Historically, September is the worst-performing month in Wall Street. This year, not only is history being repeated but also a storm is blowing, reminding investors of the month of March, when coronavirus-induced lockdowns had hit so hard that stock markets fell like a house of cards.
Month to date, the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — plummeted 4.5%, 6% and 8.5%, respectively. Notably, these three indexes ended in red in the first three weeks of this month and started the fourth week with a sharp backward bend. Meanwhile, CBOE VIX — the best fear gauge of Wall Street — has surged 5.2% during this period.
On Sep 21, both the Nasdaq Composite and the S&P 500 recorded their fourth straight negative day for the first time since Feb 25 and 28, respectively. The Dow posted a three-day losing streak. Despite market mayhem and persistence of severe volatility, a handful of stocks with a favorable Zacks Rank have provided double-digit returns and have more upside left. Investment in these stocks will be prudent at this juncture.
Reasons for Recent Volatility
First, resurgence of coronavirus in several major European countries like the U.K., Spain, France, Belgium and Italy has significantly dented investors' confidence. Authorities of London and Madrid are considering total lockdowns once again to curb the spread of COVID-19. This will severely impact global trade along with air travel and leisure tour industries.
Second, conflicting news are appearing on the coronavirus treatment front. On Sep 16, President Trump said that his administration is planning to distribute vaccine for COVID-19 from mid-October or a little later. However, earlier that day, Dr. Robert Redfield, the Director of Centers for Disease Control and Prevention told Congress under oath that a vaccine may not be available to the general public until next year.
Third, a delay in the second round of fiscal stimulus has started showing its effects on the U.S. economy. Market participants are concerned that the pace of the economic recovery might have lost momentum. The first trench of stimulus in which $600 per week per person unemployment benefit was provided along with massive support to the small businesses, ended in July. On Sep 17, President Donald Trump supported a $1.5 trillion stimulus package unveiled by a bipartisan group of 50 House lawmakers. However, the Congress is yet to take any decision on the new proposal.
Fourth, the Fed has provided a grim outlook on the U.S. economy in 2020. Notably, the domestic economy was the primary driver to pursue an ultra-dovish monetary stance. Although the continuation of the zero or near-zero benchmark interest rate at least up to 2023 will be a long-term positive for the market, the Fed Chairman Jerome Powell also said "overall activity remains well below its level before the pandemic and the path ahead remains highly uncertain."
Our Top Picks
We have narrowed down our search to five stocks that have popped this month defying market turmoil. These stocks have strong growth potential and witnessed robust earnings estimate revisions, in the last 7 to 30 days, reflecting their near-term business strength. Each of our picks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The chart below shows the price performance of our five picks in September.
Zoom Video Communications Inc. ZM provides a video-first communications platform worldwide. Demand for its remote work platform and solutions is expected to remain robust as some form of social distancing will be required until a vaccine or any effective treatment for coronavirus is developed.
The Zacks Rank #1 company has an expected earnings growth rate of more than 100% for the current year (ending January 2021). The Zacks Consensus Estimate for current-year earnings has improved 78% over the last 30 days. The stock price has soared 44.1% in September.
RH RH operates as a retailer in home furnishings. It offers products in various categories, including furniture, lighting, textiles, bathware, décor, outdoor and garden, tableware, and child and teen furnishings.
The Zacks Rank #1 company has an expected earnings growth rate of 42% for the current year (ending January 2021). The Zacks Consensus Estimate for the current year has improved 44.9% over the last 30 days. The stock price has surged 12.6% in September.
Penn National Gaming Inc. PENN owns and manages gaming and racing properties, and operates video gaming terminals with a focus on slot machine entertainment. It operates through four segments: Northeast, South, West, and Midwest.
Although the company has a negative growth rate for the current year, it estimated growth rate for next year is more than 100%. The Zacks Consensus Estimate for the current year has increased 3.4% over the last 7 days. The Zacks Rank #2 stock has jumped 37.2% in the past month.
Tapestry Inc. TPR provides luxury accessories and branded lifestyle products in the United States, Japan, China, Hong Kong, Macau, Taiwan, Europe, Canada, South Korea, Malaysia, Singapore, Australia, and New Zealand. It operates through three segments: Coach, Kate Spade, and Stuart Weitzman.
The Zacks Rank #2 company has an expected earnings growth rate of 90.7% for the current year (ending June 2021). The Zacks Consensus Estimate for the current year has improved 0.5% over the last 7 days. The stock price has advanced 12.1% in September.
Zillow Group Inc. ZG operates real estate brands on mobile and the web in the United States. It operates through three segments: Homes; Internet, Media & Technology, and Mortgages. The Zacks Rank #2 company has an expected earnings growth rate of 18.5% for the current year. The Zacks Consensus Estimate for the current year has improved 42.1% over the last 30 days. The stock price has gained 11.2% in September.
These Stocks Are Poised to Soar Past the Pandemic
The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.
Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.
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RH (RH): Free Stock Analysis Report
Penn National Gaming, Inc. (PENN): Free Stock Analysis Report
Zillow Group, Inc. (ZG): Free Stock Analysis Report
Tapestry, Inc. (TPR): Free Stock Analysis Report
Zoom Video Communications, Inc. (ZM): 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.