Forget August's Notorious Past, Instead Buy 3 Growth Stocks

Investing

Published: August 3, 2023 10:49 pm

Wall Street, time and again, witnessed bouts of volatility in August, which easily disrupted the stock market’s blockbuster performance in the first seven months of this year.

However, the underlying strength in the economy and a possible rate hike pause are largely expected to boost the stock market this August. This calls for investing in growth players like Ford Motor F, Alphabet GOOGL and Block SQ.

August is a Bad Month for Wall Street

Major bourses in the United States recently registered their strongest seven months to begin a year in decades. Per Dow Jones Market Data, the broader S&P 500 witnessed its best first seven-month period in a year since 1997, while the tech-laden Nasdaq wrapped up its strongest performance in the same period since 1975.

But August is here, and that could mean trouble for Wall Street. Lest we forget, the S&P 500’s seven-month winning streak in the year 2021 stopped in August. Morningstar reported that August has been the worst-performing month for stocks since 1986. The month, in reality, marks a volatile period as market participation reduces, leading to lower trading volumes.

So far this August, stocks have hit a selloff after Fitch Ratings downgraded the long-term rating for the United States. The debt ceiling turmoil in Washington compelled Fitch to downgrade the United States to AA+ from AAA. The rating agency forecasts the debt burden in the United States to escalate soon and expects a fiscal deterioration in the next three years.

Things May Not be the Same This August

Despite a discouraging start to August, investors are betting on a market revival as they believe the U.S. economy may not slip into a downturn. After all, the second-quarter GDP numbers came in stronger than expected, while orders for durable goods improved in June. To top it, the real-estate industry recently declared that the housing recession has ended.

Meanwhile, retail inflation came in at 3% on a yearly basis in June, way below the 9% peak it touched last year. The slowdown in the prices of indispensable commodities may now force the Federal Reserve to be less aggressive with its monetary policies.

The CME FedWatch Tool at present shows that 82.5% of market pundits expect a rate hike pause in September, as was done in the June meeting. Needless to say, a rate hike pause bodes well for stocks vis-à-vis the economy since it improves consumer outlays, and curtails borrowing costs.

3 Best Growth Stocks to Own in August

Unlike its notorious past, things are surely looking up for the stock market this August. Astute investors, thus, should shrug off the temporary dip in the market and instead place bets on solid growth stocks to boost returns in the near future.

These stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy) and have a Growth Score of A or B, a combination that offers the best opportunities in the growth investing space. You can see the complete list of today’s Zacks Rank #1 stocks here.

Ford Motor is one of the leading automakers in the world. An impressive vehicle lineup, including F-series trucks and SUV models, is expected to boost Ford’s top-line growth. Ford’s ample liquidity position is expected to help the company in further investments.

F has a Zacks Rank #2 and a Growth Score of B. The Zacks Consensus Estimate for Ford’s current-year earnings has moved up 17.8% over the past 60 days. The company’s expected earnings growth rate for the current year is 9%. Ford’s estimated earnings growth rate for the next five-year period is 7%.

Alphabet is one of the most innovative companies in the modern technological age. Momentum in its cloud business and efforts to strengthen its position in the growing wearable space should improve Alphabet’s profit margin.

GOOGL has a Zacks Rank #2 and a Growth Score of B. The Zacks Consensus Estimate for Alphabet’s current-year earnings has moved up 4.3% over the past 60 days. The company’s expected earnings growth rate for the current year is 23.7%. Alphabet’s estimated earnings growth rate for the next five-year period is 15.3%.

Block provides financial and marketing services through its all-inclusive commerce ecosystem that aids sellers to begin, run and grow their businesses. Its ever-expanding customer base, coupled with strong Cash App engagement, is benefiting Block, formerly known as Square.

SQ has a Zacks Rank #1 and a Growth Score of A. The Zacks Consensus Estimate for Block’s next-year earnings has moved up 0.9% over the past 60 days. The company’s expected earnings growth rate for the current year is 69%. Block’s estimated earnings growth rate for the next five-year period is 20.2%.

Shares of Ford Motor, Alphabet and Block have gained 12.1%, 45.5% and 18.5%, respectively, so far this year.

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