4 Stocks to Ride on Fed's Dovish Stance for the Long Term

The Federal Reserve decided to keep its current benchmark rates unchanged in the Federal Open Markets Committee’s (FOMC) two-day long meeting this week. The FOMC discussed its policies on how best to address the economic slump caused by the coronavirus pandemic. The decision was widely welcomed as stalled business activities over the past few months weighed on economic activity and employment across the country.

Fed Keeps Rates at Near-Zero Levels

On Jun 10, the country’s central bank announced that it would keep its benchmark rates at its current all-time low “until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”

The current federal funds rate, which lies within a range of 0% to 0.25%, is what the Fed came up with in mid-March, in a bid to fight the public health crisis. The rates are expected to stay at this level for the next two and a half years.

Fed Chief Jerome Powell said on Wednesday that the Fed is only concerned about providing support to the economy, which, according to the central bank’s projection, could shrink 6.5% in 2020. However, the central bank is extremely optimistic about the economy’s trends over the long term, which could witness 5% growth in 2021 followed by a 3.5% jump in 2022.

The Federal Reserve also said that it will keep on raising its bond holdings, targeting Treasury purchases at $80 billion a month and mortgage-backed securities at $40 billion.

Utilities and Construction Stocks Could Gain, Here’s Why

Since the current low-interest rate environment is set to last for a while, one may expect capital-intensive sectors such as utilities to gain. This is because these sectors have sizeable infrastructure that needs to be maintained, therefore requiring substantial expenditure.

Lower interest rates make it undemanding for companies to borrow the necessary capital from financial institutions. This could improve the companies’ competence and thus raise their profit margins.

In addition, since the Fed will continue to buy mortgage-backed securities, this could probably lower mortgage rates further. According to Bankrate, the current 30-year fixed rate is 3.49% as of Jun 11.

As mortgage rates head further down, prospective homebuyers could consider entering the housing market again, since getting a home loan would cost less. This could mean more business for homebuilders ahead.

The housing market is already displaying some strength. One may consider the latest data by the U.S. Census Bureau and the Department of Housing and Urban Development to confirm that. Per the report, sales of new single-family houses in April were at a seasonally adjusted annual rate of 623,000, 0.6% higher than the revised March rate.

4 Stocks to Buy

We have, therefore, chosen four stocks that belong to sectors that are well-poised to gain in a low-rate environment. All these stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Utilities

Atlantic Power Corporation AT is the owner and operator of power generation assets.

Atlantic Power’s expected earnings growth rate for current year is more than 100%. Shares of the company, which belongs to the Zacks Utility - Electric Power industry, have gained 4% over the past three months compared to the industry’s gain of 1.3% during the same period. The Zacks Consensus Estimate for the company’s current-year earnings has moved 87.5% north in the past 60 days. Atlantic Power carries a Zacks Rank #2.

Middlesex Water Company MSEX is the owner and operator of regulated water utility and wastewater systems.

Middlesex Water Company’s expected earnings growth rate for current year is 2.5%. Shares of the company, which belongs to the Zacks Utility - Water Supplyindustry, have gained 17.7% over the past three months compared to the industry’s gain of 3.6% during the same period. The Zacks Consensus Estimate for the company’s current-year earnings has moved 1% north in the past 60 days. Middlesex Water Company carries a Zacks Rank #2.

Homebuilders

Beazer Homes USA, Inc. BZH is a homebuilder that designs, constructs and markets single-family and multi-family homes.

Beazer Homes USA’s expected earnings growth rate for next year is 32.9%. Shares of the company, which belongs to the Zacks Building Products - Home Builders industry, have gained 14.6% over the past three months compared to the industry’s gain of 13.1% during the same period. The Zacks Consensus Estimate for the company’s current-year earnings has moved 7.7% north in the past 60 days. Beazer Homes USA carries a Zacks Rank #1.

Meritage Homes Corporation MTH is a designer and builder of single-family homes.

Meritage Homes’ expected earnings growth rate for next year is 2.2%. Shares of the company, which belongs to the Zacks Building Products - Home Buildersindustry, have gained 38.8% over the past three months. The Zacks Consensus Estimate for the company’s current-year earnings has moved 15.2% north in the past 60 days. Meritage Homes carries a Zacks Rank #2.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

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Middlesex Water Company (MSEX) : Free Stock Analysis Report
 
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