Top 5 Momentum Stocks for May After a Disappointing April

April is historically known as being favorable to Wall Street investors. But this year, April ended on a disappointing note. A sticky inflation rate, a resilient labor market and a significant decline in the U.S. GDP growth rate dented market participants confidence in risky assets like equities.

The Dow plunged 5%, marking its worst monthly performance since September 2022.  The S&P 500 plummeted 4.2% and the Nasdaq Composite tanked 4.4%. All three major stock indexes terminated a five-month winning streak.

Wall Street Likely to Regain Pace in May

U.S. stock markets rebounded in May after Fed Chairman Jerome Powell categorically denied the resumption of the interest rate hike regime in his post-FOMC meeting statement. Moreover, the FOMC voted to ease the pace at which it is reducing bond holdings on the central bank’s gigantic balance sheet. The Fed started this program in June 2022, which was known as “quantitative tightening.” Its latest decision could be viewed as an incremental loosening of monetary policy.

Furthermore, first-quarter 2024 earnings results have come in better than expected so far. As of May 1, 310 companies on the S&P 500 Index reported their financial numbers. Total earnings for these index members are up 5% from the same period last year on 4.5% higher revenues, with 78.1% beating EPS estimates and 59.4% beating revenue estimates.

At present, total earnings of the S&P 500 Index in first-quarter 2024 are expected to be up 4.8% on 4.2% higher revenues. This follows the 6.8% earnings growth on 4% higher revenues in fourth-quarter 2023 and 3.8% earnings growth on 2.2% higher revenues in third-quarter 2023.

Finally, the CME FedWatch currently shows 61% probability that the Fed will reduce its fund rate by 25 basis points in the September FOMC meeting. The benchmark lending rate has stayed static in the range of 5.25-5.5% since July 2023. The interest rate futures tool also shows a 51.5% probability that the central bank will reduce interest rate by 50 basis points by the end of 2024.

Our Top Picks

At this stage, it will be prudent to invest in momentum stocks that have provided double-digit returns year to date. We have narrowed our search to five large-cap stocks that have strong momentum for May. These companies have strong potential for 2024 too.

These stocks have seen positive earnings estimate revisions in the last seven days. Each of our picks carries a Zacks Rank #1 (Strong Buy) and has a Momentum Score of A.  You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows the price performance of our five picks year to date.

Zacks Investment Research
Image Source: Zacks Investment Research

Alphabet Inc.’s GOOGL first quarter results were driven by solid momentum in the cloud business. Further, improving Search performance on the back of major Search updates, was a positive. Also, the strength in YouTube favored the stock. Notably, a robust cloud division remains the key catalyst for GOOGL.

Expanding data centers will continue to bolster GOOGL’s presence in the cloud space. Strengthening generative AI capabilities should aid business growth in the long term. GOOGL’s deepening focus on the wearables category remains a tailwind. Expanding presence in the autonomous driving space is a plus.

Alphabet has an expected revenue and earnings growth rate of 15.1% and 30.5%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 11.5% over the last seven days.

Coinbase Global Inc. COIN provides financial infrastructure and technology for the crypto economy in the United States and internationally. COIN offers the primary financial account in the crypto space for consumers, a marketplace with a pool of liquidity for transacting in crypto assets for institutions; and technology and services that enable developers to build crypto-based applications and securely accept crypto assets as payment.

Coinbase Global has an expected revenue and earnings growth rate of 48.4% and more than 100%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 11.1% over the last seven days.

Westinghouse Air Brake Technologies Corp. WAB continues to benefit from solid growth across its Freight and Transit segments. While the Freight segment benefits from growth in services and components, the Transit segment gains from strong aftermarket and original equipment manufacturing sales.

For full-year 2024, WAB expects sales in the $10.05-$10.35 billion band. Adjusted earnings per share for 2024 are estimated between $6.50 and $6.90. Management anticipates strong cash flow generation, with operating cash flow conversion exceeding 90%. WAB’s pro-investor stance, which is evident from its announcements of a 17.6% dividend hike and a $1 billion share buyback authorization, looks encouraging.

Westinghouse Air Brake Technologies has an expected revenue and earnings growth rate of 6.5% and 19.8%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 5.3% over the last seven days.

Spotify Technology S.A. SPOT provides audio streaming services worldwide. SPOT operates through two segments, Premium and Ad-Supported. The Premium segment offers unlimited online and offline streaming access to its catalog of music and podcasts without commercial breaks to its subscribers.

The Ad-Supported segment provides on-demand online access to its catalog of music and unlimited online access to the catalog of podcasts to its subscribers on their computers, tablets, and compatible mobile devices. SPOT also offers sales, distribution and marketing, contract research and development, and customer support services.

Spotify Technology has an expected revenue and earnings growth rate of 16.5% and more than 100%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 28.3% over the last seven days.

Agnico Eagle Mines Ltd. AEM is actively bolstering its exploration and asset investments. By prioritizing sustainability and operational efficiency, AEM aims to boost both production levels and cash flow generation.

The merger with Kirkland Gold solidifies AEM’s standing as a premier gold producer, backed by enhanced financial resources and a robust project pipeline. AEM is strategically diversifying its operations to mitigate risks and maintain financial resilience.

Agnico Eagle Mines has an expected revenue and earnings growth rate of 8.8% and 44.8%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 16.6% over the last seven days.

Highest Returns for Any Asset Class

It’s not even close. Despite ups and downs, Bitcoin has been more profitable for investors than any other decentralized, borderless form of money.

No guarantees for the future, but in the past three presidential election years, Bitcoin’s returns were as follows: 2012 +272.4%, 2016 +161.1%, and 2020 +302.8%. Zacks predicts another significant surge in months to come.

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Agnico Eagle Mines Limited (AEM) : Free Stock Analysis Report

Westinghouse Air Brake Technologies Corporation (WAB) : Free Stock Analysis Report

Alphabet Inc. (GOOGL) : Free Stock Analysis Report

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Coinbase Global, Inc. (COIN) : 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.

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