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Buy These 5 Year-to-Date Laggards With Strong Upside Potential
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U.S. stock markets regained momentum after facing a setback in April. Prior to April, Wall Street witnessed an impressive 15-month rally. Wall Street’s bull run has got an added boost this year, to the surprise of a large section of financial pandits, who indiscriminately warned of overvaluation.
In 2023, the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — jumped 13.7%, 23.9% and 43.4%, respectively. Continuing the bull run, the S&P 500 rallied 10.2% in first-quarter 2024, marking its best first-quarter performance since 2019. The Dow surged 5.6%, reflecting its strongest first-quarter performance since 2021. The tech-heavy Nasdaq Composite appreciated 9.1% in the same quarter.
However, the three major indexes tumbled in April. Despite the meltdown, year to date, the Dow, the S&P 500 and the Nasdaq Composite – are up 3.6%, 9.4% and 10.4%, respectively. However, several stocks underperformed the market to a great extent curtailing the dream run. A few of these stocks currently carry a favorable Zacks Rank. These stocks are likely to regain momentum over the rest of 2024.
Likely Rate Cuts & Earnings Act as Catalysts
Following the release of April’s nonfarm payrolls, the CME FedWatch shows a 67.4% probability that the central bank will cut the benchmark lending rate by 25 basis points in the September FOMC meeting. The interest rate futures tool also shows a massive 91.5% probability that the Fed will cut the rate by 50 basis points.
Furthermore, first-quarter 2024 earnings results have come in better than expected so far. As of May 7, 426 companies on the S&P 500 Index reported their financial numbers. Total earnings of these index members are up 5.2% from the same period last year on 4.1% higher revenues, with 78.2% beating EPS estimates and 61% beating revenue estimates.
At present, total earnings of the S&P 500 Index in first-quarter 2024 are expected to be up 4.8% on 4.2% higher revenues. This follows the 6.8% earnings growth on 4% higher revenues in fourth-quarter 2023 and 3.8% earnings growth on 2.2% higher revenues in third-quarter 2023.
Our Top Picks
We have narrowed our search to five large-cap stocks that have lagged the market year to date. However, these stocks have strong potential for 2024. They have seen positive earnings estimate revisions in the last 30 days. Each of our picks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The chart below shows the price performance of our five picks year to date.
Image Source: Zacks Investment Research
ServiceNow Inc. (NOW - Free Report) has been benefiting from the rising adoption of its workflows by enterprises undergoing digital transformation. NOW had 1933 total customers with more than $1 million in annual contract value at the end of the first quarter. Also, NOW had eight deals greater than $5 million in net new ACV, and four deals of more than $10 million.
NOW closed 59 deals greater than $1 million net new ACV. The number of customers contributing more than $20 million or more grew 50% year over year. Generative AI deals continued to gain traction with record-breaking net new ACV for Pro Plus, making it the fastest-selling product in NOW’s history.
ServiceNow has an expected revenue and earnings growth rate of 21.3% and 25.4%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.9% over the last 30 days.
AECOM (ACM - Free Report) has been banking on solid organic NSR growth in its design business. A record-high 9% growth in the design business backlog (on a constant currency basis) at the fiscal first quarter end was driven by a near-record win rate and continued strong end-market trends.
ACM’s increased infrastructure spending and digitization efforts are added positives. The funding outlook in ACM’s core markets is exceptionally strong. Similar strength is observed in the international markets.
AECOM has an expected revenue and earnings growth rate of 7.5% and 20.8%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.1% over the last seven days.
Newmont Corp.’s (NEM - Free Report) adjusted earnings and sales for the first quarter beat the respective Zacks Consensus Estimates. NEM is making notable progress with its growth projects, including the Tanami expansion.
The acquisition of Newcrest also created an industry-leading portfolio and provided opportunities for significant synergies. NEM remains focused on improving operational efficiency and returning value to shareholders. Higher gold prices will also drive NEM’s performance.
Newmont has an expected revenue and earnings growth rate of 33.6% and 46.6%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.7% over the last seven days.
Northern Trust Corp.’s (NTRS - Free Report) increasing revenues are supported by an improvement in loan balances over the years. Though a rising cost base is likely to hurt NTRS’ profitability to some extent, the company’s expense management initiatives are expected to drive its operating leverage.
Also, NTRS is benefiting from a rise in fee income, as well as higher assets under custody and assets under management balances. NTRS’ capital distributions seem sustainable on the back of decent liquidity.
Northern Trust has an expected revenue and earnings growth rate of 9.2% and 9.8%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 6.4% over the last 30 days.
Performance Food Group Co. (PFGC - Free Report) markets and distributes food and food-related products in the United States. PFGC operates through three segments: Foodservice, Vistar, and Convenience. PFGC offers a range of frozen foods, groceries, candy, snacks, beverages, cigarettes, and other tobacco products, beef, pork, poultry, and seafood, and health and beauty care products.
PFGC also sells disposables, cleaning and kitchen supplies, and related products. In addition, the company offers value-added services, such as product selection and procurement, menu development, and operational strategy.
Performance Food Group has an expected revenue and earnings growth rate of 4.9% and 918.5%, respectively, for the next fiscal year (ending June 2025). The Zacks Consensus Estimate for next-year earnings has improved 0.6% over the last 30 days.
