There has been a lot of anticipation brewing in the market over the last month that the Federal Reserve is on the verge of cutting interest rates. President Trump has called for a rate cut, but recent economic reports have given the Fed the possibility to leave rates unchanged until at least its September meeting, if not longer.
As expectations rose for a rate cut in the near future, a strong jobs report last week showed June added 224,000 new jobs, well above the 165,000 new jobs analysts expected. While Trump loved seeing the strong jobs report, it could be exactly the ammunition the Federal Reserve needs to hold off on a rate cut, which Trump desperately wants to see to lower the strength of the dollar in the current trade war.
Fed Chairman Jerome Powell will testify in front of Congress this week, and we should get a little more clarity on which direction the Fed is currently leaning. If he states that the Fed will continue to look closely at the situation the market will take that to mean no rate cuts in the near future and the market could give back some of its recent gains. We have already see some selling in the market since the strong jobs report last week.
The question becomes where to invest just in case a rate cut is still months away. Here are few stocks that will continue to shine regardless of what the Fed decides to do (or not do) over the next few months.
Verizon (VZ) has traded in a sideways trend over the last few months. As is the case with most utility stocks, Verizon offers shareholders a hefty dividend yield, which currently sits at 4.25%. The high yield is attractive to investors regardless of the current interest rate, but obviously it becomes even more attractive when rates are low. With the Fed not planning to lift rates anytime soon, the dividend is a great way to bring income into your portfolio, and any potential rate cut down the line will drive even more interest to the stock. VZ competes in a competitive sector, but its size, and that of its main competitors is so large and the barriers of entry are so strong in the sector that Verizon has a lot of pricing power. Earnings growth is modest, with analysts expecting profits to rise at an annual rate of just 2.5% over the next five years, but with a forward P/E of just 11.6 there is definitely value in the stock. Analysts see a little upside in the stock with an average price target of $58.57 versus its current price of $56.50, but if the company is able to deliver strong quarterly numbers when it next reports on August 1 the price targets should rise and allow the stock to trend higher in the second half of the year.
Waste Management (WM)
Waste Management (WM) has been a top performing stock on Wall Street for the last several years, and the stock is showing no signs of slowing down. If the Federal Reserve leaves rates unchanged it will be a result of confidence in the overall economy. The waste sector maintains strong demand for its services regardless of overall economic conditions, but strong economic times to result in additional expansion of both business and personal consumption which in turns helps Waste Management continue to grow. Over the last five years the company has grown profits by 14% per annum and looking ahead analysts see annual earnings growth of 8.5% for the next five years. WM trades at 26 times earnings, so the stock is priced for perfection, but as long as the company is able to hit its future estimates the stock will trend higher, and the company will next report earnings on July 25. Analysts expect profit of $1.08 per share, versus $1.15 during the same period last year. The company has posted positive earnings surprises the last seven quarters. WM trades at $116.52 with an average price target of $116.43.
Seagate Technology (STX)
Seagate Technology (STX) makes data storage devices. The stock offers an attractive 5.5% dividend yield. A strong overall economy, which would be the reason why the Federal Reserve would off on cutting rates is a very bullish condition for the sector, and the company will also benefit along with the entire technology sector if the U.S. and China are able to hash out a trade deal during the second half of the year. The company has shown solid earnings growth of 6% per annum over the last five years, and analysts expect more of the same moving forward with forecast growth of 6.8% annually for the next five years. STX offers a lot of value, with shares currently trading at just 9 times earnings. Shares have moved higher over the last month and are currently trading at $45.88 with an average price target of $48.20. Seagate has posted big positive earnings surprises the last seven quarters, and the company will next report on August 2. Another strong earnings beat along with the company’s big dividend yield would push shares higher and have Wall Street analysts boosting their price targets on the stock.
Walmart (WMT) becomes more attractive if the Fed holds off cutting rates for two primary reasons. The first being the confidence it shows by the Fed toward overall economic conditions. A strong economy is very bullish for major retailers like Walmart, particularly after the strong June jobs report. Another reason why the stock becomes more attractive is Walmart’s strong capital program. The stock currently offers a 1.9% dividend yield, and the company is a dividend aristocrat with a 44-year streak of dividend increases. Walmart has done a good job growing both in-store and online sales, and profits are expected to rise 3.7% annually over the next five years and WMT stock is trading at 22 times future earnings. The company’s ability to boost its online business has Wall Street excited on the stock, which currently is trading at its all-time high. WMT will next report earnings August 15. The stock currently trades at $113.29 with an average price target of $111.68.