Since the start of the year, Wall Street has remained green, after an astonishing 2020, despite recent concerns about inflation and soaring long-term US sovereign bond yields. Stock markets are expected to move north, barring occasional swings supported by strong expectations for US GDP and corporate earnings growth this year.
At this point, several large-cap stocks (market capital> $ 10 billion) of the S&P 500 with a favorable Zacks ranking and strong growth potential for 2021 are available. A few of these stocks have seen positive earnings estimate revisions over the past 7 days. An upward revision to earnings estimates for 2021 simply means that the market expects these companies to do well this year. Investing in these stocks is likely to be successful in the future.
Impressive projections for US GDP
Projections for US GDP and corporate profits have been rising steadily since the start of this year. Notably, U.S. GDP plunged 3.5% in the 2020 pandemic, marking its largest annual decline since World War II and for the first time since the 2009 financial crisis.
On March 17, the Fed raised its GDP forecast for 2021 to 6.5% from 4.2% in December. On March 10, the Wall Street Journal reported that economists on average expect U.S. GDP to grow nearly 6% this year, down from 4.9% in February and 4.3% in January. According to the Wall Street Journal, this will be the strongest growth in US GDP since 7.9% in 1983.
On March 9, the OECD estimated that the latest fiscal stimulus, along with faster vaccination, could lift US GDP growth to 6.5% in 2021. Oxford Economics predicted US GDP growth of 7% in 2021. In January, the International Monetary Fund estimated 5.1% US GDP growth in 2021.
Strong expectations for corporate earnings
Corporate profit expectations are also gradually improving. In 2019 (the year of serious trade and tariff disputes with China), total profits of the S&P 500 benchmark companies grew 0.4% year-on-year on revenues up 5. 2%. However, the total profits of the same companies fell 13.2% year on year in 2020, with revenues 2.3% lower due to the global outbreak of the deadly novel coronavirus.
Meanwhile, projections for total profits for S&P 500 companies in 2021 have jumped 24.4% year-over-year to higher earnings of 8.6%. In addition, the total profit projections for these companies in 2022 are up 14.9% year-over-year on revenues 6.5% higher. (Read more: What will the 2021 first quarter earnings season show?)
On March 19, the Wall Street Journal reported that in March, restaurant and hotel reservations in the United States, as well as airline ticket sales, had increased significantly. Americans are spending more on gyms, salons and spas in recent weeks than they have been since the start of the coronavirus pandemic.
Several catalysts are there for these positive points. The government has stepped up the nationwide rollout of COVID-19 vaccines, and all three FDA-approved vaccine manufacturers have increased production.
With this, the restrictions on business activities and individual activities have loosened considerably. Several research firms have estimated that American citizens have staggering savings of $ 1.5 trillion to $ 1.8 trillion at the end of 2020, which could reach $ 2.4 trillion by mid-2021 due to various lock restrictions.
Additionally, according to the Biden administration’s new $ 1.9 trillion coronavirus assistance program, eligible U.S. citizens will receive a check payment of $ 1,400 in addition to $ 1,400 for any dependents. In addition, the additional unemployment benefit amount of $ 300 per week will be available until September 6. The new stimulus is expected to dramatically increase pent-up demand from US consumers.
Our top picks
We’ve narrowed down our search to the five large-cap stocks in the S&P 500 that have strong growth potential in 2021 and have seen strong earnings estimate revisions over the past 7 days. Each of our picks carries a Zacks Rank # 1 (strong buy). You can see The full list of today’s Zacks # 1 Rank stocks here.
The graph below shows the price performance of our five picks since the start of the year.
L Brands Inc. LB is a specialty retailer of intimate and other womenswear, personal care, beauty products and home fragrances. It operates in three segments: Victoria’s Secret, Bath & Body Works, and Victoria’s Secret and Bath & Body Works International.
The company has an expected profit growth rate of 22% for the current year (ending January 2022). Zacks’ consensus estimate for current year earnings has improved 2.9% in the past 7 days.
Pioneer Natural Resources Co. PXD is an independent United States oil and gas exploration and production company. The company explores, develops and produces petroleum, natural gas liquids and gas.
The company has an expected profit growth rate of over 100% for the current year. Zacks’ consensus estimate for current year earnings has improved 2.9% in the past 7 days.
Nucor Corp. NUE is a leading producer of structural steel, steel bar, steel joists, steel decks and cold finished bar in the United States. It operates through three segments: steelworks, steel products and raw materials.
The company has an expected profit growth rate of over 100% for the current year. Zacks’ consensus estimate for current year earnings has improved 16.8% in the past 7 days.
EOG Resources Inc. EOG explores, develops, produces and markets crude oil, natural gas and natural gas liquids in the United States and around the world.
The company has an expected profit growth rate of over 100% for the current year. Zacks’ consensus estimate for current year earnings has improved 1% over the past 7 days.
Align Technology Inc. ALGN is a medical device company that designs, manufactures and markets Invisalign transparent aligners and iTero intraoral scanners and services for orthodontists and general dentists and restorative and aesthetic dentistry. It operates in two segments, Clear Aligner and Scanners and Services.
The company has an expected profit growth rate of 73.9% for the current year. Zacks’ consensus estimate for current year earnings has improved 0.4% in the past 7 days.
Zacks Top 10 stocks for 2021
In addition to the actions described above, would you like to know our top 10 buy and hold tickers for all of 2021?
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Pioneer Natural Resources Company (PXD): Free Inventory Analysis Report
EOG Resources, Inc. (EOG): Free Stock Analysis Report
Nucor Corporation (NUE): Free Stock Analysis Report
Align Technology, Inc. (ALGN): Free Stock Analysis Report
L Brands, Inc. (LB): 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.