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Forget Geopolitics, Turn to Q1 Earnings With 5 Winning Stocks

Zacks

Astute investors have turned their focus from the latest White House tweets to Q1 corporate profits. Strategists believe that tax benefits and pickup in deal activity will aid earnings. Wall Street has always shown an uptrend after earnings release in the last five years.

Geopolitical crises like the prospects of a Western strike on Syria and trade war tensions have receded somewhat. Mounting military tensions, historically, has had no effect on markets but on humans. In addition, Trump has toned down some of the trade war banters with China, by categorically stating that the nations may not end up imposing the proposed tariffs.

Since Q1 earnings is expected to drive equity gains and talks of firing missiles and trade war rhetoric take a back seat, investing in sound growth stocks that can make the most of the first-quarter earnings season seems judicious.

Investors Shouldn’t Fear a Syria Strike


Escalating concerns over the Middle Eastern countries have been weighing on investors’ mind for quite some time now. Trump had twitted that a missile attack on Syria was very much in the cards after Syrian President Bashar al-Assad sanctioned chemical weapon attack on civilians in Damascus over the weekend. Russia had retaliated, saying that it will fend off any U.S. missile.

Such a concern, however, ratcheted down lately after Trump suggested that a military strike on Syria may not be imminent. He tweeted “never said when an attack on Syria would take place. Could be very soon or not so soon at all!”

Investors should also shrug off fears of a U.S. missile strike on Syria. Historically, such military attacks have limited impact on the stock market, especially over the long run. Jeffrey Kleintop, the chief global investment strategist at Charles Schwab & Co, said that immediately after a military strike markets tend to lose around 0.2% to 0.3%, but there is nothing exceptional about it. Such a movement happens almost daily during normal trading sessions.

Trump Defuses Trade War Chatter with China

Trump had earlier, in the light of China’s “illicit trade practices,” doubled down on China tariffs, ratcheting up possibilities of a U.S.-China trade war. He had ordered the U.S. Trade Representative to consider imposing tariffs on additional $100 billion in Chinese imports. China in turn was widely expected to adopt a similar protectionist move and heighten global concerns of a tit-for-tat trade battle.

This had resulted in a lot of uneasiness, with most sectors expected to suffer collateral damage. After all, increased trade conflicts dent corporate profits and impede economic expansion. But, for now, Trump said that the United States may be able to avoid a potential trade conflict with China provided Beijing is willing to give more American products access to its market. Eventually, he believes that the countries will end up imposing no tariffs at all.

Q1 Earnings Takes Center Stage

While geopolitical jitters wane, investors anticipate a strong earnings season to lift Wall Street. Banks have already started to pop ahead of earnings. For the Finance sector, of which the Major Banks industry is the biggest earnings contributor, total Q1 earnings are expected to be up 19.2% from the same period last year on 4.5% higher revenues. This would follow 0.6% earnings growth in the preceding quarter on 4% higher revenues (read more: Banks Set for Blockbuster Q1 Earnings: 5 Top Picks).

Total earnings for the S&P 500 companies are estimated to improve 16% from the same period last year on 7.4% higher revenues, the highest quarterly earnings growth pace in seven years (read more: Q1 Earnings to Take Wall Street by Storm: Top 6 Picks).

Earnings are likely to rise mostly on Trump’s polices, including tax cuts. The latest tax laws gave companies massive tax relief as they will now be paying between 8% and 15.5% instead of the earlier 35% for bringing back money held overseas (read more: GOP Passes Landmark Tax Bill: Best & Worst for Stocks).

Earnings Season Mostly Leads to Big Stock Gains

Strategists from JPMorgan Chase & Co. JPM and Deutsche Bank have expressed optimism, citing that share buybacks and stronger global growth will help S&P earnings surpass estimates by 5%, more than average margin of 3.1% in the past five years, per data compiled by Bloomberg.

Undeniably, this will be another big quarter for profit growth eventually leading to an uptick in share prices. After all, a whopping 80% of S&P gains came during earnings season since 2013, per Bloomberg.

5 Top Picks

Wall Street, of late, has been scaling higher on optimism that lower U.S. taxes will boost corporate profits. Conversely, investors ignored rising military tensions and trade policy that had sparked tensions for Wall Street over the past several weeks.

This calls for investing in stocks that will report a significant uptick in Q1 earnings and in the process scale north. Such stocks have a positive Earnings ESP. This is our proprietary methodology for determining stocks that have the best chance to surprise with their next earnings announcement. It provides the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

These stocks also flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a Growth Style Score of A or B. This combination offers the best investment opportunities in the growth investing space.

Axon Enterprise, Inc. AAXN develops, manufactures, and sells conducted electrical weapons. The company has a Zacks Rank #1 and a Growth Score of B.

The Zacks Consensus Estimate for its current-year earnings climbed more than 100% in the last 60 days. Axon Enterprise has an Earnings ESP of +12.50%. The company is scheduled to report earnings results for the quarter ending March on May 8.

ArcBest Corporation ARCB provides freight transportation services and integrated logistics solutions. The company has a Zacks Rank #2 and a Growth Score of A.

The Zacks Consensus Estimate for its current-year earnings increased 3.1% in the last 60 days. ArcBest has an Earnings ESP of +34.48%. The company is slated to report earnings results for the quarter ending March on May 10.

Ruth's Hospitality Group, Inc. RUTH, together with its subsidiaries, develops, operates, and franchises fine dining restaurants. The company has a Zacks Rank #1 and a Growth Score of A.

The Zacks Consensus Estimate for its current-year earnings climbed 11.6% in the last 60 days. Ruth's Hospitality has an Earnings ESP of +14.29%. The company is scheduled to report earnings results for the quarter ending March on May 4. You can see the complete list of today’s Zacks #1 Rank stocks here.

Comstock Resources, Inc. CRK acquires, develops, explores, and produces oil and natural gas properties. The company has a Zacks Rank #2 and a Growth Score of A.

The Zacks Consensus Estimate for its current-year earnings soared more than 100% in the last 60 days. Comstock Resources has an Earnings ESP of +33.42%. The company is scheduled to report earnings results for the quarter ending March on May 14.

Vertex Energy, Inc. VTNR provides a range of services designed to aggregate, process, and recycle industrial and commercial waste systems. The company has a Zacks Rank #2 and a Growth Score of B.

The Zacks Consensus Estimate for its current-year earnings jumped 28% in the last 60 days. Vertex Energy has an Earnings ESP of +33.33%. The company is scheduled to report earnings results for the quarter ending March on May 9.

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