All the three major market averages have been on a tear since last week when President Donald Trump pledged to release details on his promised tax cuts within two to three weeks. Barring Trump’s tax reforms, Wall Street also celebrated strength in the American economy. January data indicating higher retail sales and consumer inflation helped propel stocks, while the fourth-quarter earnings picture continues to be comforting.
As the equity market continues to gain traction in the near term, it will be prudent to invest in solid growth stocks. Dispelling skepticism over an overheated market, earnings of such stocks are poised to grow at an above-average rate relative to the market.
Rally in Stock Prices
The Dow, the S&P 500 and the Nasdaq skyrocketed to record highs on Feb 15, the fifth straight day of an all-time high. All the three major U.S. equity indices achieved this feat since a six-session string ended Jan 3, 1992, according to Dow Jones data.
After crossing the key physiological bar of 20,000, the Dow is now approaching the 21,000 mark, while the S&P 500 had already topped $20 trillion in combined market-capitalization for the first time ever. The benchmark index has not experienced more than 1% daily loss since Trump’s election victory while it gained over 10% since that period.
The Nasdaq also notched its longest record streak since the dot com bubble of 1999. The Nasdaq zoomed to the seventh successive record high on Feb 15, which helped the tech-laden index catch up to the Dow’s post-election surge. Both are now up about 12% since Nov 8.
Trump’s Tax Policies Annihilate Bears
Wall Street pushed further into record territory on the ongoing optimism that Trump will cut corporate taxes. His plans to revive a ‘phenomenal’ tax cut plan revitalized expectations of a pro-growth agenda that took a backseat amid contentious immigration ban and protectionist trade rules.
Trump plans to overhaul tax codes for business and individuals over the next two to three weeks. He plans a multi-trillion-dollar tax cut that would boost the U.S. economy and lift corporate profits. Such a tax cut included trimming of the business tax rate to 15% from 35%, reducing individual tax rates and repealing the estate tax. He also proposed expanding tax break for child-care expenses.
Such a plan will reduce federal taxes by $4.4 trillion to $5.9 trillion over a decade and is expected to increase GDP between 6.9% and 8.2%. Moreover, if he succeeds in overhauling the tax policy, it could allow multinationals to bring back the vast amount of cash stashed overseas, which then could be used to pay hefty dividends, buy back stocks, execute acquisitions and construct factories. Companies like Apple Inc. AAPL has an incredible $230 billion in cash held overseas, while many other have vast sums of money parked abroad (read more: 5 Stocks to Buy as Trump Chalks Out 'Phenomenal' Tax Plan).
Economic Data Robust, Earnings Reassuring
Better-than-expected rise in retail sales coupled with consumer prices recording the highest gain in almost four years in January reinforced confidence in the economy, which followed an upbeat fourth-quarter earnings season.
Many U.S. retailers posted strong sales in January including the beleaguered department stores. Following a much bigger gain in December, retail sales rose 0.4% last month, ahead of the consensus estimate of a gain of 0.1%. Excluding autos and gasoline, retail sales rose 0.7%, according to the Commerce Department. It seems higher consumer confidence since the election encouraged Americans to spend more. The economy’s strengthening outlook was bolstered by another report showing a rise in manufacturing and mining production last month as the drag from lower oil prices subsided.
Fourth-quarter earnings, in the meantime, are on track to be the highest ever. As of Feb 15, 375 S&P 500 members have reported their releases so far. Earnings for these members are up 7.2% on 4.6% higher revenues, with 68.8% beating EPS estimates and 54.4% coming ahead of top-line expectations (read more: A Positive & Reassuring Earnings Picture).
5 Top-Ranked Growth Stocks to Buy Now
Thanks to the rise in major indices and the signs of a strengthening economy, investing in growth stocks seems to be judicious. These companies have economies of scale, a firm grasp on the majority of market share, a very loyal customer base and advanced product lines. Growth stocks are also anticipated to generate substantial capital gains, banking on this uptrend.
Thanks to our new style score system, we have been able to identify five growth stocks. Such stocks boost a Growth Style Score of ‘A’ and a Zacks Rank #1 (Strong Buy), which offers the best opportunities in the growth investing space. You can see the complete list of today’s Zacks #1 Rank stocks here.
Kforce Inc. KFRC is engaged in providing professional and technical specialty staffing services and solutions. The company’s expected earnings growth rate for this year is 27%, higher than the industry’s gain of 11.4%. Kforce has given a year-to-date return of 9.3%.
Leucadia National Corp. LUK engages in investment banking and capital markets, beef processing, manufacturing, oil and gas exploration and production, and asset management activities. The company’s expected earnings growth rate for this year is over 100%, way ahead of the industry’s addition of 19%. Leucadia National has given a year-to-date return of 7.5%.
Radiant Logistics, Inc. RLGT provides multi-modal transportation and logistics services primarily in the U.S. The company’s expected earnings growth rate for this year is more than 100%, higher than the industry’s gain of a meagre 0.9%. Radiant Logistics has given a year-to-date return of 33.6%.
Insight Enterprises, Inc. NSIT provides information technology (IT) hardware, software, cloud, and service solutions for business, government, healthcare, and educational clients in the U.S. The company’s expected earnings growth rate for this year is 13.1%, more than the industry’s addition of 2.5%. Insight Enterprises has given a year-to-date return of 11%.
Logitech International SA LOGI designs, manufactures and markets products that allow people to connect through music, gaming, video, computing, and other digital platforms. The company’s expected earnings growth rate for this year is 30.2%, way higher than the industry’s increase of 2.3%. Logitech International has given a year-to-date return of 19.1%.
A Full-Blown Technological Breakthrough in the Making
Zacks’ Aggressive Growth Strategist Brian Bolan explores autonomous cars in our latest Special Report, Driverless Cars: Your Roadmap to Mega-Profits Today. In addition to who will be selling them and how the auto industry will be impacted, Brian reveals 8 stocks with tremendous gain potential to feed off this phenomenon. Click to see the stocks right now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Apple Inc. (AAPL): Free Stock Analysis Report Logitech International S.A. (LOGI): Free Stock Analysis Report Leucadia National Corporation (LUK): Free Stock Analysis Report Insight Enterprises, Inc. (NSIT): Free Stock Analysis Report Radiant Logistics, Inc. (RLGT): Free Stock Analysis Report Kforce, Inc. (KFRC): Free Stock Analysis Report To read this article on Zacks.com click here.