Key points
- The VIX has reached levels not seen since last year, making high-beta stocks more attractive to investors looking to maximize returns.
- Three stocks are top picks as institutions continue to buy them and analysts continue to raise their price targets, all tied to a macroeconomic play.
- Double-digit upside and the possibility of increasing returns are the qualities of this potential portfolio.
- 5 stocks we like better than JB Hunt Transport Services
The stock market volatility index (VIX) is now below 13%, a level not seen since the fourth quarter of 2023. Typically, when the VIX is this low, investors start looking for stocks that can offer them a more exciting ride on the markets. . These volatile stocks can be called high beta names because they amplify any upward or downward movement in the S&P 500.
Sticking to the safety of low beta stocks is a strategy that works with a high VIX as investors seek to have tighter control over profit and loss (P/L) swings. However, this low VIX environment requires more hands-on management, which is why similar names Marathon Oil Co. NYSE:MRO, XPO Inc. NYSE:MROand especially Tesla Inc. NASDAQ:TSLA they can quickly become the best choices.
These companies can be part of a larger context in the US economy by relying on specific tailwinds. The market may have priced in potential interest rate cuts by the Federal Reserve (Fed), giving it a sense of security – perhaps unwarranted.
Security checks ahead
Traders are betting that these interest rate cuts could come as early as May or June 2024; Investors can keep up with these expectations through the FedWatch tool on the site CME Group Inc. NASDAQ: ECM in case they change. If they change, the markets could trigger a major nervous breakdown.
Investors could take advantage of this low VIX window until the Fed delivers on its promises. As the expectation of lower interest rates will spur manufacturing and consumer activity, oil prices have risen, helping energy stocks like Marathon Oil.
On the other hand, increased economic activity will require stocks like XPO to help through its robust logistics and transportation network, as goods must be delivered on the tailwinds of the economy.
Last but not least, Tesla stock may recover from the recent decline. Given that the stock is now trading at just 60% of its 52-week high, rising oil prices could make electric cars more attractive, and low interest rates could make auto financing easier.
Marathon oil for an expensive barrel
Analysts at The Goldman Sachs Group Inc. NYSE:GS It is thought that oil prices could reach $100 a barrel this year, making oil stocks an indispensable part of a portfolio with lower interest rates. Of course, markets won’t pick oil stocks at random, so why Marathon?
Competitors like it Shell NYSE:SHEL and even ExxonMobil Co. NYSE:XOM must catch up on what matters most. Since stock prices are generally driven by earnings per share (EPS) growth, analysts give Marathon a path to outperform. An expectation of 20% EPS growth over the next 12 months justifies Marathon as a target.
Analysts believe Shell could grow its EPS by around 5% and Exxon by 10%. Despite their global recognition, these giants still lag behind Marathon, and investors may be looking for high beta and high growth in this low VIX environment.
The market demands XPO
If Goldman is right, and oil prices rise due to an increase in manufacturing activity, then all these newly produced goods will have to get to consumers. Transportation stocks like XPO may be called upon to meet this future need of the global economy.
The market agrees that XPO is the winner; analysts at Bank of America Co. NYSE:BAC they raised their price targets to $137 per share. These price targets would require a net upside of 11.5% from where the stock trades today.
Wall Street institutions like it PNC Financial Services Group Inc. NYSE:PNC and Vanguard Group saw the trend coming, so both increased their positions in the latest quarter. Vanguard bought the majority through March 2024, increasing its exposure by 1.2% to about $11.4 million.
These analysts expect XPO’s EPS to rise 36% this year, above the trucking industry’s average expected growth of just 23.3%. Colleagues like it JB Hunt Transportation Services Inc. NASDAQ:JBHT they also lag behind in their EPS growth projection of 21%.
Tesla’s new discount
Tesla shares are only down to 60% of their 52-week high prices, and its beta of 2.4 makes it a name to consider in case the VIX decides to stay that low.
Wedbush analysts see a price target of up to $315 for Tesla, which is nearly 80% higher than today’s stock price. March was the month in which analysts increased their targets and the period in which Vanguard decided to increase its position on Tesla.
A 1.7% increase meant a transaction of nearly $971 million. Lower interest rates throughout 2021 drove the stock to its all-time high price of $414 per share; history may repeat itself now that the Fed is looking to cut again.
Likewise, the stock hit its 2023 high of $300 just as oil prices hit a yearly high of $95 a barrel. Relying on a double benefit in terms of interest rates and expensive oil, Tesla stock could soon return to its former glory.
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