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4 Financial Stocks to Stay Safe if Fed Rates Are Unchanged
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The much awaited Federal Reserve’s two-day meeting which began on Tuesday is about to conclude today. All eyes are on the interest rate stance that will be taken by the committee.
Chances were high that the June meeting would see a hike in the Federal funds rate until bleak employment data washed away all hopes. Other factors such as weak global growth, Brexit issues and the ultra-loose monetary policy of Bank of Japan also acted as dampeners.
What Make a Rake Hike Unlikely?
The latest employment report came in weaker than expected for the second straight month with the May figures pointing to 0.04 million jobs added against the expected 0.2 million plus.
Sans the employment figure, other economic indicators pointed toward a strengthening economy. As per the Institute for Supply Management (ISM), the manufacturing PMI was 51.3 in May, up from 50.8 in April. Overall retail sales increased 1.3% in April from March, representing the largest gain since Mar 2015. New U.S. single-family home sales logged the biggest leap in 24 years in April and the existing home sales for April hit a three-month high.
But the weakness in the global economy may put the brakes on the rate hike. Volatile financial markets and a slowdown in global economic growth has waylaid the Fed more than once in its rate hike plans and the same is expected this time around.
Investors will, however, try to find all the clues from comments made by the Fed Chairperson Janet Yellen during this meeting regarding the July rate hike. The Fed raised its benchmark rate for the first time in nearly a decade last December.
Are Low Rates All that Bad?
However, a low interest rate is not all bad news. With rates resting at their historically low levels, there are certain sectors that stand to benefit from the low interest environment. Real estate investment trusts (REITs), Exchanges, Card Processors, housing companies from the broader Finance sector are the gainers of low interest rate. Homebuilders largely benefited from low interest rates, leading to a sharp increase in home buying activity since mid-2012. Among the rate sensitive sectors, surely utilities and REITs would benefit. This is because usually companies from such sectors rely heavily on debt. So when borrowing gets costlier or cheaper with rate moves, stocks from these sectors end up being big movers.
Moreover low interest rates fuel consumer spending because they make saving less rewarding. Increasing purchases will in turn increase transaction volumes for card processors since major purchases in U.S. are made by using debit and credit cards. This will lead to top-line growth for these companies.
Also, low interest rates make it unattractive to park money in bank deposit. So, stocks gain acceptance as a preferred way of investing. Increased purchase of stocks makes companies engaged in Securities Exchange sector attractive since they experience a surge in trading volumes, which boosts their earnings.
Let us pick some of the companies from this sector that have high chances of generating promising returns for investors. We refine our search using the VGM score, a solid Zacks Rank, and an attractive long-term earnings growth. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Also, these stocks posted average positive earnings surprises over the past four quarters.
Green Dot Corporation (GDOT - Free Report) offers reloadable prepaid debit cards and cash reload processing services in the United States, as well as mobile banking services with its GoBank mobile checking account. The company’s products include Green Dot MasterCards, Visa-branded prepaid debit cards, and various co-branded reloadable prepaid card programs. It has a Zacks Rank #3 (Hold) and a VGM Score of A.
The company has expected long-term earnings growth of 15%. The forward P/E ratio is 18.8. Green Dot delivered positive surprises in three out of the last four quarters, with an average beat of 118.31%. Notably, the stock has been witnessing upward estimate revisions over the last 60 days.
Global Payments Inc. (GPN - Free Report) provides payment solutions for credit cards, debit cards, electronic payments and check-related services. It offers credit and debit card transaction processing services to various international card brands, including American Express, UnionPay International, Discover Card, JCB, MasterCard, and Visa; non-traditional payment methods, as well as to certain domestic debit networks such as Interac in Canada. It has a Zacks Rank #3 and a VGM Score of A. The company has expected long-term earnings growth of 15.2%. The forward P/E ratio is 22.4. Global Payments delivered positive surprises in each of the last four quarters, with an average beat of 6.7%.
Ares Commercial Real Estate Corporation (ACRE - Free Report) is a specialty finance company, which originates, manages and services a portfolio of commercial real estate debt-related investments. It has a Zacks Rank #3 and a VGM Score of B. The company has expected long-term earnings growth of 6%. The forward P/E ratio is 11.2. Ares Commercial Real Estate delivered positive surprises in three out of the last four quarters, with an average beat of 6.3%.
RLJ Lodging Trust (RLJ - Free Report) is an independent equity real estate investment trust. The firm also manages real estate funds. It invests in the real estate markets of the United States. The firm primarily invests in premium-branded, focused service, and compact full-service hotels. It has a Zacks Rank #3 and a VGM Score of B. The company’s expected long-term earnings growth is 5.5%. The forward P/E ratio is 7.6. RLJ Lodging delivered positive surprises in each of the last four quarters, with an average beat of 6.9%.
