Forget Volatility: 5 U.S. Giants to Buy for Stellar Returns

Forget Volatility: 5 U.S. Giants to Buy for Stellar Returns

U.S. stock markets have been suffering from severe volatility since the beginning of this year. Strong fundamentals of the U.S. economy are undermined by market participants on serious concerns of galloping inflation, the start of a higher interest regime and further deterioration of the already devasted global supply-chain system due to the ongoing Russia-Ukraine geopolitical conflict.

It is time to invest in U.S. corporate behemoths with a favorable Zacks Rank. These companies have a well-established business model, globally acclaimed brand value, strong profitability and a robust financial condition to sustain near-term hurdles. Five of them are —  Chevron Corp. CVX, Exxon Mobil Corp. XOM, Tesla Inc. TSLA, Target Corp. TGT and Marriott International Inc. MAR.

Wall Street Turmoil

Year to date, the three major stock indexes – the Dow, the S&P 500 and the Nasdaq Composite – have tumbled 9.3%, 11.8% and 17.9%, respectively. At present, both the Dow and the S&P 500 are in correction territories while the Nasdaq Composite is in the grip of a bear market.

This situation is in sharp contrast to the pandemic ridden 2020 and 2021. The Dow, the S&P 500 and the Nasdaq Composite — rallied 7.3%, 16.3% and 43.6%, respectively, in 2020 and 18.7%, 26.9% and 21.4%, respectively, in 2021.

Inflation Likely to Rise

The inflation level is currently at a 40-year high in the United States. The major impact so far of the Russian invasion in Ukraine is that commodity prices have skyrocketed. The first among these is crude oil. As the U.S. government has stopped importing Russian oil, a major source of global energy, the U.S. benchmark — WTI crude — and the global benchmark — Brent crude — climbed to a nearly 14-year high level. Gasoline price has risen above $4 per gallon.  

Other commodity prices like aluminum, nickel, zinc and palladium are at their all-time highs as Russia is a major exporter of these metals. Steel and coal prices have also started elevating. Wheat prices have soared as Ukraine is known as the “wheat bowl” of Europe. All these will aggravate inflation globally.

These near-term concerns will continue as the Russia-Ukraine war is showing no sign of an amicable solution even after nearly three weeks Russia invaded Ukraine. The geopolitical conflict and its global repercussions have made the task of the Fed tougher for the next course of monetary policies. Consequently, market participants are uncertain about the central bank’s next policy prescriptions to fine-tune economic growth while combating soaring inflation.

Our Top Picks

We have narrowed our search to five U.S. corporate bigwigs (market capital > $50 billion) that have strong growth potential for 2022. These stocks have seen positive earnings estimate revisions in the last 30 days indicating that investors are expecting favorable business opportunities going forward. Finally, each of our picks sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows the price performance of our five picks year to date.

Image Source: Zacks Investment Research

Chevron is one of the best-placed global integrated oil firms to achieve a sustainable production ramp-up. CVX’s existing project pipeline is one of the best in the industry, thanks to its premier position in the lucrative Permian Basin. The WTI crude oil price is hovering well above $100 per barrel. The price is likely to remain elevated the Russia-Ukraine conflict has intensified.

Chevron’s Noble Energy takeover has expanded its footprint in the region and the DJ Basin. CVX now has access to Noble Energy’s low-cost, proven reserves along with cash-generating offshore assets in Israel — particularly the flagship Leviathan natural gas project — thereby boosting its footing in the Mediterranean.

Chevron has an expected earnings growth rate of 9.6% for the current year. The Zacks Consensus Estimate for current-year earnings improved 3.4% over the last 7 days.

Exxon Mobil made multiple world-class oil discoveries at the Stabroek Block, located off the coast of Guyana. XOM raised the estimate for discovered recoverable resources from the Stabroek Block to approximately 10 billion oil-equivalent barrels. The WTI crude oil price is hovering well above $100 per barrel. The price is likely to remain elevated as the Russia-Ukraine clash has intensified.

Exxon Mobil’s bellwether status and an optimal integrated capital structure, which have historically led to industry-leading returns make it a relatively lower-risk energy sector play. The integrated oil behemoth expects to reduce greenhouse gas emissions by 30% in its upstream business. By the same time, XOM expects to reduce flaring and methane emissions by 40%.

Exxon Mobil has an expected earnings growth rate of 38.7% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 8.9% over the last 30 days.

Tesla has acquired a substantial market share within the electric car segment. Increasing Model 3 delivery, which forms a significant chunk of TSLA’s overall deliveries, is aiding its top line. Along with Model 3, Model Y is contributing to its revenues. The global auto industry is gradually moving toward electric vehicles. Tesla is expected to be the largest beneficiary of this trend.

In addition to increasing automotive revenues, Tesla’s energy generation and storage revenues should boost its earnings prospects. TSLA said that its overall deliveries surged 20% in the third quarter from its previous record in the second quarter, marking the sixth consecutive quarter-on-quarter gain.

Tesla has an expected earnings growth rate of 40.7% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 2.3% over the last 30 days.

Target has been deploying resources to enhance omni-channel capabilities, come up with new brands, refurbish stores and expand same-day delivery options to provide customers a seamless shopping experience. TGT has been making multiple changes to its business model to adapt and stay relevant in the ever-evolving retail landscape.

In fourth-quarter fiscal 2021 Target’s comparable sales grew for the 19th quarter in a row, gaining from strength in both store and digital channels. TGT envisions low-to-mid single-digit revenue growth, an operating margin rate of 8% or higher, and high single-digit increase in adjusted earnings per share for fiscal 2022.

Target has an expected earnings growth rate of 6.7% for the current fiscal year (ending January 2023). The Zacks Consensus Estimate for current-year earnings has improved 9.3% over the last 30 days.

Marriott is benefiting from its focus on expansion initiatives, digital innovation and the loyalty program. MAR is gaining from the reopening of the international borders and leniency in travel restrictions.

Marriott is consistently trying to expand its worldwide presence and capitalize on the demand for hotels in the international markets. The U.S. and global economies have reopened to a great extent as new coronavirus cases have dropped considerably. Several countries are gradually removing travel restrictions. MAR will be a major gainer of the economy’s reopening.

Marriott has an expected earnings growth rate of 73% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 5.5% over the last 30 days.

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