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Buy These 5 Year-to-Date Laggards With Strong Upside Potential
U.S. stock markets regained momentum after facing a setback in April. Prior to April, Wall Street witnessed an impressive 15-month rally. Wall Street’s bull run has got an added boost this year, to the surprise of a large section of financial pandits, who indiscriminately warned of overvaluation.
In 2023, the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — jumped 13.7%, 23.9% and 43.4%, respectively. Continuing the bull run, the S&P 500 rallied 10.2% in first-quarter 2024, marking its best first-quarter performance since 2019. The Dow surged 5.6%, reflecting its strongest first-quarter performance since 2021. The tech-heavy Nasdaq Composite appreciated 9.1% in the same quarter.
However, the three major indexes tumbled in April. Despite the meltdown, year to date, the Dow, the S&P 500 and the Nasdaq Composite – are up 3.6%, 9.4% and 10.4%, respectively. However, several stocks underperformed the market to a great extent curtailing the dream run. A few of these stocks currently carry a favorable Zacks Rank. These stocks are likely to regain momentum over the rest of 2024.
Likely Rate Cuts & Earnings Act as Catalysts
Following the release of April’s nonfarm payrolls, the CME FedWatch shows a 67.4% probability that the central bank will cut the benchmark lending rate by 25 basis points in the September FOMC meeting. The interest rate futures tool also shows a massive 91.5% probability that the Fed will cut the rate by 50 basis points.
Furthermore, first-quarter 2024 earnings results have come in better than expected so far. As of May 7, 426 companies on the S&P 500 Index reported their financial numbers. Total earnings of these index members are up 5.2% from the same period last year on 4.1% higher revenues, with 78.2% beating EPS estimates and 61% beating revenue estimates.
At present, total earnings of the S&P 500 Index in first-quarter 2024 are expected to be up 4.8% on 4.2% higher revenues. This follows the 6.8% earnings growth on 4% higher revenues in fourth-quarter 2023 and 3.8% earnings growth on 2.2% higher revenues in third-quarter 2023.
Our Top Picks
We have narrowed our search to five large-cap stocks that have lagged the market year to date. However, these stocks have strong potential for 2024. They have seen positive earnings estimate revisions in the last 30 days. Each of our picks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The chart below shows the price performance of our five picks year to date.
Image Source: Zacks Investment Research
ServiceNow Inc. (NOW - Free Report) has been benefiting from the rising adoption of its workflows by enterprises undergoing digital transformation. NOW had 1933 total customers with more than $1 million in annual contract value at the end of the first quarter. Also, NOW had eight deals greater than $5 million in net new ACV, and four deals of more than $10 million.
NOW closed 59 deals greater than $1 million net new ACV. The number of customers contributing more than $20 million or more grew 50% year over year. Generative AI deals continued to gain traction with record-breaking net new ACV for Pro Plus, making it the fastest-selling product in NOW’s history.
ServiceNow has an expected revenue and earnings growth rate of 21.3% and 25.4%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.9% over the last 30 days.
AECOM (ACM - Free Report) has been banking on solid organic NSR growth in its design business. A record-high 9% growth in the design business backlog (on a constant currency basis) at the fiscal first quarter end was driven by a near-record win rate and continued strong end-market trends.
ACM’s increased infrastructure spending and digitization efforts are added positives. The funding outlook in ACM’s core markets is exceptionally strong. Similar strength is observed in the international markets.
AECOM has an expected revenue and earnings growth rate of 7.5% and 20.8%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.1% over the last seven days.
Newmont Corp.’s (NEM - Free Report) adjusted earnings and sales for the first quarter beat the respective Zacks Consensus Estimates. NEM is making notable progress with its growth projects, including the Tanami expansion.
The acquisition of Newcrest also created an industry-leading portfolio and provided opportunities for significant synergies. NEM remains focused on improving operational efficiency and returning value to shareholders. Higher gold prices will also drive NEM’s performance.
Newmont has an expected revenue and earnings growth rate of 33.6% and 46.6%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.7% over the last seven days.
Northern Trust Corp.’s (NTRS - Free Report) increasing revenues are supported by an improvement in loan balances over the years. Though a rising cost base is likely to hurt NTRS’ profitability to some extent, the company’s expense management initiatives are expected to drive its operating leverage.
Also, NTRS is benefiting from a rise in fee income, as well as higher assets under custody and assets under management balances. NTRS’ capital distributions seem sustainable on the back of decent liquidity.
Northern Trust has an expected revenue and earnings growth rate of 9.2% and 9.8%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 6.4% over the last 30 days.
Performance Food Group Co. (PFGC - Free Report) markets and distributes food and food-related products in the United States. PFGC operates through three segments: Foodservice, Vistar, and Convenience. PFGC offers a range of frozen foods, groceries, candy, snacks, beverages, cigarettes, and other tobacco products, beef, pork, poultry, and seafood, and health and beauty care products.
PFGC also sells disposables, cleaning and kitchen supplies, and related products. In addition, the company offers value-added services, such as product selection and procurement, menu development, and operational strategy.
Performance Food Group has an expected revenue and earnings growth rate of 4.9% and 918.5%, respectively, for the next fiscal year (ending June 2025). The Zacks Consensus Estimate for next-year earnings has improved 0.6% over the last 30 days.