15 Stocks to Buy as ‘Hawkish’ Fed Keeps Door Open for Future Hikes

2023.11.01 15:04

• In a widely expected decision, the Fed held off on raising interest rates for the second consecutive meeting but kept the door open for further tightening this year.
• The U.S. central bank faces a difficult task of balancing between its ongoing battle against inflation and growing signs of financial instability.
• Amid the current backdrop, I used the InvestingPro stock screener to search for high quality stocks that have the potential to weather further market turbulence.
• Looking for a helping hand in the market? Members of InvestingPro get exclusive ideas and guidance to navigate any climate. Learn More »

The Federal Reserve left its benchmark interest rate unchanged for the second straight meeting and kept the door open to another rate hike this year as the central bank’s ongoing battle against inflation appears to be far from over.

FOMC officials unanimously voted to hold the target range for the federal funds rate at at the conclusion of Wednesday’s policy meeting.

By skipping a rate hike in November, Powell and other top Fed officials hope to use the extra time to further assess how higher rates have affected inflation and the economy.

“Economic activity expanded at a strong pace in the third quarter,” the Fed’s post-meeting statement said, marking an upgrade to the “solid pace” of activity the Fed saw as of its September meeting.

The Fed’s statement added that with job gains still “strong” and inflation still “elevated,” the central bank continues to consider “the extent of additional policy firming that may be appropriate to return inflation to 2% over time.”

Looking ahead, policymakers said they still see one more 25 basis point rate hike before the end of this year, with the Fed funds target rate peaking in the 5.50%-5.75% range.

Despite the Fed’s hawkish tone, many investors believe that the U.S. central bank is unlikely to raise rates any further, bringing an end to its most aggressive tightening cycle in decades.

Traders now see a 70% chance of the Fed leaving rates at current levels in December, according to the Investing.com . Meanwhile, financial markets are pricing in a small chance of a rate cut as early as the Fed’s June 2024 meeting, with odds currently at about 50%.

While that is possibly true, it’s not a guarantee by any stretch and the market could be in for a rude awakening if economic growth continues to be robust and inflation reaccelerates to the upside in the months ahead.

That could force the Fed to raise rates at least one more time, and possibly even twice.

What To Do Now?

As we grapple with fresh uncertainty surrounding the Fed’s rate plans, identifying top quality stocks becomes paramount as investors find themselves seeking stability and potential opportunities.

Amid the current backdrop, I used the InvestingPro stock screener to build a watchlist of undervalued companies that have the potential to weather market turbulence and provide attractive investment returns regardless of broader market conditions.

My focus was on stocks that have solid profitability, strong growth prospects, healthy cash flows, as well as an attractive valuation.

InvestingPro Screener FiltersSource: InvestingPro

InvestingPro’s stock screener is a powerful tool that can assist investors in identifying cheap stocks with strong potential upside. By utilizing this tool, investors can filter through a vast universe of stocks based on specific criteria and parameters.

Among the S&P 500, here are the top 15 stocks that are expected to rise the most over the next 12 months, based on InvestingPro ‘Fair Value’ price targets. The InvestingPro fair value estimate is determined according to several valuation models, including price-to-earnings (P/E) ratios, price-to-sales (P/S) ratios, and price-to-book (P/B) multiples.

1. Marathon Petroleum (NYSE:):

• InvestingPro Upside: +53.7%
• Analyst Upside: +5.8%

2. Berkshire Hathaway (NYSE:):

• InvestingPro Upside: +35.1%
• Analyst Upside: +16.9%

3. Analog Devices (NASDAQ:):

• InvestingPro Upside: +29.8%
• Analyst Upside: +28%

4. Booking Holdings (NASDAQ:):

InvestingPro Upside: +26%

5. McKesson (NYSE:):

• InvestingPro Upside: +25.2%
• Analyst Upside: +7.9%

6. Cisco Systems (NASDAQ:):

• InvestingPro Upside: +23.3%
• Analyst Upside: +13.5%

7. Netflix (NASDAQ:):

• InvestingPro Upside: +20.7%
• Analyst Upside: +12.9%

8. Vertex Pharmaceuticals (NASDAQ:):

• InvestingPro Upside: +17.9%
• Analyst Upside: +7.3%

9. Alphabet (NASDAQ:):

• InvestingPro Upside: +17.4%
• Analyst Upside: +23.3%

10. Applied Materials (NASDAQ:):

• InvestingPro Upside: +16.2%
• Analyst Upside: +21%

11. Amazon (NASDAQ:):

• InvestingPro Upside: +15.1%
• Analyst Upside: +31.5%

12. Marriott International (NASDAQ:):

• InvestingPro Upside: +14.6%
• Analyst Upside: +13.6%

13. Lam Research (NASDAQ:):

• InvestingPro Upside: +12%
• Analyst Upside: +19.5%

14. Adobe (NASDAQ:):

• InvestingPro Upside: +12%
• Analyst Upside: +16.9%

15. Phillips 66 (NYSE:):

• InvestingPro Upside: +12%
• Analyst Upside: +14%

With InvestingPro, you can conveniently access a single-page view of complete and comprehensive information about different companies all in one place, eliminating the need to gather data from multiple sources and saving you time and effort.

Sign Up for a Free Week Now!

***

Disclosure: At the time of writing, I am short on the S&P 500, , and via the ProShares Short S&P 500 ETF (SH), ProShares Short QQQ ETF (PSQ), and ProShares Short Russell 2000 ETF (RWM). I regularly rebalance my portfolio of individual stocks and ETFs based on ongoing risk assessment of both the macroeconomic environment and companies’ financials.

The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.

Source link