Don’t want to chase Big Tech? Money manager flags three unloved stocks to bet on now.
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The Bank of Japan’s long-awaited rate hike did not set the financial world on fire. Neither did Nvidia’s new AI chip lineup. That’s as investors are focused on the outcome of this week’s Fed meeting.
And Nvidia’s 240% run over the last 12 months may mean many investors are wary of potentially buying at or near the top.
Onto our call of the day, from Matrix Asset Advisors President and CIO David Katz, who flags a handful of hard-hit stocks and sectors that investors with slightly longer-term horizons should be thinking about now.
And it doesn’t have much to do with getting tangled up in Fed rate-cut timing or chasing stock winners.
“We think the critical thing for investors is not to get obsessed with the exceptionally near term. Understand that the Fed and the other central banks are likely to be more dovish as the year progresses. And if you’re investing today, markets are going to discount that sooner rather than later,” Katz told Bloomberg Radio.
The money manager also sees a rotation ahead, nodding to the slowing appetite for some of U.S. Big Tech, and he’s not keen to “chase” those names.
He sees “lots of opportunities” in health care and financials, sectors which have been rebounding this year from a weak 2023.
Utilities, which are no better off this year than last, are also good for those investors with a six to 12-month time horizon, especially if the economy starts to slow down and the Fed begins to work in rate cuts. he says. It’s a “nice place to make money with much lower risk,” said Katz, of the sector.
One stock he flags is Cisco CSCO, 0.44%, down over 2% so far this year, as a “second-derivative AI play.” Over-ordering among clients last year resulting in lots of the networking company’s orders being cancelled, which made a “two or three-quarter slowdown in their revenues.” But Katz thinks “the worst is behind” Cisco, and while no fireworks, the stock has about 15% to 20% upside, low risk and a fit for an investor with a 12-18 month time horizon.
Katz also likes Starbucks SBUX, 0.60%, which “makes an addictive product that is generally is pretty safe for people,” and has a “great footprint” globally. He notes the hit the stock has taken over the past six months has stemmed due to worries about China, but is optimistic about stimulus coming from that global growth engine. He also likes the new CEO Laxman Narasimhan and the fact Gen Z is keen on Starbucks’ coffees and other products.
“We think they are going to be a force to be reckoned with and you’re getting it at a very good price,” he says.
Finally, on the roughly one-year anniversary of the U.S. banking crisis, the money manager highlights PNC Financial Services Group PNC, 0.54%.
When it comes to banks, it’s all about focusing on “the best quality companies. Best credit quality, good commercial real estate portfolios and conservative financing. PNC meets that.” The same goes for U.S. Bancorp USB, 0.05% and Bank of New York BK, 0.40%, but he avoids the “lower-quality companies” owing to an uncertain risk picture.
“We think if the Fed starts lowering rates and we don’t have a recession, which we’re not forecasting, these companies should do quite well,” he said.
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