5 Must-Buy Stocks Ahead Of Q2 Earnings Despite Growth Fears

Wall Street performed exceptionally well in the first half of 2019 in a complete turnaround from dismal 2018. The S&P 500 Index recorded the highest gain in 22 years.

However, the economy is not out of the woods. Lingering trade conflict between the United States and China, fears of further trade wars with the EU and Japan-South Korea, and various geopolitical issues such as Iran and Brexit are taking a huge toll on the global economy and can flare up market volatility anytime. Several major central banks, including the Fed, have adopted a dovish stance anticipating tough times.

Uncertainty on Trade Deal

The U.S.-China trade war, which started in March 2018, headed for a likely solution in 2019 but abruptly ended in May after President Trump blamed China of backtracking from earlier commitments. So far, the United States has imposed 25% tariffs on $250 billion Chinese goods and China has retaliated by levying 25% tariffs on $160 billion of U.S. exports. Although the two sides renewed talks to end the impasse, a trade deal is not yet on the horizon.

Moreover, the Trump administration has threatened to impose 25% tariffs on another $4 billion of goods from the European Union due to escalation of aerospace related subsidies. Recently, Asian giants Japan and South Korea also got involved in trade war with each other.

Tepid Economic Data Worldwide

In the United States, several tepid economic data were released in the past two weeks. The ISM manufacturing index in June fell to 51.7 from 52.1 in May. The ISM services index for June dropped to 55.1 from 56.9 in May. U.S. factory orders declined 0.7% in May. Construction spending decreased 0.8% in May. Durable goods orders declined 1.3% in May.

Meanwhile, IHS Markit reported that manufacturing PMI of China, Eurozone, the U.K. and Russia fell below 50, hinting at contraction. In June, the World Bank reduced its global growth projection to 2.6% for 2019. The IMF also reduced its global growth rate to 3.5%.

Central Banks’ Signal Dovish Monetary Stance

On Jun 18, ECB chairman Mario Draghi gave a strong signal that if Eurozone’s economic condition deteriorates, the ECB will inject more stimulus either in the form of interest rate cut or further asset purchase.

On Jun 19, Fed chair Jerome Powell removed the term “patient’’ from the FOMC minutes and added that “the FOMC will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion." Investors are considering a rate cut at least by 25 basis points in July and one or two more cuts in the rest of this year.

China’s central bank extended around $40 billion to some commercial banks in April via its targeted medium-term lending facility as it looks to provide struggling smaller business with a steady stream of affordable financing. Meanwhile, Reserve Bank of Australia decided to inject more quantitative easy policies in order to generate growth in its GDP.

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Our Top Picks

Under these circumstances, it will be prudent to invest in those stocks that skyrocketed in the past three months with a favorable Zacks Rank and are poised to beat on second-quarter earnings. We have narrowed down our search to five such stocks, each sporting a Zacks Rank #1 (Strong Buy) and having positive Zacks Investment Research

Written By: Zacks Investment Research