5 High-Yielding Stocks To Buy Ahead Of Q1 Earnings Season
Zacks Investment Research | Apr 10, 2019 09:12PM ET
The first quarter earnings season is about to gather steam, with several major banks expected to release their results tomorrow. However, expectations for first-quarter 2019 earnings are far from encouraging at present. Concerns about a global economic slowdown, intensifying tariff conflicts and various geopolitical issues have worsened the situation.
Disappointing Expectation from First-Quarter Earnings
Investors are cautious owing to a widespread notion that first-quarter earnings will decline year over year for the first time since the second quarter of 2016. Total earnings of the S&P 500 Index are anticipated to be down 4% from the same period last year.
Meanwhile, revenues are expected to rise 4.6%. Broad-based margin pressure across all major sectors is the primary reason for an expected earnings decline. The last time this type of situation occurred (positive revenues but negative earnings) was in the third quarter of 2008.
Concerns Regarding Global Economic Slowdown
On Apr 9, the International Monetary Fund (IMF) reduced global economic growth forecasts for 2019. This was the third reduction in the last six months. The new growth projection is 3.3% compared with 3.5% projected in January and 3.7% forecast in October.
The projection for U.S. economic growth was reduced to 2.3% from 2.5%. Notably, on Mar 20, the Fed lowered the U.S. GDP growth rate to 2.1% in 2019 from 2.3% projected in December.
The IMF cited trade-related conflict, likelihood of a tighter monetary policy by central banks, especially the Fed, appreciation of U.S. dollar prices and geopolitical concerns such as Brexit and middle-east problems as near-term challenges.
Trade Tensions Reignite
On Apr 8, the U.S. Trade Representative proposed to levy tariffs worth of $11 billion on an array of Eurozone products including large commercial aircraft and parts, dairy products and wine. This is a retaliatory measure to what the Trump administration believes are illegal subsidies that the Eurozone countries provide to Airbus. This will impact sales of U.S. made aircraft. However, the European Union has strongly objected to White House and threatened to impose retaliatory tariffs.
The newly formed trade and tariff agreement called United States Mexico Canada Agreement (USMCA) that replaced the old North American Free Trade Agreement (NAFTA), is facing hurdles to be cleared by the U.S. Congress. Majority House Democrats and a key Senate Republican have expressed concerns over the deal.
Finally, the year-long trade conflict between the United States and China is yet to be resolved. Notably, China, Canada and Mexico together constitute 46% of U.S. foreign trade.
Geopolitical Issues
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The Brexit doldrums are still continuing. The British parliament, which rejected prime minister Theresa May’s Brexit deal, has failed to reach to a consensus despite voting twice. On Apr 10, European Union and the U.K. government agreed to extend the Brexit deadline till Oct 31. Prolonged Brexit drama took a severe toll on the U.K. economy. Consumer confidence weakened significantly and business establishments have almost frozen capital spending.
On Apr 8, President Trump designated Islamic Revolutionary Guards Corps, a powerful arm of the Iranian military as a foreign terrorist organization. The designation will worsen the already sour relationship between the two countries after the United States imposed oil sanction on Iran in November 2018.
Meanwhile, a full-scale civil-war has started in Libya and U.S. military has decided to pull out a small contingent of American forces from that country. Breakout of civil-war will severely disrupt global oil supply in the near future.
Our Top Picks
At this stage, it will be lucrative to invest in high-yielding stocks in order to ensure a steady income stream. We further narrowed down our search to five stocks with a Zacks Rank #1 (Strong Buy) with strong earnings estimates revision and positive Zacks Investment Research
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