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5 Stocks Likely to Fly High on Powell's Rate Cut Hint

Nalak Das

On Jun 4, Wall Street rebounded after a month-long volatile trading, following indications from Fed Chairman Jerome Powell of a possible cut in benchmark interest rate. All three major stock indexes –- the Dow, the S&P 500 and the Nasdaq Composite –- recorded their best single-day gains since Jan 4.

Powell’s statement is in sharp contrast to his aggressive monetary stance in 2018 and a steady monetary policy for 2019, which he reaffirmed last month.  At this stage, it will be prudent to invest in growth stocks with a favorable Zacks Rank that have soared in the past one month despite market mayhem and still have upside potential.

Powell Indicates Possible Rate Cut    

On Jun 4, at the Conference on Monetary Strategy, Tools and Communications Practices, in Chicago, Jerome Powell said that the central bank is watching current economic developments and will “act as appropriate to sustain the expansion.” He further said that the Fed does not know “how or when” global trade conflicts will be resolved. “We are closely monitoring the implications of these developments for the U.S. economic outlook.”

Powell’s remarks came a day after St. Louis Fed President James Bullard said rate cuts “may be warranted soon” amid international trade disputes. Per Sarah Bloom Raskin, a former Fed governor, Powell has given a “very strong signal” that the central bank is ready to cut interest rate.

According to CME FedWatch tool, 65% responders were hoping for a rate cut in 2019 on Jun 3. However, after Powell’s speech, more than 90% of the responders are expecting a rate cut by September and 80% foresees a likely second cut by the end of December.

Fed’s Major Concerns

Several economists believe that the Fed Chairman may consider recent economic metrics such as decline in business investments, shrinking international demand for U.S-made goods and a muted inflation for a possible rate cut.

U.S. manufacturing is suffering due to lack of global demand. The ISM Manufacturing Index for May came in at 52.1, the lowest level since October 2016. This metric declined in four out of last five months. Construction spending also remained flat in May with respect to April.

Factory orders for U.S. made durable goods declined 0.8% In April. New orders of U.S. manufactured goods fell 0.5% in April, the largest drop since April 2017. The manufacturing sector, which constitutes 12% of the U.S. economy, is facing lower demand due to global economic slowdown as a result of ongoing trade conflicts.

Additionally, U.S. core PCE inflation index –- Fed’s favorite inflation gauge –- increased 1.6% in April, well below the central bank’s target rate of 2%. Muted inflation and the likelihood of a reduction of U.S. economic growth may compel Fed to reduce interest rate, much to the delight of President Trump. The Trump administration is constantly blaming the central bank for its aggressive monetary stance as the major hindrance to economic growth.  

Our Top Picks

We have narrowed our search to five stocks with a Growth Score of A and Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. Each of these stocks has moved higher in the last one month and still has upside left.

The chart below shows price performance of our five picks in the past month.

OptimizeRx Corp. OPRX provides digital health messaging services for pharmaceutical companies to communicate with healthcare providers. The company has expected earnings growth of 61.5% for the current year. The Zacks Consensus Estimate for the current year has improved by 10.5% over the last 60 days. The stock has surged 23.3% in the past month.

eHealth Inc. EHTH provides private health insurance exchange services to individuals, families, and small businesses in the United States and internationally. The company has expected earnings growth of 49.6% for the current year. The Zacks Consensus Estimate for the current year has improved by 30.7% over the last 60 days. The stock has climbed 9.1% in the past month.

Strategic Education Inc. STRA provides a range of post-secondary education and non-degree programs in the United States. It operates through three segments: Strayer University, Capella University and Non-Degree Programs. The company has expected earnings growth of 36.2% for the current year. The Zacks Consensus Estimate for the current year has improved by 7.1% over the last 60 days. The stock has advanced 8.6% in the past month.

Hibbett Sports Inc. HIBB operates sporting goods stores in small and mid-sized markets, predominantly in the South, Southwest, Mid-Atlantic and Midwest. The company has expected earnings growth of 18.1% for the current year. The Zacks Consensus Estimate for the current year has improved by 11.2% over the last 60 days. The stock has gained 5.5% in the past month.

PC-Tel Inc. PCTI delivers performance critical telecom solutions in the Asia Pacific, Europe, the Middle East, Africa, and the Americas. The company has expected earnings growth of 675% for the current year. The Zacks Consensus Estimate for the current year has improved by 187.5% over the last 60 days. The stock price has increased 3.7% in the past month.

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PC-Tel, Inc. (PCTI) : Free Stock Analysis Report
 
OptimizeRx Corp. (OPRX) : Free Stock Analysis Report
 
eHealth, Inc. (EHTH) : Free Stock Analysis Report
 
Hibbett Sports, Inc. (HIBB) : Free Stock Analysis Report
 
Strategic Education Inc. (STRA) : Free Stock Analysis Report
 
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