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5 Stocks to Gain on Strongest Job Reports Since July 2016

Zacks

With inflation concerns gripping Wall Street in the past few weeks, the market has been quite volatile. However, the announcement of February’s job report by the Labor Department – which also included softer wage growth numbers – has eased inflation fears. As a result, the major market indices surged during last Friday’s trading session.

Record Job Creations

Through February, the U.S. economy witnessed the addition of 313,000 new jobs. This monthly job addition was the strongest since July 2016 and also surpassed expectations of the economists surveyed by Reuters. These economists were projecting the nonfarm payrolls to be up by 200,000.

The largest number of jobs came from the construction industry. More than 60,000 new jobs in this industry stemmed from higher building constructions and specialty trade contractors, the government noted.


Significant contributions also came from the retail industry, where roughly 50,000 new jobs were added. Clothing and general merchandise stores employed more workers, which attributed to the outperformance of the industry. Contributions from the retail space have become significant as the last few months witnessed both hiring and lay-offs in the industry.

The manufacturing businesses created 31,000 jobs last month, backing the industry’s 224,000 job creations over the last 12 months. Industries related to business services and financial activities were responsible for creation of 50,000 and 28,000 new jobs, respectively.

Unemployment Rate Remains Low, Wage Growth Falls

During February, the unemployment rate was recorded at 4.1%, the same as the prior five months. With this, the rate remained at a 17-year low mark. The civilian labor force jumped by 806,000 during the last month, of which 97% were hired, announced Jefferies, a global investment bank.

Jefferies added that this is a significant advancement since the financial crisis, as people looking for jobs could get it now. Also, the labor force participation rate inched up 0.3% sequentially, per The Bureau of Labor Statistics.

February’s average hourly wage grew 0.1% sequentially, lower than 0.3% growth in January. Following this backdrop, the hourly earnings climbed 2.6% year over year in February, below the wage growth of 2.8% for January. Also, the hourly earnings growth of January was revised lower at 2.9%.

Job Data is Goldilocks

Per CNBC, most of the economists believe February’s job data is "Goldilocks." Even though the economy remains robust, the softness in hourly wage numbers might not prompt the Fed to go for four rate hikes. Investors are pleased with the reports as the lower wage growth rate in the month of February has eased inflation concerns.

The Fed funds futures increased marginally following the announcement of the job reports, too. The slight increase reflects that the market has opined for three rate hikes instead of four, said Ian Lyngen of BMO Capital Markets, a leading provider of financial services in North America.

Stocks to Gain

Ramped-up hiring in the construction industry has prompted us to focus on this sector. The construction space has added 185,000 new jobs in the last four months.

Picking construction stocks seems to be a smart option at this moment. However, picking winning stocks may be a daunting task.

This is where our VGM Score comes in handy. Here, V stands for Value, G for Growth, and M for Momentum, and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score.

We have narrowed down our search to the following stocks based on a solid Zacks Rank and VGM Score.

Headquartered at Boise, ID, Boise Cascade Company BCC is the leading constructer of engineered wood products. The company’s earnings surprise history is impressive, with an average positive earnings surprise of 52.9% for the prior four quarters. Boise Cascade will likely post earnings growth of 36.7% and 3.8% for 2018 and 2019 respectively.

Currently, the stock sports a Zacks Rank #1 (Strong Buy) and a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.

CRH plc CRH, headquartered at Dublin, Ireland, is the leading provider of building materials. The company is expected to post year-over-year earnings growth of 50.3% and 14.1% for 2018 and 2019 respectively.

The firm has a VGM Score of A and Zacks Rank #2 (Buy).

Headquartered at Newport Beach, CA, William Lyon Homes WLH is a leading homebuilder. The company posted an average positive earnings surprise of 3.9% over the trailing three quarters. We expect the stock to post earnings growth of 38% and 18% for 2018 and 2019, respectively.

This #2 Ranked stock carries a VGM Score of A.

Headquartered at Buffalo, NY, Gibraltar Industries, Inc. ROCK is engaged in constructing and supplying building products. The stock surpassed the Zacks Consensus Estimate in three of the prior four quarters, and has an average positive earnings surprise of 13%.

For 2018 and 2019, the firm will likely witness earnings growth of 20.5% and 14.08%, respectively. At present, this Zacks #2 Ranked stock carries a VGM Score of B.

Advanced Drainage Systems, Inc. WMS, headquartered at Hilliard, OH, is one of the leading constructors of thermoplastic corrugated pipes. The company will likely post earnings growth of 50% and 27% for fiscal years 2018 and 2019, respectively.

The stock carries a Zacks Rank of 2 with VGM Score of A.

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