What a difference a month can make! For years, the U.S. Federal Reserve signaled its intentions to raise benchmark interest rates to cull prior monetary excess. Up until last December, the Fed maintained its hawkish stance. However, an about face suddenly brings up a new question: With this change, what are now the best stocks to invest in?
No one can overstate how important this announcement is for Wall Street. Upon the dovish shift, the Dow Jones Industrial Average closed up 1.8% against the prior session. Before the Fed’s change of heart, the markets traded relatively sideways. But with this fundamental overhang out of the way, the list of best stocks to buy just got bigger.
While the sudden swing may have taken investors off-guard, in fairness, the Fed didn’t have much choice. Yes, the domestic economy is doing well, especially compared to international markets. However, Fed Chairman Jerome Powell didn’t anticipate the continued economic hostilities between the U.S. and China.
As a result, the central bank had to respond in a way that wouldn’t upset the markets’ delicate balance. However, China isn’t the only concern. Other pressing issues include surging dollar strength, recently softening consumer sentiment, and a tough housing market. With the Fed now acknowledging these headwinds, it’s breathing new life into the best stocks to buy.
But don’t think that the Fed has gone rogue. Powell expressed the importance of “patience.” In other words, if inflation isn’t rising dramatically, there’s no need to overreact. This prudent approach should help navigate our economy and calm unnecessary jitters in the markets.
Plus, the Fed symbolically waved the green flag. So here are seven of the best stocks to buy off this dovish policy:
American Electric Power (AEP)
Typically, utility firms don’t immediately come to mind as among the best stocks to buy for a dovish Fed. If Powell is genuinely concerned about dollar strength, he’s not going to mind the currency weakening against its international competitors. However, such a move raises energy and commodity costs, thus impacting names like American Electric Power (NYSE:AEP).
But here’s the thing: as a utility company, AEP stock enjoys consistent, recurrent demand. In fact, as we dive further into the information age, we’re going to see increased demand for utilities, not less. So a rise in costs due to an inflationary dollar won’t hurt AEP’s profitability. Instead, they’ll just pass on the costs to the consumer without consequence.
That might sound cynical, but I’m speaking with positive intentions. For one thing, American Electric Power is a well-run organization with an eye towards future industry developments. Moreover, AEP stock features a nice 3.4% dividend yield.
Even if the markets stumble against the Fed’s best efforts, AEP will still bring something to shareholders.
Exxon Mobil (XOM)
While President Donald Trump loved boasting about the markets when they were moving higher, individual stories forwarded questionable results. For instance, several construction-related companies like Caterpillar (NYSE:CAT) took off when Trump won, presumably because of the border-wall project. But for others like Exxon Mobil (NYSE:XOM), they have a more nuanced perspective.
Immediately following the election, XOM stock enjoyed a massive burst of bullishness. However, that sentiment quickly faded once 2017 rolled around. Despite some big, singular moments, Exxon Mobil has largely disappointed shareholders. Later in the fourth quarter of 2018, macroeconomic concerns dropped XOM from most people’s short list of best stocks.
Trump must take responsibility for some of the bearishness. Throughout his presidential campaign, he sharply rebuked former Fed Chair Janet Yellen’s accommodative monetary policies. But with the world’s most powerful central bank reversing course, XOM stock has a chance to rebound.
In recent years, technology firm Qualcomm (NASDAQ:QCOM) has given shareholders fits. In one moment, the company appears like one of the best stocks ever. But after a brief spell, QCOM stock comes crashing down to earth, only to repeat the cycle later.
Most recently, the tech icon slipped on the worsening U.S.-China trade war. But another overriding headwind has worried shareholders: a rising dollar. As the greenback gains in strength, it limits Qualcomm’s competitiveness overseas. More than once, we’ve heard the impact about unfavorable currency exchange rates during an earnings report.
