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If the AI Boom Stalls, What Stocks Should You Buy?
Of course, I cannot predict the future, but it feels distinctly possible that we have entered a new market regime.
Between the sharp correction we just experienced in the AI and semiconductor sectors, the scandal and resignation of Nvidia CEO Jensen Huang, and the Fed's renewed interest rate hiking cycle, there is more than enough reason to start thinking more defensively.
For me, this doesn't necessarily mean preparing for an imminent recession. Economic data continues to show just how resilient the US economy remains. Instead, I am looking toward areas of the market with limited exposure to the AI trade, particularly sectors that have demonstrated strength amid the recent technology selloff.
Three sectors that stand out are healthcare, financials, and oil and gas. Within those groups, I am focusing on companies with strong fundamentals, favorable earnings estimate revisions, and top Zacks Ranks.
Three stocks that fit this approach are American Healthcare REIT ((AHR - Free Report) ), RenaissanceRe ((RNR - Free Report) ) and Cheniere Energy ((LNG - Free Report) ).
Image Source: Zacks Investment Research
American Healthcare REIT: Finance and Healthcare Stock Exposure
American Healthcare REIT offers investors something of a two-for-one opportunity, providing exposure to both the healthcare and financial sectors, two areas of the market that have demonstrated relative strength amid the recent technology selloff.
The company is a real estate investment trust (REIT) focused on healthcare properties, including senior housing communities, skilled nursing facilities, integrated senior health campuses and outpatient medical buildings.
It operates in a particularly attractive segment of the healthcare industry, supported by powerful long-term demographic tailwinds. As the US population ages, demand for senior housing, assisted living and specialized medical facilities is expected to increase substantially, providing a durable source of growth that is largely independent of the AI investment cycle.
Importantly, AHR is already translating those favorable industry trends into strong operating results. In its latest quarter, the company reported operating income growth of 13.8%, including a 28.2% increase across its senior housing operating properties.
Looking ahead, analysts expect revenue to increase 26.7% this year and another 13.3% next year. Earnings growth is similarly impressive, with EPS projected to rise 27.9% this year and 18.3% next year.
Those are compelling growth rates for a business operating in a relatively defensive corner of the market. Additionally, analysts have been steadily raising their earnings estimates, over the long-term and more recently, earning American Healthcare REIT a Zacks Rank #1 (Strong Buy).
With strong underlying demand, an improving earnings outlook and limited direct exposure to the AI trade, AHR looks like an attractive opportunity for investors seeking to diversify away from technology without sacrificing growth.
Image Source: Zacks Investment Research
Cheniere Energy: Oil and Gas Stocks Continue to Outperform
Energy stocks have been another area of relative strength amid the recent technology selloff, supported by geopolitical tensions, inflation concerns and continued demand for oil and natural gas.
Cheniere Energy is one of the world's largest producers and exporters of liquefied natural gas (LNG - Free Report) , operating major export facilities along the US Gulf Coast. The company processes domestic natural gas into LNG, allowing it to be shipped overseas to customers in Europe, Asia and other international markets.
Cheniere is particularly well positioned to benefit from the growing global demand for natural gas, as countries seek to diversify their energy supplies and strengthen energy security. Geopolitical tensions have only reinforced the strategic importance of reliable US energy exports.
The company also has substantial growth opportunities through the continued expansion of its export infrastructure. Cheniere currently has approximately 56 million tonnes of annual LNG production capacity in operation, with additional capacity under construction and further expansion projects in development.
Importantly, the fundamental outlook has been improving considerably. Analysts have aggressively raised their earnings estimates, with current year estimates increasing 83.5% and next year estimates climbing 21.6% over the last 30 days. That powerful upward trend has earned Cheniere a Zacks Rank #1 (Strong Buy).
Earnings growth expectations are similarly impressive. Analysts anticipate EPS growth of 34.4% this year, followed by another 48% next year.
Recent operating results have reinforced that optimism. In its latest quarterly report, Cheniere delivered strong financial performance, raised its full-year adjusted EBITDA and distributable cash flow guidance, and increased its quarterly dividend by more than 12%.
Shares have also demonstrated strong price momentum, reflecting investor confidence in the company's improving earnings outlook.
With substantial international demand, expanding production capacity and sharply rising earnings estimates, Cheniere offers an attractive way to gain exposure to the energy sector while diversifying away from the AI trade.
