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Powell Hints Cautious Approach to Rate Hike: 5 Growth Picks
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Wall Street rebounded on Mar 2, regaining a large part of the losses it had incurred om the previous day. Market participants’ sentiment strengthened after the Fed Chairman said that the central bank might not opt for an aggressive rate hike in March. Since the beginning of this year, investors have been worried that the Fed may choose a tougher-than-expected monetary stance to combat soaring inflation.
At this stage, it will be prudent to invest in stocks that have strong growth potential with a favorable Zacks Rank. Five of them are Exxon Mobil Corp. (XOM - Free Report) , Marathon Oil Corp. (MRO - Free Report) , ConocoPhillips (COP - Free Report) , The Mosaic Co. (MOS - Free Report) and Alcoa Corp. (AA - Free Report) .
Powell’s Testimony
On Mar 2, in his testimony to the U.S. House of Representatives Financial Services Committee, Fed Chairman Jerome Powell said that the first rate hike after three years will come in March. However, he hinted that the central bank may not adopt an aggressive rate hike policy in order to combat soaring inflation as the “implications for the U.S. economy are highly uncertain” from the Russia-Ukraine war.
The two major inflation gauges – the PCE price index and the CPI – came in at a 40-year high in January. A large section of economists and financial researchers have said that the Fed will be compelled to raise the benchmark interest rate by 50 basis points in order to cool inflationary pressure.
On Mar 2, Powell said he anticipates a series of rate hikes in 2022 of 25 basis points each. Per CME FedWatch, currently, there is a 95% probability that the Fed will increase the interest rate by 25 basis points in March. Just a few weeks ago, there was a 75% probability that the rate could be hiked up to 50 basis points.
The Fed is scheduled to terminate the $120 billion monthly bind-buying program this month. The central bank will start shrinking the size of its $9 trillion balance sheet after rate hikes start. Powell is still expecting inflation to normalize later this year. However, if that does not happen then the Fed will not hesitate to take a more aggressive approach.
Robust U.S. Economy to Drive Stock Markets
In 2022, the biggest drivers of the U.S. stock markets should be the nation’s strong economic fundamentals. Some recently published economic data also provides a rosy picture. January’s data for consumer spending, durable goods orders, manufacturing and services PMIs remained elevated.
Moreover, the U.S. economy will get more upside from the government’s infrastructure spending. On Nov 15, President Joe Biden signed a bipartisan infrastructure bill of $550 billion in addition to the previously approved funds of $450 billion for five years. Total spending may go up to $1.2 trillion if the plan is extended to eight years.
The infrastructure development project will be a key catalyst for the U.S. stock markets in 2022. Various segments of the economy such as basic materials, industrials, utilities and telecommunications should benefit immensely from more job creation.
Additionally, the White House put pressure on Congress to quickly pass a legislation providing $52 billion to help computer chip manufacturers and ease the shortage of the components vital to many industries.
Our Top Picks
We have narrowed our search to five large-cap (market capital > $10 billion) growth stocks that have a solid upside for 2022. These stocks have also witnessed positive earnings estimate revisions in the past 30 days.
Moreover, these companies are regular dividend payers, which will act as a regular income stream in a market’s downturn. Each of our picks carries a Zacks Rank #1 (Strong Buy) and has a Growth Score A or B. You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our five picks year to date.
Image Source: Zacks Investment Research
Exxon Mobil made multiple world-class oil discoveries at the Stabroek Block, located off the coast of Guyana. XOM raised the estimate for discovered recoverable resources from the Stabroek Block to approximately 10 billion oil-equivalent barrels.
Exxon Mobil’s bellwether status and an optimal integrated capital structure, which have historically led to industry-leading returns make it a relatively lower-risk energy sector play. The integrated oil behemoth expects to reduce greenhouse gas emissions by 30% in its upstream business. By the same time, XOM expects to reduce flaring and methane emissions by 40%.
Exxon Mobil has an expected earnings growth rate of 28.1% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 4.7% over the past 30 days. XOM has a current dividend yield of 4.45%.
Marathon Oil is a leading oil and natural gas exploration and production company with operations in the United States and Africa. MRO’s robust operational metrics suggest strong long-term cash flows that should support a higher price for its shares. The wells drilled by Marathon Oil have extremely low oil price breakeven costs and need oil prices of just $35 a barrel to be profitable.
