So there we have it. As expected, the Federal Reserve has now cut its benchmark interest rate for the first time in a decade. Specifically, the Fed made a ‘mid-cycle adjustment to policy’ by trimming rates a quarter point to 2%-2.25%. However, this more hawkish language sparked fears that the Fed was not planning to embark on an aggressive rate cutting regime.
And this uncertainty sent the S&P 500 falling by as much as 1.8%. Similarly, both the tech-heavy Nasdaq index closed the day down 1.19%, as did the Dow Jones (down 1.23%).
“It was a very confusing and muddled message, and I don’t think that Powell delivered clear direction for what the near term path of additional Fed easing will be, and I think that’s why the market reacted negatively,” Mark Cabana, head of US short rate strategy at Merrill Lynch told CNBC.
Indeed, Chairman Jerome Powell later moved to reassure investors. At the press conference he said: “Let me be clear: What I said was it’s not the beginning of a long series of rate cuts… I didn’t say it’s just one or anything like that. When you think about rate-cutting cycles, they go on for a long time and the committee’s not seeing that. Not seeing us in that place. You would do that if you saw real economic weakness and you thought that the federal funds rate needed to be cut a lot. That’s not what we’re seeing.”
So which stocks should investors snap up now to take advantage of the current pullback? Let’s take a closer look at some of the Street’s top picks now. As you will see these five stocks show a ‘Strong Buy’ consensus from the Street. That’s based on the all ratings received by each stock over the last three months:
Microsoft dropped 3% on July 31. It is now trading down 3.16% on a five-day basis. Analysts are extremely bullish on the software giant right now. In the last three months, the stock has received 22 buy ratings vs just 1 hold rating and 1 sell rating. Meanwhile the average price target stands at $154 (13% upside potential).
RBC Capital’s Matthew Hedberg bumped up his MSFT price target from $136 to $153 following the company’s stellar earnings results. Revenue of $33.7 billion, up 12% year-over-year (Y/Y), easily beat the consensus estimate of $32.7B (+9%). Hedberg cited impressive commercial bookings growth strength (+22% Y/Y) driven by larger, longer-term contracts and significant improvement in Azure gross margins.
“Multi-year growth engines of O365 and Azure continue to show fundamental strength, and margin expansion across Commercial Cloud is continuing with scale and execution” cheered the analyst.
E-commerce king Amazon is trading down 7% on a five-day basis. That’s with a 2% drop on July 31. Shares are falling not just due to the Fed rate cut, but also in the wake of Amazon’s earnings upset. However, all 29 analysts polled are bullish on AMZN’s prospects- suggesting now is the perfect time to buy on the dip. Indeed the $2,281 average analyst price target suggests sizable upside potential of 22%
AMZN reported strong Q2 and year-over-year sales gains coming in above trend and greater than Street consensus expectations. However, a significant incremental investment to increase delivery speed and supply chain improvements caused a shortfall in earnings.
“We view the recent weakness as a buying opportunity as Amazon continues to exhibit its ability to leverage its advanced technology infrastructure to drive new industry verticals and incremental sales growth” wrote five-star Tigress Financial analyst Ivan Feinseth on July 30.
“The strong results come as Amazon continues to invest in its warehouse delivery infrastructure as part of its plan to make one-day shipping standard for Prime members” he added.
Now is the time to snap up Visa Inc- which has a very positive outlook according to the Street. On the back of strong earnings, the stock is trading up 35% year-to-date. However, in the last five days we see a 3% pullback, with a 2% drop on July 31.
Visa’s fiscal third quarter earnings report beat on both profit and revenue- leading to a wave of bullish Street sentiment. Currently the stock displays a ‘Strong Buy’ consensus with 18 buy ratings and just 1 hold rating. Its average analyst price target works out at $199 (12% upside potential).
For instance, SunTrust Robinson analyst Andrew Jeffrey reiterated a buy rating on V with a $205 price target. He describes Visa as "a core holding" and "the most valuable global payments asset." Most "third-party wallets, e-commerce and mobile solutions ride Visa's rails," the analyst told investors.
Meanwhile Nomura Instinet’s Bill Carcache believes Visa remains "uniquely positioned" to sustain mid-teens annual earnings growth despite an uncertain macro backdrop.
One of the US's largest insurance companies, UnitedHealth sold off 2% on rate-cut day. And even though the stock is now flat year-to-date, analysts are staying firmly bullish on UNH’s prospects. Out of ten analysts covering the stock, 9 rate UNH a buy. The average analyst price target is now at $303 (22% upside potential).
Shares remain attractive says Cantor Fitzgerald analyst Steven Halper. "With Medicare for All noise subsiding, we believe Managed Care sentiment is improving. We continue to believe UNH is attractively positioned given its integrated model and consistent execution. Our price of $310 represents almost 20% upside from current levels" the analyst wrote on July 19.
Following the company’s solid earnings report, the analyst noted strong growth from both UnitedHealthcare (UHC) and Optum. Notably total Optum revenue grew 13.4% Y/Y, while UNH indicated that its outlook for Medicare Advantage remains "exceptional".
Last but not least comes blue chip telecoms giant Comcast. The stock also saw a 2% selloff on the Fed news, bringing shares 4% lower on a five-day basis. Still, year-to-date gains work out at 27%- and the stock holds a ‘Strong Buy’ consensus from the Street. Indeed, all seven analysts polled rate CMCSA a buy right now.
On the back of recent earnings, Rosenblatt’s Bernie McTernan hitched his price target slightly from $50 to $51, while maintaining his bullish call.
The analyst stated, "Strong results in 2Q19 and higher cable guidance reinforces our thesis on shares that broadband share gains will continue to drive growth and margin expansion despite a potentially worsening video environment as cord cutting appears on the rise following results from Comcast and AT&T.”
“With a bright outlook for broadband revenue growth, Comcast is not as levered to cord cutting pressures as some other media peers... We are increasing our FCF estimates driven by a slightly higher EBITDA forecast and lower capex, this lifts our price target higher to $51 from $50" he concluded.