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3 Stocks to Buy on Strong GDP Data and Interest Rate Cut

Christopher Vargas

The S&P 500 closed at a record high Wednesday as third quarter GDP rose 1.9%, beating estimates of 1.6%. The better-than-expected rise in domestic GDP was led by consumer, government, and residential spending as consumer expenditures continue to prolong the longest economic expansion on record. Consumers purchased big ticket items such as automobiles and the government ramped up its defense spending.

Hours after the GDP report’s release, the Federal Reserve cut the benchmark federal-funds rate by a quarter percentage point, to a range between 1.50% and 1.75%, and began to play down expectations for further cuts. Let’s take a look at a few stocks that investors can consider as the domestic economic expansion continues its record run.

Lockheed Martin LMT has continued to secure big defense contracts from the Pentagon that helped bolster its third quarter report; the company saw its bottom-line grow 10% and its top-line pop 6%. Some of those notable contracts include a $2.4 billion contract to procure initial spares for the F-35 Lightning II Joint Strike Fighter jets and a $492.1 million contract for High Mobility Artillery Rocket Systems (HIMARS) M142 launchers.

Lockheed Martin also secured a $2.7 billion contract from NASA to build at least three Orion spacecraft for use in its Artemis program to return astronauts to the moon by 2024. The big contracts the aerospace giant has lined up, paired with the way the government has ramped up its defense spending, should keep revenue coming in for years to come.

Our fiscal 2019 estimates project the company’s earnings to climb 22.63% to $21.57 per share and for net sales to reach $59.19 billion for a 10.1% leap. LMT sports a respectable 2.37% dividend yield and is listed as a Zacks Rank #3 (Hold).

Group 1 Automotive GPI is a solid play to make as consumer spending on automobiles remained strong in the third quarter. The automotive retailer has seen its shares climb a whopping 92.8% in 2019 thus far, outperforming the automotive retail market’s impressive 51.3% YTD run. Group 1 Automotive regularly acquires and divests dealerships and franchises to expand its business.

In July, the company acquired five new U.K. franchises. After the U.K. expansion, the company plans to fortify its presence in the United States, but for the short term, it aims to acquire attractive businesses in the US that can provide growth opportunities. Group 1 Automotive's strong business execution of used vehicles drove the company’s top line up 7.9% and its bottom-line up 11.03% in Q3. Fiscal 2019 figures estimate EPS to come in at $10.40 for a 16.72% climb and net sales to reach $11.89 billion for a 2.48% rally.

On top of the company’s stellar performance in 2019 and strong growth trajectory, the stock is currently trading at a discounted forward multiple relative to the industry average. The firm’s P/E of 9.9X provides a solid entry point to a company that has been reaping the benefits of the strong demand for automobiles. GPI’s earnings estimates have been revised higher, earning the stock a Zacks Rank #2 (Buy).

Bluerock Residential Growth BRT is a REIT that acquires apartment properties in demographically attractive growth markets throughout the United States. The housing sector was a tailwind for growth as residential investment rose at a 5.1% annual pace. The boost, which followed six straight quarters of declines, likely reflected lower short-term interest rates propelling construction and improvements. The Federal Reserve’s decision to cut interest rates for the third time this year should be an additional tailwind for the housing sector and especially REITs who can refinance debt and use the extra cash to expand its operations in the low rate environment.

Bluerock Residential boasts a juicy 5.46% dividend yield that has been steadily raised over the past five years, and also sports a beta ratio of 0.36 that can fortify a portfolio against potential macroeconomic volatility. This stock also trades at a forward multiple below the industry average, which makes it an opportune time to snatch up a stock that has seen its shares rise 46.5% YTD.

Our Q3 consensus estimates call for FFO to gain 5.56% to $0.19 per share and for revenue to jump 11.81% to $53.5 million. Fiscal 2019 figures estimate BRT’s FFO to increase 11.11% to $0.80 per share and revenue to spike 14.95% to $212.33 million. The REIT has an average FFO surprise of 14.73% over the past four quarters and sits at a Zacks Rank #1 (Strong Buy).

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