Key points
- As markets fret over potentially delayed interest rate cuts this year. However, markets may find relief in a few select stocks.
- These prospects prove to be potential winners, especially now that Wall Street analysts see a double-digit increase.
- Discounted by any measure, all of these stocks likely have interest rate cuts coming around the corner.
- 5 titles we like best about Spotify technology
Some stocks fall out of favor once in every economic cycle, whether for real, justifiable reasons or simple neglect. Markets can get busy and focus on the sectors making the most noise, such as the US tech sector, which has been driven to all-time highs by names like Nvidia Co. NASDAQ:NVDA.
Outside of this popularity contest, investors can find a select few stocks that have lagged behind the rest of the market and even their respective sectors. From company-specific events to economic trends that are coming around the corner, stocks like Boeing Co. NYSE:BA, SoFi Technologies Inc. NASDAQ: SOFIand even Daqo New Energy Corp. NYSE: DQ I have some explaining to do.
These stocks could become top picks for portfolios looking to beat the market in the next cycle. However, they all depend on interest rate cuts by the Federal Reserve (Fed).
Because the odds favor this group
According to CME’s FedWatch tool, stock market indexes have been selling off recently as these potential rate cuts have been delayed until September 2024. Since traders and investors had priced in these rate cuts today, the delays have caused a retracement of the S&P 500 index up to 5.5. % in the last month.
Despite these vagaries, some economic factors and developments suggest that interest rate cuts may still be a reality. Analysts at The Goldman Sachs Group Inc. NYSE:GS predicted a manufacturing sector breakout this year, a thesis contained in the bank’s 2024 macroeconomic outlook report.
As the ISM manufacturing PMI index reached its first expansionary reading in over a year, it appears that Goldman is right. The February PMI shows a 6.4% increase in export orders, and foreign nations may only be interested in American exports if they expect a drop in the dollar, making these future purchases cheaper.
As lower interest rates lower the value of a currency, the trend in manufacturing and exports suggests that global traders also expect cuts to come sooner rather than later.
SoFi Stocks: Rate Cut Favorites
SoFi Technologies
(At 9:45 a.m. ET)
- 52 week interval
- $4.45
▼
$11.70
- Price target
- $9.08
The housing market is at a standstill, with current homeowners refusing to give up on COVID-19 mortgages, which carry an average interest rate of 3.25%. Today’s mortgages are approaching 7.5%, making potential buyers wary of financing a home.
Additionally, the median home price has increased 31% from pre-pandemic levels, turning potential buyers away. Lower interest rates could boost the construction sector, a gamble Warren Buffett has already taken by buying residential construction stocks.
What comes after new home construction and new inventory that helps drive prices down is purchase financing. This is where SoFi stock comes in, with analysts expecting to see earnings per share (EPS) growth of 225% over the next 12 months.
Today, markets price these earnings futures at a forward P/E ratio of 28.3x, which puts SoFi stock at a 46% discount to other technology services stocks like Spotify technology NYSE: POINT and its forward P/E of 52.8x.
A price target of $9.1 per share projects a net upside of 26.5% from today’s prices, reflecting the expectation of greater mortgage demand in the future and another piece of evidence supporting the rate-cut narrative interest rate.
Increase in oil prices? Better to call Daqo New Energy
Daqo New Energy
(At 9:46 a.m. ET)
- 52 week interval
- $17.30
▼
$48.31
- P/E ratio
- 4.08
- Price target
- $36.23
That’s right, oil is breaching its previous ceiling of $80, hitting a six-month high of $90 last week. As geopolitical conflicts in the Middle East continue to escalate, oil prices could continue to rise. Goldman Sachs believes it could reach $100 a barrel this year.
More expensive oil makes alternative energy sources – like solar – more attractive propositions. This is where Daqo comes in handy, as it is the world’s largest producer of polysilicon, a key material needed for solar panels to complete the photovoltaic process.
The forecast of 73% EPS growth this year should be enough to keep the shares flirting with new highs; However, since Daqo is based in China, fears and uncertainty in the domestic stock market have caused this stock to fall to a dismal 46% of its 52-week high.
A price target of $36.2 represents a 61% upside for this stock. Lower interest rates could make financing solar panels easier for buyers and further boost oil demand following the aforementioned manufacturing breakouts.
The Boeing hiccup, get over it
(At 9:46 a.m. ET)
- 52 week interval
- $167.53
▼
$267.54
- Price target
- $229.35
Boeing shares have come under scrutiny after a scandal involving a 737 MAX 9 jet. The stock is trading 63% off its 52-week high, despite forecasting industry-leading EPS growth of 1,548% this year . While boldly bullish, these projections could come true.
As interest rates fall, travel, both business and leisure, could take off. The ISM manufacturing PMI showed that the leisure and accommodation sector grew for the third consecutive month. Since it’s travel, airline stocks could push Boeing’s orders this quarter.
Knowing this, analysts have set a $229.3 price target on the stock, predicting a 34% upside today. Boeing’s latest quarterly financial report shows that 100% of its new orders came from models outside of the affected MAX 9 jet, meaning next quarter’s order fills – booked as profits – could likely exceed expectations.
Despite the scandal, short interest in Boeing shares has fallen 14.1% over the past month, bringing the net percentage of shares short to 1.5%. Bears don’t even believe the “doom” story surrounding Boeing planes.
Before you consider Spotify technology, you’ll want to hear this.
MarketBeat tracks Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and Spotify Technology wasn’t on the list.
While Spotify Technology currently has a “Moderate Buy” rating among analysts, top-rated analysts believe these five stocks are better buys.
View the five stocks here
Which stocks could thrive in today’s challenging market? Click the link below and we’ll send you MarketBeat’s list of the ten stocks that will lead in any economic environment.
Get this free report