U.S. Economy Shows Resilience

Fundamentals of the U.S. economy remain robust. The Department of Commerce reported that the economy grew at a rate of 3.3% in fourth-quarter 2023, well above the consensus estimate of 2%. U.S. GDP rose 2.5% in 2023 compared with 1.9% in 2022. At the beginning of 2023, the consensus estimate for full-year GDP was 2%.

Solid nonfarm payrolls in January, solid consumer spending in December, and an improving manufacturing index in January eliminated market participants’ concerns about a near-term recession. Both consumer confidence and consumer sentiment indexes jumped in January.

In December, core PCE inflation — the Fed’s favorite inflation gauge — increased 0.2% month over month and 2.9% annually. The annual rate of increase in December was the slowest since March 2021.

Impressive Q4 2023 Earnings

As of Feb 9, 338 companies on the S&P 500 Index have reported their financial numbers. Total earnings for these 338 index members are up 5.5% from the same period last year on 3.7% higher revenues, with 80.5% beating EPS estimates and 65% beating revenue estimates.

At present, total earnings of the S&P 500 Index in fourth-quarter 2023 are expected to be up 4.9% on 3.1% higher revenues. This would follow 3.8% earnings growth on 2% higher revenues in the third quarter and three back-to-back quarters of declining earnings before that.

Anticipating a Rate Cut

In the January FOMC meeting, the Fed gave enough indications that the much-hyped cut in the benchmark lending rate in March is out of sight. Notably, the central bank paused rate hikes in July 2023 and kept it steady in the range of 5.25-5.5%.

Despite the Fed’s tepid rate cut signal, market participants are hopeful about interest rate cut to a good extent this year. At present, the CME FedWatch tool shows a 60.7% probability of a 25 basis-point rate cut in May and four more rate cuts of the same magnitude during the rest of 2024.

Top Picks for Investors

We have narrowed our search to five U.S. corporate behemoths (market capital > $50 billion) in the S&P stable. These stocks have strong growth potential for 2024 and have seen positive earnings estimate revisions in the last 30 days. Finally, each of our picks sports a Zacks Rank #1 (Strong Buy).

The chart below shows the price performance of our five picks in the past three months.

Image Source: Zacks Investment Research

Amazon.com Inc.

Amazon is gaining on solid Prime momentum owing to ultrafast delivery services and a strong content portfolio. The strengthening relationship with third-party sellers is a positive. Additionally, a strong adoption rate of AWS is aiding Amazon’s cloud dominance.

An expanding AWS services portfolio is continuously helping Amazon gain further momentum among customers. Robust Alexa skills and an expanding smart home products portfolio are positives. Amazon’s strong global presence and solid momentum among small and medium businesses remain tailwinds.

Amazon has an expected revenue and earnings growth rate of 11.4% and 39%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the last seven days.

Meta Platforms Inc.

Meta is benefiting from steady user growth across all regions, particularly Asia Pacific. Increased engagement for its offerings like Instagram, WhatsApp, Messenger and Facebook has been a major growth driver. Meta is leveraging AI to recommend Reels content, which is driving traffic on Instagram and Facebook.

Meta’s innovative portfolio, which includes Threads, Reels, Llama 2, Ray-Ban Meta smart glass, and mixed reality device Quest 3 is likely to drive growth. Reels continued to impress across both Instagram and Facebook backed by growing adoption. People reshared Reels 3.5 billion times every day during the fourth-quarter.

Meta Platforms has an expected revenue and earnings growth rate of 17.4% and 31.9%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.6% over the last seven days.

Netflix Inc.

Netflix added 13.12 million paid subscribers globally in fourth-quarter 2023, with a rise of 1% in average revenue per subscription. Netflix attributed the robust top-line growth to its paid subscription-sharing offering (part of its password-sharing crackdown), recent price changes and the strength of its business in general.

Netflix is expected to continue dominating the streaming space, courtesy of its diversified content portfolio, which is attributable to heavy investments in the production and distribution of localized and foreign-language content.

Netflix has an expected revenue and earnings growth rate of 14.3% and 40.7%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 5.9% over the last 30 days.

The Progressive Corp.

Progressive continues to gain on higher premiums, given its compelling product portfolio, leadership position and strength in both Vehicle and Property businesses. Focus on becoming a one-stop insurance destination, and catering to customers opting for a combination of home and auto insurance augurs well for Progressive.

Policies in force and retention ratio should remain healthy for Progressive. Competitive pricing to retain current customers and address customer needs with new offerings should continue to drive policy life expectancy.

Progressive has an expected revenue and earnings growth rate of 14.7% and 40.6%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 3.4% over the last 30 days.

Stay updated on the stock offerings, and delve into those that suit your investing philosophy, aligned with the prevailing market conditions. Each investment deserves a thorough understanding of financial statements, cash flows, and competitive positioning alongside broader economic trends. The era of the roaring stock market has ushered in an abundance of opportunities, so make use of a discerning approach for financial prosperity.

HCA Healthcare Expected to See Exponential Growth in 2024