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3 Must-Buy Stocks on Signs of Inflation Cooling Down
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New inflation data indicated that price pressures slowed again last month, and raised hopes that the Federal Reserve may not hike interest rates this week.
The Bureau of Labor Statistics stated that the consumer price index (CPI) increased by 4% annually in May, down from April’s increase of 4.9%, and slightly less than analysts’ estimate of 4.1%.
The yearly rate of retail inflation touched the lowest level since March 2021, predominantly due to a decline in gasoline prices. Grocery prices, by the way, have also been on the wane, dragging broader inflation down.
On a seasonally adjusted basis, gasoline prices dropped almost 6% in May. At the same time, the yearly increase in the cost of groceries slowed down to 5.8% in May from a peak of 13.5%.
Meanwhile, the core CPI, which excludes the prices of food and energy, and is known to be more accurate than the headline inflation rate, also slipped to 5.3% year over year in May from April’s 5.5%, its smallest gain since the autumn of 2021.
Thus, with inflation weakening, traders are now betting that there is a roughly 91% possibility that the Fed will keep the current target rate of 5% to 5.25%, unchanged, per CME Group’s FedWatch Tool.
A possible pause in Fed rate hike, undoubtedly, buoyed investor sentiments. This is because rate hikes reduce consumer outlays, increase borrowing costs, impact economic growth, and affect the stock market.
Nonetheless, the broader S&P 500 registered a fresh 13-month high on Jun 13 and remains in the bull-market territory as the Fed is widely expected to pause its tightening cycle in its policy meeting this week.
Most importantly, the likelihood of a rate hike pause lifted tech shares. And why not? Higher interest rates unfavorably impact tech’s future cash inflows. This curtails their reinvestments into innovation and hampers growth prospects. Rate hikes also increase the cost of borrowings; thus, tech companies are left with less cash in hand.
Consumer discretionary stocks, in the meantime, also stand to gain from cooling inflation and a rate hike pause. After all, consumers will be in a lot better position to spend on nonobligatory items.
Hence, from an investment standpoint, we have highlighted three stocks from the aforesaid areas that are most likely to make the most of less inflationary pressure. These stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy).
The search was also narrowed down with a VGM Score of A or B. Here V stands for Value, G for Growth, and M for Momentum, and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners. You can see the complete list of today’s Zacks #1 Rank stocks here.
Adobe (ADBE - Free Report) is one of the biggest software companies across the globe. Adobe’s Creative Cloud products are, at the moment, driving top-line growth.
Adobe’s ability to create top-notch online video coupled with mobile apps is helping the company garner subscription revenues. Adobe’s Acrobat is becoming popular, which undoubtedly remains a tailwind.
Adobe, currently, has a Zacks Rank #2 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has moved up 0.1% over the past 60 days.
ADBE’s expected earnings growth rate for the current and next year are both 12.6%. Adobe’s estimated earnings growth rate for the next five-year period is 13.4%. Its shares have already gained 41% so far this year.
Uber Technologies (UBER - Free Report) focuses on providing technology-driven platforms that offer ridesharing services to users.
Despite experiencing an uptick in costs due to more spending on driver incentives, Uber’s continuous efforts to expand its delivery operations are helping improve its profit margins.
Uber, currently, has a Zacks Rank #2 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has moved up 1.4% over the past 60 days.
UBER’s expected earnings growth rate for the current and next year is 100.8% and 1,975%, respectively. Uber’s estimated earnings growth rate for the next five-year period is 44.5%. Its shares have already gained 68.8% year to date.
GIII Apparel Group (GIII - Free Report) is known for manufacturing apparel and accessories.
The companies’ well-known brands such as Donna Karan, Calvin Klein and Tommy Hilfiger, to name a few, are expected to boost their top-line growth.
GIII Apparel, currently, has a Zacks Rank #1 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has moved up 6.9% over the past 60 days.
GIII’s expected earnings growth rate for the next quarter and year is 31.9% and 8.6%, individually. GIII Apparel’s estimated earnings growth rate for the next five-year period is 15%. Its shares have already gained 45.7% so far this year.
