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Investors should buy value stocks in three specific sectors, Bank of America said.
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The company says it is poised for stronger results as the Federal Reserve cuts rates while corporate profits continue to accelerate.
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US chief stock strategist Savita Subramanian calls the situation a “rare double whammy of stimulus”.
The Federal Reserve does not typically cut rates while corporate profits continue to grow. But that's the situation we're seeing now, which Bank of America believes creates a unique opportunity for investors.
Savita Subramanian, head of U.S. equity and strategy at BofA, described the situation as a “rare double whammy of stimulus.” And in a appearance on CNBCsuggested some portfolio adjustments, recommending that investors focus on certain types of value stocks.
Value stocks (or those trading below where fundamentals say they should be) do better when earnings rise and rates fall, as investors worry less about hedging and embrace names with greater upside than They have fallen into disgrace. This is happening now, BofA said, meaning money flows will favor value.
In this context, real estate, finance and energy are three sectors worth addressing, he stated. These value industries offer quality and income.
He large cap real estate benefits from Wall Street's massive investment in data centers, an infrastructure component necessary for the development of artificial intelligence. In the meantime, real estate's exposure to troubled office space isn't worth worrying about, Subramanian said.
Meanwhile, finance They have become a higher quality sector than in 2008 and are currently “deprived” of capital. The same can be said of energyshe said.
“These companies have basically righted themselves since, you know, the last decade, and now they're wasting free cash flow, focusing on cash returns. I think these are some of the areas of the market that you really want to push on.” Subramanian told CNBC.
Similarly, Scott Chronert, US equity strategist at Citi, also highlighted financials and energy in a Bloomberg interviewcalling the latter a “counter opportunity.”
In Subramanian's view, part of the appeal of value sectors is the high dividends they offer.
As the Federal Reserve's cutting cycle reduces short-term yields, money market investors will look for new sources of income. Dividend stocks will benefit from this transition, Subramanian said.
“I think about where these assets stored in retirement accounts and money market funds are going to end up; I think they're going to be converted into safe, stable income. That's more value than growth,” he said.
She previously noted that dividend yields are especially attractive in the real estate sector. Since 2008, real estate dividends have doubled the proportion of high-quality market capitalization.
According to BofA's latest note, neither retail nor institutional investors appear to have adapted to the value trend so far, with portfolios skewed more toward long-term growth stocks and defensive exposure.
Hedge funds also appear skeptical about the recent rally in China, which kicked off last week after Beijing pushed through new stimulus.
Subramanian hopes this is the start of a long-term story and suggested investors keep an eye on the materials sector.
Read the original article at Insider business information