MRO continues to cut down costs substantially and is striving to achieve a 30% decline in production and G&A costs in 2021 compared to the 2019 levels. Furthermore, Marathon Oil’s significant debt maturities will mostly fall after 2025 and there does not appear much risk here.
Marathon Oil has an expected earnings growth rate of 83.4% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.8% over the past 30 days. MRO has a current dividend yield of 1.22%.
ConocoPhillips holds a bulk of acres in the three big unconventional plays, namely Eagle Ford shale, Delaware basin and Bakken shale, which are rich in oil. COP also has a foothold in Canada’s oil sand resources and exposure to developments related to liquefied natural gas.
ConocoPhillips announced an agreement to purchase all Royal Dutch Shell assets in the prolific Permian. The deal reflects COP’s aim of broadening its Permian presence. The transaction is highly accretive and involves the acquisition of roughly 225,000 net acres in the heart of the core Delaware basin.
ConocoPhillips has an expected earnings growth rate of 62.1% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 13.4% over the past 30 days. COP has a current dividend yield of 1.9%.
The Mosaic is likely to gain from higher demand for fertilizers. Demand for phosphate and potash in North America has been strong in 2021, and the momentum is likely to continue this year. Strong grower economics and crop commodity prices are driving potash demand globally.
The Vale Fertilizantes buyout is also expected to deliver significant synergies. Mosaic is also expected to benefit from its cost-reduction actions, leading to an improvement in its operating cost structure. MOS’ efforts to lower debt, streamline processes, centralize mining operations and automation are encouraging.
Mosaic has an expected earnings growth rate of 95% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 12% over the past seven days. MOS has a current dividend yield of 0.58%.
Alcoa produces and sells bauxite, alumina, and aluminum products in the United States, Spain, Australia, Brazil, Canada, and internationally. AA operates through three segments: Bauxite, Alumina, and Aluminum.
Alcoa is engaged in bauxite mining operations and processes bauxite into alumina and sells it to customers who process it into industrial chemical products. AA offers primary aluminum in the form of alloy ingot or value-add ingot to customers that produce products for the transportation, building and construction, packaging, wire, and other industrial markets and flat-rolled aluminum sheets to customers that produce beverage and food cans.
Alcoa has an expected earnings growth rate of 17.6% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 19.3% over the past 30 days. AA has a current dividend yield of 0.50%.
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Powell Hints Cautious Approach to Rate Hike: 5 Growth Picks
Wall Street rebounded on Mar 2, regaining a large part of the losses it had incurred om the previous day. Market participants’ sentiment strengthened after the Fed Chairman said that the central bank might not opt for an aggressive rate hike in March. Since the beginning of this year, investors have been worried that the Fed may choose a tougher-than-expected monetary stance to combat soaring inflation.
At this stage, it will be prudent to invest in stocks that have strong growth potential with a favorable Zacks Rank. Five of them are Exxon Mobil Corp. (XOM - Free Report) , Marathon Oil Corp. (MRO - Free Report) , ConocoPhillips (COP - Free Report) , The Mosaic Co. (MOS - Free Report) and Alcoa Corp. (AA - Free Report) .
Powell’s Testimony
On Mar 2, in his testimony to the U.S. House of Representatives Financial Services Committee, Fed Chairman Jerome Powell said that the first rate hike after three years will come in March. However, he hinted that the central bank may not adopt an aggressive rate hike policy in order to combat soaring inflation as the “implications for the U.S. economy are highly uncertain” from the Russia-Ukraine war.
The two major inflation gauges – the PCE price index and the CPI – came in at a 40-year high in January. A large section of economists and financial researchers have said that the Fed will be compelled to raise the benchmark interest rate by 50 basis points in order to cool inflationary pressure.
On Mar 2, Powell said he anticipates a series of rate hikes in 2022 of 25 basis points each. Per CME FedWatch, currently, there is a 95% probability that the Fed will increase the interest rate by 25 basis points in March. Just a few weeks ago, there was a 75% probability that the rate could be hiked up to 50 basis points.
The Fed is scheduled to terminate the $120 billion monthly bind-buying program this month. The central bank will start shrinking the size of its $9 trillion balance sheet after rate hikes start. Powell is still expecting inflation to normalize later this year. However, if that does not happen then the Fed will not hesitate to take a more aggressive approach.
Robust U.S. Economy to Drive Stock Markets
In 2022, the biggest drivers of the U.S. stock markets should be the nation’s strong economic fundamentals. Some recently published economic data also provides a rosy picture. January’s data for consumer spending, durable goods orders, manufacturing and services PMIs remained elevated.
