Top 10 Stock Picks to Weather Fed Volatility According to InvestingPro

  • Stock Market Analysis
  • Editors Pick
  • The Federal Reserve is widely expected to raise interest rates by 25 basis points this week.
  • In this piece, I will highlight ten stocks well placed to ride out further turmoil in the months ahead, according to InvestingPro.
  • Looking for more top-rated stock ideas to add to your portfolio? Members of InvestingPro get exclusive access to our research tools and data. Learn More »

In what is expected to be one of the most important Federal Reserve policy decisions in recent history, the U.S. central bank is all but certain to follow through with its tenth consecutive rate hike at the conclusion of Wednesday’s meeting.

Financial markets are currently pricing in a 93.2% chance of a 25-basis point rate increase, according to Investing.com’s Fed Rate Monitor Tool .

If the Fed does deliver a quarter-percentage-point rate hike, it will put the benchmark Fed funds target range in a range between 5.00% and 5.25%.

Fed Rate Monitor Tool

Source: Investing.com

Beyond the expected rate move, all eyes will be on Fed Chairman Jerome Powell as the central bank ponders whether to pause its year-long rate-hike cycle in response to mounting signs of stress in the U.S. banking sector and fears over a looming economic downturn.

Contrary to popular opinion, I don’t think the Fed is ready to end its monetary tightening campaign just yet. Instead, Powell will opt to keep alive the possibility of an additional hike in June as inflation remains well above historical standards.

As such, I believe the policy rate will need to rise another half of a percentage point to between 5.50% and 5.75% before the Fed entertains any idea of a pause or pivot in its battle to restore price stability.

Considering that, I used the InvestingPro stock screener to identify the top 10 companies best placed to ride out further Fed-induced turmoil in the weeks and months ahead.

Top 10 Stock Picks According to InvestingPro

Using the InvestingPro stock screener, I ran a methodical approach to filter down the 7,500-plus stocks listed on U.S. exchanges into a small actionable watchlist of well-established companies expected to provide investors with solid returns, regardless of economic conditions.

InvestingPro Stock Screener

Source: InvestingPro

I focused on companies with solid profitability, healthy cash flows, strong growth prospects, and attractive valuations.

I first scanned for names with a 15% or above the return on invested capital (ROIC), which is a capital efficiency ratio used to measure a firm's ability to create value for all its stakeholders. Essentially, it gives a sense of how well a company is using its capital to generate profits.

I then narrowed that down to companies with at least 15% average annual growth in earnings, sales, and gross profit margin over the last five years.

Finally, I filtered for names with an InvestingPro ‘Fair Value’ upside greater than or equal to 15%. The fair value estimate is determined according to several valuation models, including price-to-earnings ratios, price-to-sales ratios, and price-to-book multiples.

And those names with a market cap of $20 billion and above made my watchlist. Once the criteria were applied, I was left with a total of just 14 companies.

Not surprisingly, all 14 stocks that made the list currently enjoy a Financial Health score higher than 2.75 on InvestingPro. For the past 7 years, companies with health scores greater than 2.75 have outperformed the broader market by a wide margin, dating back to 2016.

Of those, these are the 10 most promising names expected to provide the highest return in the months ahead based on the InvestingPro models.

In my view, all companies mentioned offer further upside and have plenty of room to grow their respective businesses, making them solid long-term investments.

  1. Pfizer (NYSE: PFE ) (Fair Value Upside: +37.8%)
  2. Albemarle (NYSE: ALB ) (Fair Value Upside: +36.7%)
  3. Qualcomm (NASDAQ: QCOM ) (Fair Value Upside: +32.9%)
  4. ConocoPhillips (NYSE: COP ) (Fair Value Upside: +29.4%)
  5. D.R. Horton (BVMF: D1HI34 ) (Fair Value Upside: +26.4%)
  6. Adobe (NASDAQ: ADBE ) (Fair Value Upside: +25.2%)
  7. Regeneron (NASDAQ: REGN ) (Fair Value Upside: +21.4%)
  8. Chevron (NYSE: CVX ) (Fair Value Upside: +19.6%)
  9. Pioneer Natural Resources (NYSE: PXD ) (Fair Value Upside: +19.1%)
  10. Diamondback Energy (NASDAQ: FANG ) (Fair Value Upside: +19.0%)

Screener Summary

Source: InvestingPro

If you’re looking for more actionable trade ideas to navigate the current market volatility, the InvestingPro stock screener enables you to identify winning stocks at any given time.

Here is the link for those of you who would like to subscribe to InvestingPro and start analyzing stocks yourself.

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Disclosure: At the time of writing, I am short on the S&P 500 and Nasdaq 100 via the ProShares Short S&P 500 ETF (SH) and ProShares Short QQQ ETF (PSQ). I regularly rebalance my portfolio of individual stocks and ETFs based on ongoing risk assessment of both the macroeconomic environment and companies' financials. The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.

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