June 21, 2024

The Art of Investment

Mastering the Stock Market Strategies

5 Growth Stocks to Buy for Steady Returns in May

4 min read

April is known for being favorable to Wall Street investors. But this year, April ended on a disappointing note. A sticky inflation rate, a resilient labor market and a significant decline in the U.S. GDP growth rate dented market participants’ confidence in risky assets like equities.

However, U.S. stock markets rebounded in early May as recently released economic data boosted market participants’ confidence in equities. A sharp decline in April job additions, a notable deterioration of the U.S. GDP growth rate in first-quarter 2024, the contraction of manufacturing and services PMI in April and a less-than-hawkish statement by Fed Chair Jerome Powell after the May FOMC meeting raised expectations for an interest rate cut.

Positive Catalysts

Following the release of April’s nonfarm payrolls, the CME FedWatch shows a 67.4% probability that the central bank will cut the benchmark lending rate by 25 basis points in the September FOMC meeting. The interest rate futures tool also shows a massive 91.5% probability that the Fed will cut the rate by 50 basis points.

Furthermore, first-quarter 2024 earnings results have been better than expected so far. As of May 7, 426 companies on the S&P 500 Index reported their financial numbers. Total earnings of these index members are up 5.2% from the same period last year on 4.1% higher revenues, with 78.2% beating EPS estimates and 61% beating revenue estimates.

At present, total earnings of the S&P 500 Index in first-quarter 2024 are expected to be up 4.8% on 4.2% higher revenues. This follows the 6.8% earnings growth on 4% higher revenues in fourth-quarter 2023 and 3.8% earnings growth on 2.2% higher revenues in third-quarter 2023.

Our Top Picks

We have narrowed our search to five growth stocks that have solid upside left for 2024. These stocks have witnessed positive earnings estimate revisions in the past 60 days. Each of our picks carries a Zacks Rank #1 (Strong Buy) and has a Growth Score A. You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows the price performance of our five picks year to date.

Zacks Investment ResearchZacks Investment Research

Zacks Investment Research

Image Source: Zacks Investment Research

Netflix Inc. NFLX added 9.33 million paid subscribers globally in first-quarter 2024, with a rise of 1% in average revenue per subscription. NFLX attributed the robust top-line growth to its paid subscription-sharing offering (part of its password-sharing crackdown), recent price changes and the strength of its business in general.

NFLX is expected to continue dominating the streaming space, courtesy of its diversified content portfolio, which is attributable to heavy investments in the production and distribution of localized and foreign-language content.

Netflix has an expected revenue and earnings growth rate of 14.7% and 52.1%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.9% over the past seven days.

Wingstop Inc. WING franchises and operates restaurants. WING’s operating segment consists of the Franchise and Company segments. WING offers classic wings, boneless wings, and tenders that are cooked to order, hand-sauced and tossed in various flavors.

Wingstop has an expected revenue and earnings growth rate of 27.5% and 37.1%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 12.2% over the past seven days.

UiPath Inc. PATH provides an end-to-end automation platform that offers a range of robotic process automation solutions primarily in the United States, Romania, and Japan.

PATH offers a suite of interrelated software to build, manage, run, engage, measure, and govern automation within the organization. PATH’s platform combines artificial intelligence with desktop recording, back-end mining of both human activity and system logs, and intuitive visualization tools.

UiPath has an expected revenue and earnings growth rate of 15.9% and 5.6%, respectively, for the current year (ending January 2025). The Zacks Consensus Estimate for current-year earnings has improved 16.3% over the past 60 days.

Skechers U.S.A. Inc. SKX has been strategically broadening its brand range, focusing on comfortable footwear amidst changing lifestyle preferences. SKX’s investments in global infrastructure support both online and offline growth, facilitating better customer interaction through seamless experiences. The wholesale segment of SKX thrives due to efficient inventory management and expansion into international markets.

Strong direct-to-consumer sales reflect successful product innovations and targeted marketing efforts. Skechers plans to further expand its direct sales channels and global presence while investing in new stores. The upwardly revised fiscal 2024 projections following impressive first-quarter performance, align with SKX’s strategic goals.

Skechers has an expected revenue and earnings growth rate of 10.3% and 15.2%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 5.2% over the past 30 days.

Medpace Holdings Inc. MEDP provides clinical research-based drug and medical device development services in North America, Europe, and Asia. MEDP offers a suite of services supporting the clinical development process from Phase I to IV in various therapeutic areas. Medpace Holdings also provides clinical development services to the pharmaceutical, biotechnology, and medical device industries.

Medpace Holdings has an expected revenue and earnings growth rate of 15% and 26.5%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 6.6% over the past 30 days.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Netflix, Inc. (NFLX) : Free Stock Analysis Report

Skechers U.S.A., Inc. (SKX) : Free Stock Analysis Report

UiPath, Inc. (PATH) : Free Stock Analysis Report

Wingstop Inc. (WING) : Free Stock Analysis Report

Medpace Holdings, Inc. (MEDP) : Free Stock Analysis Report

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