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3 Must-Buy Stocks on Signs of Inflation Cooling Down
New inflation data indicated that price pressures slowed again last month, and raised hopes that the Federal Reserve may not hike interest rates this week.
The Bureau of Labor Statistics stated that the consumer price index (CPI) increased by 4% annually in May, down from April’s increase of 4.9%, and slightly less than analysts’ estimate of 4.1%.
The yearly rate of retail inflation touched the lowest level since March 2021, predominantly due to a decline in gasoline prices. Grocery prices, by the way, have also been on the wane, dragging broader inflation down.
On a seasonally adjusted basis, gasoline prices dropped almost 6% in May. At the same time, the yearly increase in the cost of groceries slowed down to 5.8% in May from a peak of 13.5%.
Meanwhile, the core CPI, which excludes the prices of food and energy, and is known to be more accurate than the headline inflation rate, also slipped to 5.3% year over year in May from April’s 5.5%, its smallest gain since the autumn of 2021.
Thus, with inflation weakening, traders are now betting that there is a roughly 91% possibility that the Fed will keep the current target rate of 5% to 5.25%, unchanged, per CME Group’s FedWatch Tool.
A possible pause in Fed rate hike, undoubtedly, buoyed investor sentiments. This is because rate hikes reduce consumer outlays, increase borrowing costs, impact economic growth, and affect the stock market.
Nonetheless, the broader S&P 500 registered a fresh 13-month high on Jun 13 and remains in the bull-market territory as the Fed is widely expected to pause its tightening cycle in its policy meeting this week.
Most importantly, the likelihood of a rate hike pause lifted tech shares. And why not? Higher interest rates unfavorably impact tech’s future cash inflows. This curtails their reinvestments into innovation and hampers growth prospects. Rate hikes also increase the cost of borrowings; thus, tech companies are left with less cash in hand.
Consumer discretionary stocks, in the meantime, also stand to gain from cooling inflation and a rate hike pause. After all, consumers will be in a lot better position to spend on nonobligatory items.
Hence, from an investment standpoint, we have highlighted three stocks from the aforesaid areas that are most likely to make the most of less inflationary pressure. These stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy).
The search was also narrowed down with a VGM Score of A or B. Here V stands for Value, G for Growth, and M for Momentum, and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners. You can see the complete list of today’s Zacks #1 Rank stocks here.
Adobe (ADBE - Free Report) is one of the biggest software companies across the globe. Adobe’s Creative Cloud products are, at the moment, driving top-line growth.
Adobe’s ability to create top-notch online video coupled with mobile apps is helping the company garner subscription revenues. Adobe’s Acrobat is becoming popular, which undoubtedly remains a tailwind.
Adobe, currently, has a Zacks Rank #2 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has moved up 0.1% over the past 60 days.
ADBE’s expected earnings growth rate for the current and next year are both 12.6%. Adobe’s estimated earnings growth rate for the next five-year period is 13.4%. Its shares have already gained 41% so far this year.
Uber Technologies (UBER - Free Report) focuses on providing technology-driven platforms that offer ridesharing services to users.
Despite experiencing an uptick in costs due to more spending on driver incentives, Uber’s continuous efforts to expand its delivery operations are helping improve its profit margins.
Uber, currently, has a Zacks Rank #2 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has moved up 1.4% over the past 60 days.
UBER’s expected earnings growth rate for the current and next year is 100.8% and 1,975%, respectively. Uber’s estimated earnings growth rate for the next five-year period is 44.5%. Its shares have already gained 68.8% year to date.
GIII Apparel Group (GIII - Free Report) is known for manufacturing apparel and accessories.
The companies’ well-known brands such as Donna Karan, Calvin Klein and Tommy Hilfiger, to name a few, are expected to boost their top-line growth.
GIII Apparel, currently, has a Zacks Rank #1 and a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has moved up 6.9% over the past 60 days.
GIII’s expected earnings growth rate for the next quarter and year is 31.9% and 8.6%, individually. GIII Apparel’s estimated earnings growth rate for the next five-year period is 15%. Its shares have already gained 45.7% so far this year.