By Jacob Sonenshine
The equity market is soaring, but not every stock. Some look like decent trades at their current prices.
All three major U.S. indexes jumped more than 2% each Wednesday, after former President Donald Trump won the presidential election.
With Republicans gaining a Senate majority -- and possibly a House majority, too -- Trump's policy ideas will likely materialize. He wants to cut individual tax rates, which would stimulate consumer spending and boost business spending. All sorts of companies would ramp up production to meet demand in response. He also wants to cut taxes for companies that make their products in the U.S.
But some stocks are either not moving much or downright dropping -- many because Trump also wants to implement tariffs on imported goods, including a 60% on Chinese goods. This, however, presents an opportunity to get into some of these names.
That's why Renaissance Macro Research's Jeff deGraaf published a note highlighting stocks that look ready to rally. The stocks on his list are trading above their 200-day moving averages. That means that, even if some of them aren't seeing major election-related boosts, there are plenty of buyers waiting in the wings to support the price.
A few examples are International Business Machines, which is seeing its stock rise just over 2%; Veralto, which is flat; Lockheed Martin, whose shares are up 1.3%; and Aflac, posting a 1.9% gain.
Another stock from Renaissance Macro's list is Cummins, which traded flat Wednesday. Stimulus would create additional consumer demand, which could support demand for vehicle makers -- one of the largest parts of Cummins' business. The stock soared Tuesday after its earnings report, and such a strong rally can only last so long, thus the weak performance Wednesday. While sales will probably have slipped a bit this year, the company maintained its full year guidance this week, so the declines probably won't be worse than expected.
Going forward, Cummins' earnings have a chance to grow, at least in the short term. The economy is growing, and the company has shown the ability to invest in the right areas historically. Sales have grown at just under 7% annually to an expected $33.6 billion this year since 2010, according to FactSet -- and now, it's selling products to electric-vehicle makers.
Analysts see the company growing revenue just over 2% to $34.5 billion next year. Management can use a small chunk of what would be over $1 billion in free cash flow to repurchase shares, helping send earnings per share rise 9% to almost $22. As long as coming earnings reports confirm this growth path, the stock can pop.
Carrier Global, the HVAC maker, is another stock that could be primed to rally. Its shares were up just 0.8%. It sources much of its products from overseas, so it would see a lesser tax benefit. And tariffs on imports would lift its costs and pinch its profit margins. Carrier shareholders likely won't have to confront tariffs before more earnings reports roll in -- and analysts are looking for continued sales and per-share earnings growth.
Renaissance Macro also highlights Stanley Black & Decker, which is seeing its stock drop just over 5% because it sources a lot of material from China. It also wouldn't see much benefit from lower corporate taxes because of where it sources its supplies.
But Stanley, too, is in for a recovery in sales -- the majority of which come from home-building tools. Total revenue, expected at $15.3 billion this year, would be down year over year for the second consecutive year, as consumer spending on home goods had peaked in 2021. Home goods retailers are expected to see an easier comparison next year, especially as the economy remains in a decent place. Plus, tariff risk has already begun to get reflected in the shares. Maybe it's time to buy.
Give these stocks a look. You don 't want to chase the ones that are soaring.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
November 06, 2024 15:15 ET (20:15 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
Comments