Analysts found that these stocks responded positively in the 12 months following a Fed rate cut. Let’s take a look at which stocks they are and what to expect going forward.
These 5 stocks rose as much as 87% after the Fed rate cut, in a non-recession scenario. Analysts have found that the S&P 500 gained more than 18.5% on average in the year following the first rate cut. They then selected the companies with the highest performance in a soft-landing scenario for the economy, i.e. with inflation contained but not accompanied by an economic slowdown.
But which stocks could benefit from a Fed rate cut? With operators already uncertain about a 50 basis point decrease, which would bring the reference rate into the range of 4.75-5%, what can we expect on the stock markets?
- Probability for a 50-point rate cut
- Source: Fed Watch Tool
A more aggressive cut could have no positive consequences on stock prices. While stocks tend to rise more when cuts are gradual, each rate-cutting cycle is different. For this reason, analysts suggest also looking at companies’ earnings growth to identify those with the highest growth potential.
1. Nike
- Nike weekly graph
- Source: Tradingview
Nike shares rose as much as 87% after the latest Fed rate cut. The well-known sportswear brand is coming off a delicate phase, characterized by a decline in sales and demand that has been reflected in the stock market performance with a decline of more than 25% since the beginning of the year.
- Nike target price
- Source: TipRanks
Although analysts expect EPS 2025 to fall to $3.09, for the following two years, expectations are for a return to growth of 16.35% and 10.58%, respectively.
2. Amgen
- Amgen weekly graph
- Source: Tradingview
Amgen shares have instead achieved a positive performance of 16.70% since the beginning of the year, with a long-term bullish trend that culminated in May with new all-time highs at $346.
- Amgen overperformance
- Source: MarketWatch
The stock has outperformed the pharmaceutical sector and the S&P 500 index thanks to solid second-quarter results that confirmed long-term revenue growth. In addition, AMGN shares are trading at an attractive value compared to the sector: the 12-month PE ratio is 16.38 times compared to 20.49 for the sector.
Since the previous rate cut, the company’s value has increased by 86%.
3. UnitedHealth Group
- UnitedHealth Group weekly graph
- Source: Tradingview
UnitedHealth Group could have an above-average return than the market, according to analysts. After the last Fed rate cut, the company grew 72% in the following 12 months.
Although the shares are trading near new records at $607, earnings per share have grown steadily in recent years, with an average dividend increase of 22% per year.
This means that the company is willing to share growth with shareholders. However, it should be noted that the company used 115% of its cash flow to pay the last dividend, making the pace of future growth less sustainable.
- UnitedHealth rating
- Source: Zacks
4. Paychex
- Paychex weekly graph
- Source: Tradingview
Paychex has been growing steadily since 2020 and after the last Fed rate cut without a recession, it increased its stock price by 51.5%. The American human resources and payroll management company has a long history of growing profits and expectations for the next quarter are equally positive.
- Profit and revenue increase
- Source: SimplyWallStreet
According to analysts, Paychex earnings will increase by 20% in the next few years and indicate a price target of $187.42, higher than the current $135.
5. Walmart
- Walmart weekly graph
- Source: Tradingview
Among the 5 stocks that rose the most after the Fed rate cut, we also find Walmart. After a rally of more than 50% since the beginning of the year, can the company’s shares continue to grow?
The latest quarterly report of the global retail giant showed an operating margin up by 20 basis points (to 5.7%), thanks to e-commerce and advertising. Although the shares are considered overvalued, with a PE ratio of 21.5 times, the future outlook remains positive, thanks to the low-price value proposition and omnichannel presence.
- Walmart target price
- Source: TipRanks
With an estimated liquidity of $9 billion, the financial position is solid and allows the company to continue to reinvest and distribute dividends.
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The information and considerations contained in this article must not be used as the sole or primary basis for making investment decisions. The reader retains full freedom in his or her investment choices and full responsibility in making them, since only he or she knows his or her risk appetite and time horizon. The information contained in the article is provided for information purposes only and its disclosure does not constitute and should not be considered an offer or solicitation to the public to save.|
Original article published on Money.it Italy 2024-09-18 08:11:00. Original title: Queste 5 azioni sono salite fino all’87% dopo il taglio dei tassi Fed
