3 Stocks To Buy As U.S. Fed Hikes Rates Amid Inflation, Recession Worries
Jesse Cohen | Jul 27, 2022 06:14
- Markets expecting US Fed to hike rates 75 basis points
- Fears mounting aggressive tightening could tip economy into recession
- Safe bets include Pepsico, Citigroup, and Pioneer Natural Resources
- Year-To-Date Performance: -1.1%
- Market Cap: $237.1 billion
- Year-To-Date Performance: -14.9%
- Market Cap: $99.5 billion
Wall Street is on track to suffer one of its worst years in history as investors worry about the US Federal Reserve’s strategy to combat persistently high inflation .
The Dow Jones Industrial Average is down 12.6% year-to-date, while the S&P 500 and the tech-heavy NASDAQ Composite are off by 17.7% and 26%, respectively.
The US central bank has already raised its benchmark rates by 150 basis points (bps) so far this year and further increases are likely. It will also continue to reduce its $9 trillion balance sheet, adding to policy tightening in a market that is much more volatile than the last time the Fed shrank its bond portfolio.
Here are 3 companies poised to outperform in the coming months.
PepsiCo/h2
PepsiCo (NASDAQ:PEP) is one of the largest global beverage and convenience food companies best known for producing its Pepsi Cola, as well as a wide variety of snacks.
We believe that shares of the Purchase, New York-based company will outperform as investors pile into defensive areas of the consumer staples sector to avoid volatility.
The business has performed well and reported Q2 results on July 12 which blew past consensus expectations. It also raised its full-year sales outlook saying demand was strong and there was room for price hikes despite ongoing macroeconomic and geopolitical volatility,
It has now either matched or topped Wall Street’s profit expectations in every quarter since Q1 2012, highlighting the strength and resilience of its business. Not surprisingly, most analysts surveyed by dividend stock currently offering a quarterly payout of $1.15 per share, which implies an annual yield of 2.68%.
Citigroup/h2
Citigroup (NYSE:C), whose primary financial services include consumer banking, investment banking, and wealth management, is considered as one of the ‘Big Four’ U.S. banking institutions, along with JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), and Wells Fargo (NYSE:WFC).
The New York-based megabank, which has over $23.6 trillion in assets under custody, provides its various financial products and services to global consumers, corporations, governments, and institutions.
Citigroup shares stand to benefit from the Fed’s near-term aggressive rate hike outlook. In higher interest rate environments, banks tend to boost the return on interest that lenders earn from their loan products, or net interest margin.
The bank's Q2 results far exceeded consensus expectations as it benefited from higher interest rates. CEO Jane Fraser said:
“In a challenging macro and geopolitical environment, our team delivered solid results and we are in a strong position to weather uncertain times, given our liquidity, credit quality and reserve levels.”
Per an Investing.com survey, the consensus recommendation for C is ‘outperform’ with fairly high conviction.
Get The App
Analysts are forecasting upside potential of approximately 15.5% from current levels. The average fair value for Citigroup’s stock on Investing.com survey most rated PXD stock as a ‘buy’.
Among those surveyed, the stock had a roughly 32% upside potential.
The average fair value for PXD stock on InvestingPro stands at $328.90, a potential upside of 50.5%.
Pioneer is set to release its latest financial results after the U.S. market closes on Monday, August 8. Consensus calls for EPS growth of over 200% yoy to $8.79. Revenue is expected to surge 99% yoy to $6.81 billion.
Investors will be eager to hear if Pioneer plans to return more cash to shareholders in the form of increased special-dividend and regular-dividend payouts, as well as stock buybacks.
The energy producer currently offers a sky-high yield of 7.97%.
Disclosure: At the time of writing, Jesse owns shares in $PXD. The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.