As we get ready to start 2024, investors can’t turn on the financial news without hearing one or both sides of the soft landing debate. The question is whether the Federal Reserve can bring inflation down and cool down the economy without causing a recession. So, is it time to look for soft landing stocks, that is, stocks that will go up if this scenario comes to pass?
To answer that question, you must decide if the economy can achieve a soft landing. To be clear, I have an opinion, but so does everyone. It may be useful for investors to apply Occam’s razor principle. That is if you have two competing ideas to explain the same phenomenon, the simplest answer is probably right.
In this case, the simple answer is to look at what the data shows. And right now, that data is showing that the soft landing is more likely than not. You may disagree with that. I call it like I see it. What the data will say a month or three months from now may be completely different. But investing in this market requires you to be nimble. Here are three soft landing stocks to consider.
Walmart (WMT)
When you’re looking for soft landing stocks, Walmart (NYSE:WMT) is a safe stock to start off your search. A soft landing may or may not lead to lower interest rates. With Walmart, lower interest rates aren’t your primary concern. The company hasn’t been immune from the impact of a weakening consumer. Still, revenue and earnings are positive year-over-year and analysts are forecasting high single-digit earnings growth over the next 12 months.
The company has been taking steps to have a larger omnichannel presence. The company’s buy online, pickup in-store (BOPUS) program is gaining momentum. And more importantly, the company is putting itself in a position to compete with Amazon (NASDAQ:AMZN) on more than just price.
Walmart stands to be a retail winner in the 2023 holiday season. Investors won’t get earnings results until February. But by that time, there may be more clarity as to the direction of the economy. At 22x forward earnings, the stock is reasonably valued.
D.R. Horton (DHI)
The surge in homebuilder stocks in 2023 has been a simple case of demand outpacing supply. The great relocation may be slowing down, but the transplants are still looking to plant roots in their new locations. D.R. Horton (NYSE:DHI) has been a standout performer.
The stock is up more than 65% for the year and recently made a new all-time high. There’s reason to believe that there could still be growth even if interest rates remain at their current level.
That being said, the stock is looking a little toppy. However, on December 13, DHI stock got a bullish price target increase from Barclays. The firm raised its target from $143 to $166.
One reason for the spike in D.R. Horton stock comes from the company’s solid fundamentals. Specifically, the company focuses on reducing the cycle times so they can turn homes faster and reduce their inventory levels. This allows them to align earnings per share (EPS) with cash flow more effectively.
Occidental Petroleum (OXY)
Occidental Petroleum (NYSE:OXY) may seem like an odd candidate to appear with other soft-landing stocks. The conventional wisdom is that higher oil prices will signal the opposite of what the Federal Reserve is hoping for. It also tends to be negative for equities.
That may be true. However, some analysts believe that the yield on the 10-year Treasury bonds and the dollar will continue to weaken with or without rate cutting by the Federal Reserve. In that scenario, there’s room for oil prices to go higher without tanking the economy.
In that scenario, you’ll want oil stocks and Occidental is a good pick. OXY stock is at the lower end of its 52-week range.
In a year when many big oil companies are growing through acquisition, Occidental announced a deal to acquire CrownRock for $12 billion which will immediately improve the company’s free cash flow (FCF) accretion.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
