this week; EPFR-tracked Emerging Markets Equity Funds posted their third consecutive outflow during the first week of June" (read more: June Rate Hike Almost a Done Deal: Top 5 Winners ).

The EPFR Global report added that India is especially struggling to retain investors' interest. The report said that "India Equity Funds have now posted outflows 13 of the past 16 weeks. Rising inflation, which prompted India's central bank to hike its benchmark interest rate for the first time since 2014, weak business investment and next year's general election are all giving investors pause for thought."

U.S. Economy Shifts Up a Gear in May

The U.S. economy is on a roll of late. This in turn helped global fund managers raise the U.S. profit outlook. May's jobs report shows that the U.S. economy is firing on all cylinders. The United States added 223,000 jobs last month, exceeding analysts' estimates. The jobless rate at the same time ticked down to an 18-year low of 3.5%, indicating that the nine-year stretch of economic expansion has scope to continue (read more: Jobs Report Paints a Pretty Picture for Stocks: 5 Top Picks ).

Needless to say, consumer confidence climbed last month to a three-month high as a tighter labor market helped perk up views on the current state of the economy to the best in 17 years, per the Conference Board.

The service sector, which accounts for about 85% of overall GDP growth, also came in strong in May. The Institute for Supply Management's reading on service sector activity last month came in at 58.6, up nearly 2 points from April. Any reading over 50 indicates expansion in the sector.

5 Solid Picks

Given the aforesaid positives, investing in companies with operations in the United States seems the right thing to do. We have picked five such stocks that should make meaningful additions to your portfolio. These stocks flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).

RCI Hospitality Holdings, Inc. RICK engages in the hospitality and related businesses in the United States. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings moved up 8.5% in the last 60 days. The stock's expected growth rate for the current year is 52.5% versus the Leisure and Recreation Services industry's projected rally of 17.5%.

Echo Global Logistics, Inc. ECHO provides technology-enabled transportation and supply chain management solutions in the United States. The company has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings climbed 14.4% in the last 60 days. The stock's expected growth rate for the current year is 66.3% versus the Transportation - Services industry's estimated rally of 19%.

Covenant Transportation Group, Inc. CVTI provides truckload transportation and brokerage services primarily in the continental United States. The company has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings rose 7.3% in the last 60 days. The stock's expected growth rate for the current year is 128.6% versus the Transportation - Truck industry's estimated rally of 44.9%.You can see the complete list of today's Zacks #1 Rank stocks here .

American Public Education, Inc. APEI provides online and campus-based postsecondary education. The company sports a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings rose 5.2% in the last 60 days. The stock's expected growth rate for the current year is 25.6% compared with the Schools industry's projected rally of 15.1%.

Anavex Life Sciences Corp. AVXL engages in the development of drug candidates for the treatment of Alzheimer's disease, other central nervous system diseases, pain, and various types of cancer. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings moved up 39% in the last 60 days. The stock's expected growth rate for the current year is 18.2% compared with the Schools Medical - Biomedical and Genetics industry's estimated rally of 9%.

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Echo Global Logistics, Inc. (ECHO): Free Stock Analysis Report

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RCI Hospitality Holdings, Inc. (RICK): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Business , Stocks
Referenced Symbols: ECHO , CVTI , APEI , RICK , AVXL



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