Image Source: Zacks Investment Research
RenaissanceRe: Insurance Stocks Benefit from Rising Rates
Insurance stocks are another area of the market that can benefit from a higher interest rate environment, making them an attractive alternative to the technology sector.
RenaissanceRe Holdings is a leading global provider of reinsurance and specialty insurance, offering coverage against natural catastrophes, property damage, liability and other complex risks. Essentially, the company provides insurance to other insurers, helping them manage large or unpredictable losses.
One of the attractive features of the insurance business in the current environment is its ability to benefit from higher interest rates. Insurers collect premiums upfront and invest those funds until claims are paid, generating substantial investment income in the process.
RenaissanceRe maintains a large fixed-income investment portfolio, allowing it to reinvest maturing securities at higher yields. This can provide a meaningful boost to recurring investment income over time, although rising rates can also temporarily reduce the market value of existing bond holdings.
The company also has some protection against inflation through its ability to adjust insurance pricing as contracts renew. Importantly, its underlying business has very little direct exposure to the AI investment cycle.
The earnings outlook has also been improving. Analysts have unanimously raised their estimates over the recent revision period, with current year earnings expectations climbing 15.6%. That favorable revisions trend has earned RenaissanceRe a Zacks Rank #2 (Buy).
While the company's projected sales growth is relatively modest compared with some of the faster-growing names in the market, shares have demonstrated strong price momentum, reflecting continued investor interest in the insurance industry.
With improving earnings expectations, substantial investment income and a business model largely insulated from the AI trade, RenaissanceRe offers another compelling opportunity for investors looking to diversify into areas of relative market strength.
Image Source: Zacks Investment Research
Should Investors Buy Shares in RNR, LNG and AHR?
Whether the recent weakness in AI stocks marks a temporary correction or the beginning of a more prolonged shift in market leadership remains to be seen.
Either way, investors have good reason to look beyond technology for opportunities. AHR, LNG and RNR each offer exposure to different long-term growth drivers, while their favorable earnings revisions and strong price momentum suggest that investors are already taking notice.
For now, these three stocks look like compelling opportunities to diversify portfolios while maintaining exposure to businesses with improving fundamentals.
View the Zacks #1 Rank List
Image: Shutterstock
If the AI Boom Stalls, What Stocks Should You Buy?
Of course, I cannot predict the future, but it feels distinctly possible that we have entered a new market regime.
Between the sharp correction we just experienced in the AI and semiconductor sectors, the scandal and resignation of Nvidia CEO Jensen Huang, and the Fed's renewed interest rate hiking cycle, there is more than enough reason to start thinking more defensively.
For me, this doesn't necessarily mean preparing for an imminent recession. Economic data continues to show just how resilient the US economy remains. Instead, I am looking toward areas of the market with limited exposure to the AI trade, particularly sectors that have demonstrated strength amid the recent technology selloff.
Three sectors that stand out are healthcare, financials, and oil and gas. Within those groups, I am focusing on companies with strong fundamentals, favorable earnings estimate revisions, and top Zacks Ranks.
Three stocks that fit this approach are American Healthcare REIT ((AHR - Free Report) ), RenaissanceRe ((RNR - Free Report) ) and Cheniere Energy ((LNG - Free Report) ).
Image Source: Zacks Investment Research
American Healthcare REIT: Finance and Healthcare Stock Exposure
American Healthcare REIT offers investors something of a two-for-one opportunity, providing exposure to both the healthcare and financial sectors, two areas of the market that have demonstrated relative strength amid the recent technology selloff.
The company is a real estate investment trust (REIT) focused on healthcare properties, including senior housing communities, skilled nursing facilities, integrated senior health campuses and outpatient medical buildings.
It operates in a particularly attractive segment of the healthcare industry, supported by powerful long-term demographic tailwinds. As the US population ages, demand for senior housing, assisted living and specialized medical facilities is expected to increase substantially, providing a durable source of growth that is largely independent of the AI investment cycle.
Importantly, AHR is already translating those favorable industry trends into strong operating results. In its latest quarter, the company reported operating income growth of 13.8%, including a 28.2% increase across its senior housing operating properties.
Looking ahead, analysts expect revenue to increase 26.7% this year and another 13.3% next year. Earnings growth is similarly impressive, with EPS projected to rise 27.9% this year and 18.3% next year.
