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6 Stocks to Buy as Powell Hints at Near-Term Rate Cut

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On Jul 10, Fed Chair Jerome Powell strongly indicated that a rate cut was nearly certain later this month. Minutes of the central bank’s latest meeting reflected rising concerns that the U.S.-China trade war is causing American businesses to defer expenditure on labor and capital even as they refrain from raising prices.

Powell and the Fed now believe that these factors could end the economic expansion by acting as a drag on growth, pushing inflation even lower. This is why the central bank thinks that there is a strong case for a near-term rate cut as “insurance” against such a development.  

Rate-sensitive stocks are likely to gain from a soft rate environment. This is why it makes sense to park your funds in real estate investment trusts (REITs) and utility stocks, which also offer attractive dividends. 

Powell: Global Slowdown, Trade War Could Hurt Growth

In his prepared testimony to the House Financial Services Committee, Powell indicated that a slowdown in global growth and trade tensions are jeopardizing the U.S. economy. In fact, the trade war has indirectly caused growth to slow both at home and abroad. Further, inflation remains below the targeted level of 2%.

The Fed Chair also stated that business investment has declined “notably” even as the outlook has failed to improve in recent weeks. This is exactly why Powell emphasized that the central bank is ready to “act as appropriate to sustain the expansion.” Economists think the phrase hints at a reduction in the federal funds target rate after the Fed’s next meeting slated at the end of this month.

Minutes of the Fed’s last meeting, held from Jun 18-19, revealed that the central bank’s policymakers believe that some steps have to be taken to boost inflation and dispel the negativity American corporations are suffering from. They think that a reduction in rates would “cushion the effects” of a trade war. 

Fed Chair Downplays Jobs Report, Focuses on Downsides

In June, the U.S. economy added 224,000 jobs, rebounding strongly from poor hiring witnessed in the previous month. But Powell chose to play down robust job numbers, saying that there was no “evidence for calling this a hot labor market.” The Fed Chair added that the relationship between low unemployment, wage gains and price increases has frayed “to the point where it’s a faint heartbeat.”

Of course, he was also quick to claim that the economy remained strong and has done “reasonably well” during the first half of the year. Powell emphasized that consumer expenditure rebounded in the second quarter after remaining sluggish in the first. He also believes that the economy will remain steady over the rest of the year.

Our Choices

Powell’s comments and minutes of the Federal Reserve’s latest meeting indicate that the central bank’s concerns about the domestic economy have heightened. A simmering U.S.-China trade war and the resulting global economic weakness threaten to disrupt America’s economic expansion. This is why the Fed Chair has strongly hinted at a near-term rate cut, possibly later this month. 

Rate-sensitive investments like utilities and REITs, which offer attractive dividends, are useful additions to your portfolio under such circumstances. We have narrowed our search to the following stocks based on a good Zacks Rank and other relevant metrics.

The GEO Group, Inc. is an REIT which designs, develops, finances and operates correctional, detention and community reentry facilities.

GEO Group has a Zacks Rank #1 (Strong Buy). The company has expected earnings growth of 8.1% for the current year. The Zacks Consensus Estimate for the current year has improved 13.6% over the past 60 days. The stock has a dividend yield of 9.4%.

NorthWestern Corporation (NWE - Free Report) is a provider of natural gas and electricity to residential, commercial and industrial customers.

NorthWestern’s expected earnings growth for the current year is 5.9%. The Zacks Consensus Estimate for the current year has improved 6.2% over the past 60 days. The stock has a dividend yield of 3.1% and carries a Zacks Rank #1 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

CoreCivic, Inc. is an REIT which provides correctional, detention and residential reentry facilities.

CoreCivic has a Zacks Rank #2 (Buy). The company’s expected earnings growth for the current year is 8.2%. The Zacks Consensus Estimate for the current year has improved 1.6% over the past 60 days. The stock has a dividend yield of 9%.

CareTrust REIT, Inc. (CTRE - Free Report) is an REIT, which is primarily engaged in the ownership, acquisition and leasing of healthcare-related properties.

CareTrust has a Zacks Rank #2. The company has expected earnings growth of 8.4% for the current year. The Zacks Consensus Estimate for the current year has improved 6.9% over the past 30 days. The stock has a dividend yield of 3.7%.

Edison International (EIX - Free Report) is the parent holding company of Southern California Edison (SCE). Edison International is also the parent company of subsidiaries that are engaged in competitive businesses related to the delivery or use of electricity.

Edison International has a Zacks Rank #2. The company has expected earnings growth of 13.8% for the current year. The Zacks Consensus Estimate for the current year has improved 8.3% over the past 60 days. The stock has a dividend yield of 3.5%.

Xcel Energy Inc. (XEL - Free Report) is a holding company whose subsidiaries are engaged primarily in the utility business.

Xcel Energy has a Zacks Rank #2. The company has expected earnings growth of 6.1% for the current year. The Zacks Consensus Estimate for the current year has improved 0.4% over the past 60 days. The stock has a dividend yield of 2.7%.

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