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4 Financial Stocks to Stay Safe if Fed Rates Are Unchanged
The much awaited Federal Reserve’s two-day meeting which began on Tuesday is about to conclude today. All eyes are on the interest rate stance that will be taken by the committee.
Chances were high that the June meeting would see a hike in the Federal funds rate until bleak employment data washed away all hopes. Other factors such as weak global growth, Brexit issues and the ultra-loose monetary policy of Bank of Japan also acted as dampeners.
What Make a Rake Hike Unlikely?
The latest employment report came in weaker than expected for the second straight month with the May figures pointing to 0.04 million jobs added against the expected 0.2 million plus.
Sans the employment figure, other economic indicators pointed toward a strengthening economy. As per the Institute for Supply Management (ISM), the manufacturing PMI was 51.3 in May, up from 50.8 in April. Overall retail sales increased 1.3% in April from March, representing the largest gain since Mar 2015. New U.S. single-family home sales logged the biggest leap in 24 years in April and the existing home sales for April hit a three-month high.
But the weakness in the global economy may put the brakes on the rate hike. Volatile financial markets and a slowdown in global economic growth has waylaid the Fed more than once in its rate hike plans and the same is expected this time around.
Investors will, however, try to find all the clues from comments made by the Fed Chairperson Janet Yellen during this meeting regarding the July rate hike. The Fed raised its benchmark rate for the first time in nearly a decade last December.
Are Low Rates All that Bad?
However, a low interest rate is not all bad news. With rates resting at their historically low levels, there are certain sectors that stand to benefit from the low interest environment. Real estate investment trusts (REITs), Exchanges, Card Processors, housing companies from the broader Finance sector are the gainers of low interest rate. Homebuilders largely benefited from low interest rates, leading to a sharp increase in home buying activity since mid-2012. Among the rate sensitive sectors, surely utilities and REITs would benefit. This is because usually companies from such sectors rely heavily on debt. So when borrowing gets costlier or cheaper with rate moves, stocks from these sectors end up being big movers.
Moreover low interest rates fuel consumer spending because they make saving less rewarding. Increasing purchases will in turn increase transaction volumes for card processors since major purchases in U.S. are made by using debit and credit cards. This will lead to top-line growth for these companies.
Also, low interest rates make it unattractive to park money in bank deposit. So, stocks gain acceptance as a preferred way of investing. Increased purchase of stocks makes companies engaged in Securities Exchange sector attractive since they experience a surge in trading volumes, which boosts their earnings.
Let us pick some of the companies from this sector that have high chances of generating promising returns for investors. We refine our search using the VGM score, a solid Zacks Rank, and an attractive long-term earnings growth. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Also, these stocks posted average positive earnings surprises over the past four quarters.
Green Dot Corporation (GDOT - Free Report) offers reloadable prepaid debit cards and cash reload processing services in the United States, as well as mobile banking services with its GoBank mobile checking account. The company’s products include Green Dot MasterCards, Visa-branded prepaid debit cards, and various co-branded reloadable prepaid card programs. It has a Zacks Rank #3 (Hold) and a VGM Score of A.
The company has expected long-term earnings growth of 15%. The forward P/E ratio is 18.8. Green Dot delivered positive surprises in three out of the last four quarters, with an average beat of 118.31%. Notably, the stock has been witnessing upward estimate revisions over the last 60 days.
Global Payments Inc. (GPN - Free Report) provides payment solutions for credit cards, debit cards, electronic payments and check-related services. It offers credit and debit card transaction processing services to various international card brands, including American Express, UnionPay International, Discover Card, JCB, MasterCard, and Visa; non-traditional payment methods, as well as to certain domestic debit networks such as Interac in Canada. It has a Zacks Rank #3 and a VGM Score of A. The company has expected long-term earnings growth of 15.2%. The forward P/E ratio is 22.4. Global Payments delivered positive surprises in each of the last four quarters, with an average beat of 6.7%.
Ares Commercial Real Estate Corporation (ACRE - Free Report) is a specialty finance company, which originates, manages and services a portfolio of commercial real estate debt-related investments. It has a Zacks Rank #3 and a VGM Score of B. The company has expected long-term earnings growth of 6%. The forward P/E ratio is 11.2. Ares Commercial Real Estate delivered positive surprises in three out of the last four quarters, with an average beat of 6.3%.
RLJ Lodging Trust (RLJ - Free Report) is an independent equity real estate investment trust. The firm also manages real estate funds. It invests in the real estate markets of the United States. The firm primarily invests in premium-branded, focused service, and compact full-service hotels. It has a Zacks Rank #3 and a VGM Score of B. The company’s expected long-term earnings growth is 5.5%. The forward P/E ratio is 7.6. RLJ Lodging delivered positive surprises in each of the last four quarters, with an average beat of 6.9%.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>