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6 Great Stocks to Gain From a Patient Fed

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According to minutes of the Fed meeting held earlier this month, policymakers of the central bank will continue to adopt a “patient” approach on rates. The Fed expressed greater confidence in the U.S. economy, stressing that the impact of headwinds to the global economy has declined considerably.

The central bank expects rates to remain stable for quite “some time” to come. In fact, some members are apprehensive about sluggish inflation and stopped short of calling for a rate cut.

Rate-sensitive stocks are likely to gain from such a dovish monetary stance. This is why it makes sense to invest in real estate investment trusts (REITs) and utility stocks.

Fed At Ease With Current Stance, Optimistic About Economy

At the end of the Fed meeting on May 1, the central bank kept rates unchanged within the 2.25%-2.5% band. Minutes of the meeting reveal that the central bank is at ease with its patient approach, a stance which could remain unchanged in the near future. Dallas Fed President said he was “agnostic” about whether the central bank’s next move will be a rate hike or cut. 

The minutes also revealed that the central bank’s policymakers’ outlook for the full-year economic growth has improved. Meanwhile, concerns about an economic slowdown have abated. Over the past few meetings, the Fed had expressed concerns about global growth, the impasse over Brexit and trade tensions.

With the central bank adopting a more upbeat tone, these concerns seem to have abated. At the same time, the Fed thinks that such fears remain in the background. This is perhaps why members of the central bank believe it needs to be patient when determining the future course of the federal funds target rate.

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Is a Rate Cut Around the Corner?

Until last year, the Fed was expected to raise rates at least twice in 2019. Then early this year, the central bank adopted a markedly softer approach. Currently, policymakers are divided over the long-term course of the target rate.

While “many” agree with the Fed Chair’s assessment that sluggish inflation is “transient”, “several” others are worried about this factor. They believe that the current level of inflation is inconsistent with the current employment rate, which hovers around a near-50 year low.

However, they have stopped short of calling for a rate cut. But market watchers still think at least one rate cut is likely before the end of 2019. President Trump thinks a 1% rate cut is in order and has repeatedly called on the Fed to lower rates. Of course, some economists think that a near-term change in rates remains unlikely.

Our Choices

While freshly released Fed minutes clearly indicate that a near-term change in rates is highly unlikely, market watchers expect at least one rate cut before the end of this year. Currently, policymakers of the central bank remain divided about the near-term course of rates. This depends on whether they agree with the Fed Chair on the “transient” nature of sluggish inflation.

Rate-sensitive investments like utilities and REITs are useful additions to your portfolio under such circumstances. However, picking winning stocks may prove to be difficult. We have narrowed our search to the following stocks based on a good Zacks Rank and other relevant metrics.

NRG Energy, Inc. (NRG - Free Report) is engaged in the production, sale and delivery of energy and energy products and services to residential, industrial as well as commercial consumers in major competitive power markets in the United States.

NRG Energy flaunts a Zacks Rank #1 (Strong Buy). The company’s expected earnings growth for the current year is 71%. The Zacks Consensus Estimate for current-year earnings has moved2.2% north over the past 30 days.

Middlesex Water Company (MSEX - Free Report) is an owner and operator of water utility and wastewater systems.

Middlesex Water flaunts a Zacks Rank #1. The company’s expected earnings growth for the current year is 10.7%. The Zacks Consensus Estimate for current-year earnings has moved 5.9% north over the past 30 days.

NexPoint Residential Trust, Inc. (NXRT - Free Report) is a publicly traded REIT engaged in acquiring, owning, operating and selectively developing multifamily properties.

NexPoint Residential’s expected earnings growth for the current year is 11.9%. The Zacks Consensus Estimate for current-year earnings has improved 4.5% over the past 30 days. It sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

ONE Gas, Inc. (OGS - Free Report) is a 100% regulated natural gas distribution utility.

ONE Gas has a Zacks Rank #2 (Buy). The company’s expected earnings growth for the current year is 6.3%. The Zacks Consensus Estimate for current-year earnings has moved north by 0.2% over the past 30 days.

Duke Realty Corp. (DRE - Free Report) is a domestic pure-play industrial REIT in the United States, engaged in owning, managing and developing industrial properties across the country.

Duke Realty has a Zacks Rank #2. The company has expected earnings growth of 5.6% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 1.4% over the past 30 days.

Outfront Media Inc. (OUT - Free Report) is a leading provider of out-of-home advertising space in key markets throughout the United States and Canada.

Outfront Media has a Zacks Rank #2. The company has expected earnings growth of 7.2% for the current year. The Zacks Consensus Estimate for current-year earnings has moved 2.1% north over the past 30 days.

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