Those are compelling growth rates for a business operating in a relatively defensive corner of the market. Additionally, analysts have been steadily raising their earnings estimates, over the long-term and more recently, earning American Healthcare REIT a Zacks Rank #1 (Strong Buy).
With strong underlying demand, an improving earnings outlook and limited direct exposure to the AI trade, AHR looks like an attractive opportunity for investors seeking to diversify away from technology without sacrificing growth.
Image Source: Zacks Investment Research
Cheniere Energy: Oil and Gas Stocks Continue to Outperform
Energy stocks have been another area of relative strength amid the recent technology selloff, supported by geopolitical tensions, inflation concerns and continued demand for oil and natural gas.
Cheniere Energy is one of the world's largest producers and exporters of liquefied natural gas (LNG - Free Report) , operating major export facilities along the US Gulf Coast. The company processes domestic natural gas into LNG, allowing it to be shipped overseas to customers in Europe, Asia and other international markets.
Cheniere is particularly well positioned to benefit from the growing global demand for natural gas, as countries seek to diversify their energy supplies and strengthen energy security. Geopolitical tensions have only reinforced the strategic importance of reliable US energy exports.
The company also has substantial growth opportunities through the continued expansion of its export infrastructure. Cheniere currently has approximately 56 million tonnes of annual LNG production capacity in operation, with additional capacity under construction and further expansion projects in development.
Importantly, the fundamental outlook has been improving considerably. Analysts have aggressively raised their earnings estimates, with current year estimates increasing 83.5% and next year estimates climbing 21.6% over the last 30 days. That powerful upward trend has earned Cheniere a Zacks Rank #1 (Strong Buy).
Earnings growth expectations are similarly impressive. Analysts anticipate EPS growth of 34.4% this year, followed by another 48% next year.
Recent operating results have reinforced that optimism. In its latest quarterly report, Cheniere delivered strong financial performance, raised its full-year adjusted EBITDA and distributable cash flow guidance, and increased its quarterly dividend by more than 12%.
Shares have also demonstrated strong price momentum, reflecting investor confidence in the company's improving earnings outlook.
With substantial international demand, expanding production capacity and sharply rising earnings estimates, Cheniere offers an attractive way to gain exposure to the energy sector while diversifying away from the AI trade.
Image Source: Zacks Investment Research
RenaissanceRe: Insurance Stocks Benefit from Rising Rates
Insurance stocks are another area of the market that can benefit from a higher interest rate environment, making them an attractive alternative to the technology sector.
RenaissanceRe Holdings is a leading global provider of reinsurance and specialty insurance, offering coverage against natural catastrophes, property damage, liability and other complex risks. Essentially, the company provides insurance to other insurers, helping them manage large or unpredictable losses.
One of the attractive features of the insurance business in the current environment is its ability to benefit from higher interest rates. Insurers collect premiums upfront and invest those funds until claims are paid, generating substantial investment income in the process.
RenaissanceRe maintains a large fixed-income investment portfolio, allowing it to reinvest maturing securities at higher yields. This can provide a meaningful boost to recurring investment income over time, although rising rates can also temporarily reduce the market value of existing bond holdings.
The company also has some protection against inflation through its ability to adjust insurance pricing as contracts renew. Importantly, its underlying business has very little direct exposure to the AI investment cycle.
The earnings outlook has also been improving. Analysts have unanimously raised their estimates over the recent revision period, with current year earnings expectations climbing 15.6%. That favorable revisions trend has earned RenaissanceRe a Zacks Rank #2 (Buy).
While the company's projected sales growth is relatively modest compared with some of the faster-growing names in the market, shares have demonstrated strong price momentum, reflecting continued investor interest in the insurance industry.
With improving earnings expectations, substantial investment income and a business model largely insulated from the AI trade, RenaissanceRe offers another compelling opportunity for investors looking to diversify into areas of relative market strength.
Image Source: Zacks Investment Research
Should Investors Buy Shares in RNR, LNG and AHR?
Whether the recent weakness in AI stocks marks a temporary correction or the beginning of a more prolonged shift in market leadership remains to be seen.
Either way, investors have good reason to look beyond technology for opportunities. AHR, LNG and RNR each offer exposure to different long-term growth drivers, while their favorable earnings revisions and strong price momentum suggest that investors are already taking notice.
For now, these three stocks look like compelling opportunities to diversify portfolios while maintaining exposure to businesses with improving fundamentals.