4 Factors Likely to Drive Year-End Wall Street Rally: 5 Picks

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Wall Street is firing on all cylinders, exhibiting an impressive recovery after September’s turmoil. On Nov 8, all the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — recorded new all-time and closing highs. The S&P 500 registered eight consecutive record closes, marking its longest winning streak since Jun 17, 1997. The Nasdaq Composite posted 11 straight closing highs, the longest since Dec 26, 2019.

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Moreover, these three indexes completed the fifth consecutive week in green for the week ended Nov 5. Year to date, the Dow, the S&P 500 and the Nasdaq Composite — have rallied 19%, 25.2% and 24%, respectively. Meanwhile, four factors are likely to drive Wall Street’s impressive bull run for the rest of 2021.

Strong Projections for Holiday Sales

Several market researchers have projected strong U.S. holiday sales this year. A sharp decline in new cases of the Delta variant of coronavirus, the nationwide deployment of COVID-19 vaccination and some recently released encouraging clinical trial data for easy-to-administer COVID-19 pills have paved the way for a strong holiday sales season.

The National Retail Federation has projected November/December retail sales in the range of $843.4 billion to $859 billion, up 8.5% to 10.5% from 2020. Business consultant Deloitte forecasts growth of 7% to 9% or between $1.28 and $1.3 trillion during the November-to-January period.

Digital Commerce 360 has estimated that holiday retail sales through all channels, including physical stores, are likely to rise 9.4% or $843.24 billion during the season. E-commerce revenues are expected to reach $215.45 billion, surpassing the $200 billion milestone for the first time.

Additionally, KPMG expects that 2021 U.S. holiday sales will be 7% higher than last year. Mastercard SpendingPulse forecasts a 7.4% year-over-year rise in U.S. holiday sales.

Biden’s Infrastructure Plan

On Nov 5, in a majority voting of 228-206, the House of Representative passed a $1.2 trillion bipartisan infrastructure bill. The bill, cleared by the Senate in August, will go to White House for President Joe Biden’s approval.

The bill includes transport, drinking-water, broadband, manufacturing and construction infrastructure developments. Segments like basic materials, industrials, telecommunications and utilities will benefit immensely with more job creation for the economy.

Robust U.S. Corporate Profits

We are in the last-leg of the third-quarter 2021 earnings season. Results are pretty encouraging despite prolonged supply-chain disruptions, a labor shortage, higher inflationary pressure and the resurgence of the Delta variant of coronavirus.

As of Nov 5, total third-quarter earnings of the market’s benchmark — the S&P 500 Index — are projected to jump 39.7% from the same period last year on 16.5% higher revenues. This suggests a steady improvement from 26.1% earnings growth on 14% higher revenues, estimated at the beginning of the reporting cycle.

Moreover, in fourth-quarter 2021, total earnings of the S&P 500 index are expected to up 20% year over year on 10.8% higher revenues.

Solid U.S. GDP Growth

In its latest projection on Nov 4, the Atlanta Fed reported that the U.S. economy will grow by 8.5% in fourth-quarter 2021. This indicates an improvement from 8.1% on Nov 1 and 6.6% on Oct 29. The U.S. GDP grew 6.4%, 6.7% and 2%, in the first, second and third quarter of this year, respectively.

Better-than-expected nonfarm payrolls in October, record-high manufacturing and services PMIs and soaring consumer confidence have led to a solid start to fourth-quarter U.S. GDP growth.

Our Top Picks

Several good stocks are available for investment for the rest of this year. However, we have applied our VGM Style Score to narrow down the search to five stocks. These stocks have strong growth potential for the rest of 2021 and have seen solid earnings estimate revisions in the last 7 days, indicating that the market currently expects these companies to do solid business in 2021.

Each of our picks carries a Zacks Rank #1 (Strong Buy) and has a VGM Score of A. or B. 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 in the past three months.

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Dow Inc. DOW should gain from cost synergy savings and productivity initiatives. The company is focused on maintaining cost and operational discipline through cost synergy and stranded cost-removal initiatives. Its actions to reduce operating costs are expected to lend support to its earnings in 2021.

Dow’s restructuring program is also expected to deliver margin benefits. Investment in high-return projects should also be accretive to its earnings. Management is investing in several high-return growth projects including the expansion of downstream silicones capacity.

The company has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 0.3% over the last 7 days.

ConocoPhillips COP holds a bulk of acres in the three big unconventional plays, namely Eagle Ford shale, Delaware basin and Bakken shale, which are rich in oil. The upstream energy player also has a foothold in Canada’s oil sand resources and exposure to developments related to liquefied natural gas.

Recently, ConocoPhillips announced an agreement to purchase all of Royal Dutch Shell’s assets in the prolific Permian. The deal reflects ConocoPhillips’ aim of broadening its Permian presence. The transaction is highly accretive and involves the acquisition of roughly 225,000 net acres in the heart of the core Delaware basin.

The company has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 9.7% over the last 7 days.

Westlake Chemical Corp. WLK is benefiting from synergies of the Axiall acquisition. The buyout has diversified its product portfolio and geographical operations. The NAKAN acquisition has also allowed it to boost its compounding business globally. Further, the company sees favorable demand trends for polyethylene and polyvinyl chloride resin.

Strong demand in the polyethylene business is likely to continue, especially in food packaging. Also, rising housing starts in the United States augur well for its downstream vinyl products business and domestic demand for PVC. It should also benefit from its capacity expansion projects.

The company has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 0.9% over the last 7 days.

Avis Budget Group Inc. CAR provides car and truck rentals, car sharing, and ancillary services to businesses and consumers. The company’s ability to cater to a wide range of mobility demands helps it expand and strengthen its global foothold through organic growth.

It operates through distinct global brands that focus on different market segments and complement other brands in their respective regional markets. It’s fleet expansion and technology enhancement efforts are likely to enhance its offerings.  

The company has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 25.6% over the last 7 days.

Targa Resources Corp. TRGP boasts an attractive portfolio of energy infrastructure assets, including a leading position in the Mont Belvieu NGL hub that generates stable and recurring fee and tariff-based revenues. It is well-diversified geographically with its assets serving some of the most attractive oil and gas formations across the United States, and linked with major NGL hubs and logistics centers.

The company’s integrated business model and downstream presence offers an attractive upside opportunity compared to most of its peers. Moreover, Targa Resources’ sizeable presence in the booming Permian Basin enhances its growth potential. Another plus is that it is largely immune to commodity price fluctuations.

The company has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings improved 1.8% over the last 7 days.

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