For years following the worst of the COVID-19 crisis, the Federal Reserve wrestled with blistering inflation. Unfortunately, it was a necessary evil. Had the central bank not taken action, the economy could have fallen into a severe and prolonged recession. However, borrowing costs have become too onerous, hurting business growth. Therefore, investors may want to consider risk-on stocks as the Fed goes dovish.
To be sure, there’s zero guarantee that policymakers will pivot toward a more accommodative policy. However, recent comments by the central bankers indicate the much-anticipated relief in borrowing costs may come soon enough. Indeed, the latest call among economists suggest that the Fed may cut rates twice this year. The first such move could occur in September.
That’s only a little over a month from now. Ahead of the news item, investors may want to consider certain ideas that could benefit from the pivot. Below are risk-on stocks to consider.
A-Mark Precious Metals (AMRK)
A full-service precious metals trading company, A-Mark Precious Metals (NASDAQ:AMRK) offers gold, silver, platinum and palladium products in various forms. The motivation for acquiring such physical assets comes down to hedging against inflation. People have demonstrated dramatic interest in such products so AMRK may benefit if the Fed lowers interest rates.
Fundamentally, it may turn out that inflation is stickier than experts anticipate. If so, AMRK may rank among the top risk-on stocks to buy. However, it must be stated that A-Mark will be a speculative idea. In the past four quarters, the company posted an average earnings per share of 82 cents. This figure missed the collective consensus view of $1, implying a negative earnings surprise of 26.5%.
That said, AMRK stock now trades for only 0.09X trailing-year sales. Should a monetary policy shift occur, that might be considered an ultra-cheap multiple.
For fiscal 2024, analysts anticipate revenue to hit $9.89 billion, up 6.1% from last year’s print of $9.32 billion.
SentinelOne (S)
Falling under the infrastructure software industry, SentinelOne (NYSE:S) specializes in endpoint security solutions. Why is that important? Well, it’s basically competing head-to-head against CrowdStrike (NASDAQ:CRWD), that one entity that sparked a catastrophic system outage. Here’s the thing: cybersecurity is only growing in importance. So, SentinelOne can slot in while CrowdStrike struggles for traction.
Further, a dovish pivot in monetary policy would translate to reduced borrowing costs. In turn, that could facilitate greater investment into the business. SentinelOne could use such a pivot. In the past four quarters, the company posted a surprise of 63.85%. While that sounds impressive, the firm didn’t generate a profit, incurring a loss per share of 3 cents.
Right now, shares trade hands at 10.43x trailing-year sales. That’s a bit rich compared to other software players. However, analysts see a big jump in revenue to $812.47 million this year. If so, that would imply a growth rate of 30.8%. The actual print could now be even higher thanks to the troubles impacting CrowdStrike. It’s easily one of the risk-on stocks to consider.
Chevron (CVX)
An integrated oil and gas stalwart, Chevron (NYSE:CVX) represents one of biggest supermajors in the world. On a basic level, CVX could rank among the top risk-on stocks to buy thanks to the implied devaluation of the dollar. Lower rates typically accompany higher inflation. Higher inflation means that each dollar is worth less.
Considering that the world still runs on oil – and may continue to do so for quite some time – Chevron shouldn’t be bothered with inflation. Yes, higher prices do cause consumers to spend less. However, it’s difficult to cut hydrocarbons out of the budget.
To be fair, the recent financial performance hasn’t been all that impressive. In the past four quarters, Chevron’s average EPS came out to $3.07. That was below the consensus view of $3.15. Still, what’s intriguing is that the price-to-sales ratio of 1.49x may be contextually modest.
In fiscal 2024, the high-side estimate calls for $195.96 billion, above last year’s print of $187.73 billion. Potential disruptions from geopolitical flashpoints along with a boost in profits from reduced borrowing costs could also mean higher than expected earnings.
Uber (UBER)
A pioneer in the sharing economy business model, Uber (NYSE:UBER) is best known for its ride-hailing app. However, it has branched out into other areas, such as food delivery and even freight services. Irrespective of monetary policy, Uber has been a name to watch. However, a dovish pivot could mean bigger and better things for the enterprise, making it one of the risk-on stocks to consider.
As with other growth-oriented companies, lower borrowing costs may help support business expansion. Plus, Uber could potentially benefit from technological development and competitive pricing strategies. In the past year since the first quarter, Uber’s average EPS came out to 15 cents, beating the consensus view of 13 cents.
Now, one thing to keep in mind is that the valuation. Right now, UBER stock trades at 3.62x trailing-year sales. In the past year, this metric sat at 3x. That said, experts anticipate that fiscal 2024 sales may rise to $39.78 billion. If so, that would be a 14.2% lift from the prior year.
CarMax (KMX)
At the moment, used-car dealership CarMax (NYSE:KMX) easily ranks among the risk-on stocks. With consumers struggling against a tough economic backdrop along with sky-high interest rates, the auto retail business isn’t exactly booming. So, a monetary policy pivot to one that’s more accommodative would be what the doctor ordered.
Naturally, lower interest rates may help boost sales. And it really may be that simple. Sure, inflation will be a problem in a dovish environment. But let’s face reality – in many parts of the nation, having a personal vehicle is a necessity. So, I anticipate that vehicle demand – especially used-vehicle demand – will boom.
Certainly, CarMax has struggled in the past few quarters. However, its most recent disclosure saw EPS hit 97 cents, above the consensus view of 96 cents. For the current year, EPS may rise by nearly 9% to $2.98.
The top line may be trickier, with analysts projecting $25.78 billion, down 2.8% from last year’s $26.54 billion. Still, a recovery to $26.84 billion may materialize in the following fiscal year. Plus, lower rates could push up demand, making KMX intriguing.
Rocket Companies (RKT)
One of the trickiest ideas to consider among risk-on stocks, Rocket Companies (NYSE:RKT) has struggled since the spring of 2021. That’s not surprising given the blisteringly hot inflation sending home prices soaring. Later, the sharp rise in interest rates hurt the mortgage specialist. Since making its public market debut, RKT stock has lost a massive amount of equity value.
Still, recently, RKT has shown signs of life. To be blunt, I’m not fully ready to commit wholeheartedly to the idea: there are still many risks impacting the residential real estate market. That said, investors must also acknowledge reality. If the Fed drives a more accommodative monetary policy, then homebuyer demand may increase.
Sure, a dovish pivot would also likely mean that home prices may rise. At the same time, prospective buyers that were kicked to the curb have had years to bolster their savings. So, we could see a demand boost for Rocket.
Interestingly, analysts are projecting fiscal 2024 sales to hit $5.21 billion, up 37% from the prior year. It’s a name to watch closely.
Simon Property Group (SPG)
Structured as a real estate investment trust or REIT, Simon Property Group (NYSE:SPG) is another risky idea among risk-on stocks. Fundamentally, Simon is focused on shopping malls and (discretionary) retail properties. Given the dominance of e-commerce and other economic and societal factors, this business model is under question. Still, some important factors must be considered.
For one thing, lower rates would make borrowing costs cheaper for property acquisitions and development. Further, the flow of money increasing may mean more money to spend. With the dollar projected to devalue year over year, consumers would have a choice: basically, use it or lose it.
Another factor to watch is Simon’s financial performance. In the past four quarters, its average EPS landed at $1.96, above the consensus view of $1.58. By year’s end, analysts project that total EPS may hit $7.37, above 5.59% from last year.
Also, the top line might modestly to $5.32 billion, up 3.1%. Therefore, SPG represents one of the risk-on stocks to consider.
On the date of publication, Josh Enomoto 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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.