Moreover, the U.S. economy will get more upside from the government’s infrastructure spending. On Nov 15, President Joe Biden signed a bipartisan infrastructure bill of $550 billion in addition to the previously approved funds of $450 billion for five years. Total spending may go up to $1.2 trillion if the plan is extended to eight years.
The infrastructure development project will be a key catalyst for the U.S. stock markets in 2022. Various segments of the economy such as basic materials, industrials, utilities and telecommunications should benefit immensely from more job creation.
Additionally, the White House put pressure on Congress to quickly pass a legislation providing $52 billion to help computer chip manufacturers and ease the shortage of the components vital to many industries.
Our Top Picks
We have narrowed our search to five large-cap (market capital > $10 billion) growth stocks that have a solid upside for 2022. These stocks have also witnessed positive earnings estimate revisions in the past 30 days.
Moreover, these companies are regular dividend payers, which will act as a regular income stream in a market’s downturn. Each of our picks carries a Zacks Rank #1 (Strong Buy) and has a Growth Score A or B. You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our five picks year to date.
Image Source: Zacks Investment Research
Exxon Mobil made multiple world-class oil discoveries at the Stabroek Block, located off the coast of Guyana. XOM raised the estimate for discovered recoverable resources from the Stabroek Block to approximately 10 billion oil-equivalent barrels.
Exxon Mobil’s bellwether status and an optimal integrated capital structure, which have historically led to industry-leading returns make it a relatively lower-risk energy sector play. The integrated oil behemoth expects to reduce greenhouse gas emissions by 30% in its upstream business. By the same time, XOM expects to reduce flaring and methane emissions by 40%.
Exxon Mobil has an expected earnings growth rate of 28.1% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 4.7% over the past 30 days. XOM has a current dividend yield of 4.45%.
Marathon Oil is a leading oil and natural gas exploration and production company with operations in the United States and Africa. MRO’s robust operational metrics suggest strong long-term cash flows that should support a higher price for its shares. The wells drilled by Marathon Oil have extremely low oil price breakeven costs and need oil prices of just $35 a barrel to be profitable.
MRO continues to cut down costs substantially and is striving to achieve a 30% decline in production and G&A costs in 2021 compared to the 2019 levels. Furthermore, Marathon Oil’s significant debt maturities will mostly fall after 2025 and there does not appear much risk here.
Marathon Oil has an expected earnings growth rate of 83.4% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.8% over the past 30 days. MRO has a current dividend yield of 1.22%.
ConocoPhillips holds a bulk of acres in the three big unconventional plays, namely Eagle Ford shale, Delaware basin and Bakken shale, which are rich in oil. COP also has a foothold in Canada’s oil sand resources and exposure to developments related to liquefied natural gas.
ConocoPhillips announced an agreement to purchase all Royal Dutch Shell assets in the prolific Permian. The deal reflects COP’s aim of broadening its Permian presence. The transaction is highly accretive and involves the acquisition of roughly 225,000 net acres in the heart of the core Delaware basin.
ConocoPhillips has an expected earnings growth rate of 62.1% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 13.4% over the past 30 days. COP has a current dividend yield of 1.9%.
The Mosaic is likely to gain from higher demand for fertilizers. Demand for phosphate and potash in North America has been strong in 2021, and the momentum is likely to continue this year. Strong grower economics and crop commodity prices are driving potash demand globally.
The Vale Fertilizantes buyout is also expected to deliver significant synergies. Mosaic is also expected to benefit from its cost-reduction actions, leading to an improvement in its operating cost structure. MOS’ efforts to lower debt, streamline processes, centralize mining operations and automation are encouraging.
Mosaic has an expected earnings growth rate of 95% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 12% over the past seven days. MOS has a current dividend yield of 0.58%.
Alcoa produces and sells bauxite, alumina, and aluminum products in the United States, Spain, Australia, Brazil, Canada, and internationally. AA operates through three segments: Bauxite, Alumina, and Aluminum.
Alcoa is engaged in bauxite mining operations and processes bauxite into alumina and sells it to customers who process it into industrial chemical products. AA offers primary aluminum in the form of alloy ingot or value-add ingot to customers that produce products for the transportation, building and construction, packaging, wire, and other industrial markets and flat-rolled aluminum sheets to customers that produce beverage and food cans.
Alcoa has an expected earnings growth rate of 17.6% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 19.3% over the past 30 days. AA has a current dividend yield of 0.50%.