Despite massive job losses and huge corporate earnings weakness, Wall Street has gathered steam lately. A few positive developments on the vaccine front along with unprecedented economic help from the government and the central bank have made this possible.

Reopening of economies is also acting as a huge positive for the markets. We expect growth stocks to gain ahead on a plethora of tailwinds. Below we highlight those in detail.

Fed Still Not Out of Ammunition

The Fed chairman cautioned that the current downturn “may last until late 2021.” He also said that the U.S. economy could “easily” contract by 30% in the second quarter. However, he expressed confidence that the economy would recover over the long term and said he would never bet against the U.S. economy. He does not see the economy entering another Depression, per CNBC.

A super-dovish Fed and a Congress, which have already passed about $3 trillion in rescue funds and are planning another round, would hold the economy back from slipping into Depression. The Fed also indicated that the central bank is not out of ammunition and can expand existing programs or add new ones, if needed. Notably, since March, the Fed cut rates to zero, launched an unlimited QE which included buying of corporate rate and some high-yield bond ETFs too. The Fed also launched a MainStreet Lending program.

U.S. Government’s Massive Stimulus

Congress has already passed about $3 trillion in rescue funds. Small caps were offered a $349 billion forgivable loan program. The loans at issue were being made through the Paycheck Protection Program, which included payments of up to $1,200 to eligible U.S. taxpayers and $500 for each child age 16 or younger. The IRS began sending checks in the middle of April, and by the start of May the agency had made more than 130 million payments.

The U.S. government is also considering The Heroes Act worth $1 trillion. The act intends to provide funds to state, local, territorial and tribal governments who need funds to pay key workers. Funds will also be there for treatments and researches. There could be a second round payments through a $1,200 stimulus check.

Some Positive Medical Developments

Shares of Moderna MRNA soared on Monday after it reported positive results from early human tests of its vaccine candidate for the coronavirus. According to the company, the vaccine produced COVID-19 antibodies in all 45 participants. Last week, Novavax, Inc.’s (NVAX) shares skyrocketed after it announced that Coalition for Epidemic Preparedness Innovations or CEPI will invest up to $384 million in the development and production of NVX-CoV2373, Novavax’s vaccine candidate against coronavirus.

Upbeat Economic Datapoints

The University of Michigan’s U.S. consumer sentiment index came in at 73.7 for May, up from 71.8 in April and way higher than the Dow Jones estimate of 65. “The CARES relief checks improved consumers’ finances and widespread price discounting boosted their buying attitudes,” per an economist. According to a new survey from Piper Sandler, about 47% of the respondents say they will head to restaurants as soon as they reopen.

The improved sentiment is reflected in the homebuilding sector asconfidence among U.S. single-family homebuilders rose in May with the National Association of Home Builders/Wells Fargo Housing Market Index rising seven points to 37 this month after a record decline in April. Reopening of economies, low rates and CARES Act have probably boosted confidence.

Stimulus Outweighing Earnings Weakness

Corporate earnings are on track for the largest decline since 2009 (per Wall Street Journal), but investors appear less bothered about the decline. Investors’ stocks were badly in mid-March, but from late-March Wall Street gained considerable strength, barring some occasional dips. Investors are shrugging off the virus-led fallout and are showing more optimism on fiscal and monetary stimulus.

Stock Picks

Against this backdrop, below we highlight a few growth stocks that have a Zacks Rank #1 (Strong Buy) or 2 (Buy), Growth Score of A, and witnessed positive earnings estimate revision of at least 10% for the upcoming year in the past four weeks.

Chegg Inc. (CHGG – Free Report)

The Zacks Rank #1 provider of a social education platform comes from a favorable Zacks industry (placed at the top 12% of total 250+ industries in the Zacks universe). Earnings estimates went up by 14.40% in the past four weeks.

Nautilus Group Inc. (NLS – Free Report)

The Zacks Rank #1 maker of cardio and strength equipment for home use hails from a favorable Zacks industry (top 2%). Earnings estimates went up by 81.58% in the past four weeks.

Sprouts Farmers Market Inc. (SFM – Free Report)

The Zacks Rank #1 company operates in a highly fragmented grocery store industry and belongs to a favorable Zacks industry (top 10%). Earnings estimates went up by 22.5% in the past four weeks.

VeriSign, Inc. (VRSN – Free Report)

The Zacks Rank #2 provider of Internet infrastructure services comes froma favorable Zacks industry (top 23%). Earnings estimates went up by 27.3% in the past four weeks.

Vertex Pharmaceuticals Incorporated (VRTX – Free Report)

The Zacks Rank #1 company is focused on the discovery, development and commercialization of small molecule drugs targeting serious diseases. The company’s main area of focus is cystic fibrosis. It hails froma favorable Zacks industry (top 5%). Earnings estimates went up by 15.7% in the past four weeks.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Author: Sanghamitra Saha

Source: Zacks: 5 Reasons Why Growth Stocks Will Soar Further

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