Fed's Bond-Buying Plan Eases Second-Wave Fears: 5 Picks

Tirthankar Chakraborty Published on June 16, 2020

A selloff on Wall Street turned into a rally on Jun 15, with major benchmarks finishing in the green after the Federal Reserve took initiatives to keep credit flowing to corporate houses amid the coronavirus outbreak-led economic upheaval.

The broader S&P 500 ended almost 1% higher after spending most of the trading session in the negative territory, and has now gained considerably from its March lows. The index bounced back from last week’s sharpest weekly fall since the period ended Mar 20, per Dow Jones Market Data.

The Fed said that it would expand the scope of its $750-billion emergency corporate debt loan facility by buying a broad and diversified portfolio of debt issued by individual corporates. In that way, more money will flow into the hands of big businesses at a time when the financial system is going through high stress following the sharp decline in economic activities from the pandemic.

The Fed’s bond-buying program, also known as the Secondary Market Corporate Credit Facility, will buy newly-issued debts in the primary market, as well as debts that are being traded in the secondary market. The program, by the way, will begin purchases of up to $250 billion in individual corporate bonds from eligible issuers. And such individual bond-buying is expected to begin on Jun 16, according to New York Fed.

The central bank has already taken in up to $5.5 billion through its ETF purchases so far. Moreover, its Primary Market Corporate Credit Facility that aims at buying debts directly from firms is not yet operational and can take in roughly $500 billion of corporate debt.

Nonetheless, the Fed’s current move to ease path for corporate borrowing during the pandemic lifted investors’ sentiment and fueled optimism around rapid economic recovery. What’s more, the Fed’s program overshadowed concerns related to a resurgence of COVID-19 cases, both in China and the United States.

Beijing shut down its largest wholesale food market amid a sudden spike in coronavirus cases. Nearly 49 new coronavirus cases were confirmed recently, tracing to a wholesale market known for supplying meat and vegetables.

China on Jun 13 registered the highest uptick in coronavirus cases since mid-April, according to Bloomberg News citing National Health Commission data.

In the United States, a record number of new coronavirus cases have been reported in Alaska, Arizona, Arkansas, California, Florida, North Carolina, Oklahoma and South Carolina in the past three days. Many believe that the efforts to reopen the economy and phased restart of business activities may have led to the increase in infection cases.

5 Solid Choices

With the Fed announcing that it will buy corporate bonds to help an economy battered by the pandemic, the stock market has found a new lease of life.

Hence, it’s judicious to invest in stocks that can make the most of the positive sentiment in the broader market and scale upward in the near future. These stocks flaunt a Zacks Rank #1 (Strong Buy) and a Growth Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.

Boxlight Corporation (BOXL - Free Report) is an education technology company that develops, sells, and services interactive classroom solutions. The Zacks Consensus Estimate for its current-year earnings has risen 33.3% over the past 60 days. The company’s expected earnings growth rate for the current and next quarter is 54.5% and 100%, respectively.

ChannelAdvisor Corporation provides software-as-a-service solutions in the United States. The Zacks Consensus Estimate for its current-year earnings has moved up 40.8% over the past 60 days. The company’s expected earnings growth rate for the current quarter and year is 220% and 72.5%, respectively.

Vertex Pharmaceuticals Incorporated (VRTX - Free Report) engages in developing and commercializing therapies for treating cystic fibrosis. The Zacks Consensus Estimate for its current-year earnings has climbed 17.2% over the past 60 days. The company’s expected earnings growth rate for the current quarter and year is 69.1% and 67.1%, respectively.

Murphy USA Inc. (MUSA - Free Report) engages in the marketing of retail motor fuel products and convenience merchandise. The Zacks Consensus Estimate for its current-year earnings has moved 37.3% north over the past 60 days. The company’s expected earnings growth rate for the current quarter and year is 214.9% and 68.3%, respectively.

Sprouts Farmers Market, Inc. (SFM - Free Report) is a healthy grocery store that provides fresh, natural, and organic food products in the United States. The Zacks Consensus Estimate for its current-year earnings has moved 26.5% north over the past 60 days. The company’s expected earnings growth rate for the current quarter and year is 23.3% and 33.6%, respectively.

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