For QCOM stock, this matter takes on a greater urgency. Last year, 67% of total revenue came from China, including Hong Kong. The Chinese already play tough, and some would argue dirty. A currency headwind is therefore the last thing you want as a Qualcomm stakeholder
But if I’m reading the Fed correctly, the central bank understands these challenges. If so, QCOM stock may have received a lifeline.
DR Horton (DHI)
Prior to the Fed coming to their senses (as some might argue), homebuilder DR Horton (NYSE:DHI) was among the worst stocks to buy for purely understandable reasons. The fallout from the sub-prime-mortgage crisis has made home ownership increasingly difficult. But with a hawkish monetary policy, DHI stock appeared dead in the water.
Indeed, shares slipped badly in the beginning of 2018, then meandered aimlessly until another big drop. Based on the technical charts, it’s difficult to argue against a correlation between DHI stock and Fed policy. But when Powell released his statements, DR Horton suddenly found a second wind.
Undoubtedly, real estate has a long way to go. A substantial headwind comes from the millennial demographic, which haven’t warmed to home ownership like prior generations. Surely, the Fed’s dovish stance won’t change this factor overnight. However, it does give DHI stock a chance.
LGI Homes (LGIH)
Similar to DR Horton, LGI Homes (NASDAQ:LGIH) fell off most people’s list of best stocks to invest in for 2018. From the get-go, LGIH stock experienced significant volatility. Eventually, the narrative completely collapsed in September, sending shares down into the doldrums.
That said, LGI Homes has started to win back the investors it lost during last year’s pummeling. Against the January opener, LGIH stock has gained over 29%. And of course, with the Fed backing off from its hawkish threats, shares don’t have the overhang to worry about.
Additionally, LGIH has one potential ace up its sleeve: Chinese buyers. As China’s wealthy class increases in number, the astute among them are seeking stable investments to protect their money. Western real estate, particularly in the U.S. market, appeals for obvious reasons.
A critical advantage that LGI levers is location, location, location. Primarily featuring in the coastal areas, as well as burgeoning inland markets, the company offers an exceptionally-attractive portfolio.
AngloGold Ashanti (AU)
It’s a predictable but generally reliable strategy: when the economy hurts, gold is king. Even with the Fed addressing fundamental headwinds, precious metals can have a viable place in your portfolio. That’s because a dovish monetary policy is usually inflationary for the dollar, thereby driving gold prices.
But if you don’t want the hassle of physical bullion, miners can be some of the best stocks to invest in. Among them, AngloGold Ashanti (NYSE:AU) stands out sharply. AU stock has gotten off to a strong start in 2019, gaining over 10%. That was before the Fed changed its outlook. With a dovish policy, AU could jump even higher.
Better yet, a bullish market in gold should help boost AngloGold’s financials. After commodities and energy got blitzed in the middle part of this decade, AU stock is on the recovery track. With the Fed aligning with AngloGold’s interests, we’re in for an interesting 2019 and beyond!
Sibanye Gold (SBGL)
If the Fed maintains its dovish monetary policy — or even magnifies it — you’ll want to consider Sibanye Gold (NYSE:SBGL). Despite its name, SBGL stock is more than just a gold miner. With its acquisition of Stillwater Mining, Sibanye has exposure to the critical platinum market.
Often times, the best stocks to buy achieve that lofty status due to their potential for strong demand. However, with SBGL, the supply-demand picture is already extremely favorable. To illustrate, all the platinum that has ever been mined could fit inside an average living room.
What’s more, platinum has significant industrial, technological and biochemical uses. Naturally, if platinum is used for these purposes, it’s difficult if not impossible to recover. That only boosts mining companies like SBGL that specialize in this precious metal.
Still, like any player in this sector, you want to approach cautiously. Sibanye Gold has sharply rising debt levels, which may not be suitable for conservative investors. But if you want to speculate on the Fed, SBGL stock has the right stuff.
As of this writing, Josh Enomoto is long gold and platinum.