Bet on These 3 Stocks with Rare Growth & Income Combo - Analyst Blog
Zacks Equity Research
Updated
Anniversaries should be as much about deliberation as celebration. The famed U.S. bull market recently completed six years, set apart owing to its durability as well as magnitude. The carnage on Wall Street that left S&P 500 at a grim low of 676.5 at the height of the financial crisis now seems like a long-forgotten nightmare.
Fast forward to the present, and we see that the benchmark index has tripled in value, with stocks having climbed over 200% from their March 2009 lows. As the bull market marches into its 7th year, perhaps it’s time to ponder whether the Bull Run still has enough steam to forge further ahead.
Going Strong for 72 Months and Counting
The market has weathered a number of storms over the past six years — from the European debt crisis to geopolitical tensions in the Middle-East to last year’s brutal winter — and still stands tall. Still, it is indisputable that the bull market is aging.
However, there is no evidence that bull markets actually die of old age!
Exogenous shocks, shifts in business cycles and build up of excessive valuations are some of the catalysts that endanger bull markets. Right now, these factors are actually in favor. Moreover, despite its uninspiring growth rates, the U.S. economy is actually a greener pasture in the arguably bleak global landscape, considering the slowdown in other economies like China, Japan and Europe.
Potential Threats
The near-zero interest rates that have prevailed for the past few years have proved to be a prominent catalyst for the market. However, the Federal Reserve is contemplating a reversal in its accommodative monetary policy, which might take effect soon. With most major global companies already taking a hit due to sustained strength in the U.S. dollar, a sharp rate hike is the last thing the fragile U.S. economy needs.
Thus, even if the Federal Reserve begins tightening monetary policy this fall, it is unlikely that the cycle will be aggressive and linear. That translates into a continued period of low rates to stimulate business spending, production and the Bull Run.
Other potential headwinds could be a pullback in economic growth and a decline in corporate earnings.
All Said and Done
Economic recoveries are getting longer, suggesting that the U.S. economy still has a longer way to go. Also, the impending shift in monetary policy is likely to take quite some time to impact company fundamentals and investor psychology.
Thus, the odds are that this historic bull market will celebrate at least one more anniversary. So it may not be advisable to jump ship at the moment. Instead, investors should scour the market for stocks with high growth potential, prioritizing those which belong to strong industries.
However, divergent monetary policy paths between the U.S. and the Eurozone, oil prices touching 6-year lows, and strong dollar are bringing in fresh bouts of volatility every day. In this environment, investors should opt for stocks offering solid yields to buffer their portfolio against market volatility.
So should you pick a growth stock to happily ride the bull market or should you go for a safe income stock that will protect your portfolio against any storms that might rage?
Here Is How You Should Play Smartly
Take investing to the next level with the help of our new style score system, which can help you identify stocks with excellent growth prospects which also offer good yields to provide an income buffer in harsh weather.
Our Growth Style Score condenses all the essential metrics from the company’s financial statements to achieve a true sense of the quality and sustainability of its growth. Our research shows that stocks with Growth Style Scores of ‘A’ or ‘B’ when combined Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy) offer the best investment opportunities in the growth investing space.
Further refine your screen by including only those companies that offer good yields and belong to strong industries. Here we present three stocks that combine the benefits of Income and Growth styles. The stocks have a solid Zacks Rank as well.
Escalade Inc. ESCA is engaged in the manufacture and distribution of sporting products and has an impressive portfolio of well-known brands. The company recently divested its Information Security and Print Finishing segment as a part of its initiative to enhance focus on its core segment. It also expanded its sporting goods operations with two important acquisitions, including Cue & Case Sales, Inc.
This Zacks Rank #1 company boasts a Growth Style Score of ‘A’ and is expected to grow at a rate of 15% over the long term. Moreover, Escalade offers an impressive dividend yield of 2.18%.
Also, the company belongs to the Leisure & Recreation Products industry, which is presently ranked among the top 21% of industries per the Zacks Industry Ranking system.
General Motors Company GM, one of the largest automobile manufacturers in the world, looks poised to see a turnaround in its fortunes, as consumers in the U.S. warm up to its higher-margin large vehicles, like trucks and SUVs, while losses at its European unit are diminishing. General Motors is revving up for a major product cycle with improved design and quality next year, which will boost its revenues.
Profitability from North American auto operations, strength in China and a recovery in Europe are additional tailwinds for the auto major.
This Zacks Rank #1 company boasts a Growth Style Score of ‘A’ and is expected to grow at a rate of 17% over the long term. General Motors also offers an impressive dividend yield of 3.23%.
Furthermore, the company belongs to the Domestic Automobile industry, which presently lies in the top 10% of industries, per the Zacks Industry Ranking system.
Western Refining Logistics, LP WNRL owns, operates, develops and acquires terminals, storage tanks, pipelines and other logistics assets. This master limited partnership (MLP) has solid growth prospects, with projects slated to begin as far out as 2018. Also, a favorable refining structure and improved crude trucking volumes is an additional headwind for the logistics company.
This Zacks Rank #2 company boasts a Growth Style Score of ‘A’ and is expected to grow at a rate of 15.4% over the long term. It also offers an impressive dividend yield of 4.4%.
Additionally, the MLP belongs to the Oil - Production/Pipeline industry, which presently lies in the top 38% of industries, per the Zacks Industry Ranking system.
The Best of Both Worlds
If you are one of those insatiable investors who want both growth and income from their investments, then you have hit the jackpot. With our new style score system, you don’t need to compromise.
So invest in these rare picks, sit back and enjoy the best of both worlds.
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