Jefferies has a list of stocks for investors to buy once the Federal Reserve starts cutting interest rates, widely expected to begin at the next central bank's policy meeting in September. Investors anticipate the Fed will lower its benchmark borrowing rate at least a quarter percentage point next month, the first reduction in more than four years. That's helped major U.
S. indexes to bounce back and tamp down market volatility since a sharp sell-off earlier in August. To support that view, investors are looking ahead to the release Wednesday of minutes from the Fed's July policy meeting, and Fed Chair Jerome Powell's Jackson Hole speech on Friday morning for clues of policymakers' view of the economy and how that may affect the outcome of the central bank's next meeting.
"The recent market turmoil is a clear message to the Fed that investors are primed for rate cuts," Desh Peramunetilleke, Jefferies' global head of quantitative strategy, said in a recent note to clients. "From a style perspective, value and yield would work the best in case of a soft landing along with autos, energy, telecom and banks." Jefferies screened for stocks that have outperformed in months when markets expected imminent rate cuts, signaled by falling 2-year Treasury yields, amid forecasts of an economic soft landing, as reflected in 10-year Treasury yields either falling a hair, or rising.
In this market environment, investors should focus on value stocks backed by strong earnings momentum, Jefferies said. Jefferies confined its search to companies with a market value above $2 billion that have outperformed at times when rate cuts were expected and the economy was forecast to keep growing. The screen was also limited to "attractively valued" stocks with price-to-earnings ratios below 20 and backed by strong earnings revisions that were either flat or higher over the past three month.
Take a look at a few of the names below: JPMorgan was one of the bank's soft-landing scenario winners. The largest bank in the country just wrapped up 10-day advance. JPMorgan shares have outperformed the market this year, climbing more than 26%.
According to the consensus price target from analysts polled by FactSet, shares have potential upside of another 4.3%. Google and YouTube parent Alphabet , a beneficiary of investors' love afair with all things tied to artificial intelligence earlier this year, also made Jefferies' screen.
The stock is up 19.7% this year but has lost about 13% since its 52-week high in early July, hurt by the Department of Justice's move in early August to consider breaking up company. In a landmark case, a federal judge ruled on Aug.
5 that Google operated an illegal monopoly in search and text advertising markets. Analysts surveyed by FactSet, on average, have an overweight rating and a price target implying about 23% potential upside for Alphabet. Investors should also look to roof tile and insulation maker Owens Corning as an opportunity in a soft-landing environment.
The Toledo, Ohio-based manufacturer earlier this month topped analysts' earnings expectations for the second quarter, posting $4.64 in adjusted earnings per share, above analysts estimate of $4.35, according to FactSet.
Revenue of $2.79 billion missed forecasts, however, helping to send shares about 14% lower in August. Still, Owens Corning is still ahead 8.
4% this year through Tuesday, and could jump more than 16.5% over the next year, according to the average price target of analysts polled by FactSet..
