Rate Hike Freeze In 2019 Increasingly Likely: 5 Picks

A Commerce Department report released on Friday provided fresh evidence that economic growth is slowing in the United States. Meanwhile, inflation remains sluggish, which explains the dovishness of Federal Reserve officials last week. Fed Chair Jerome Powell went as far as to say that a spike in productivity has provided a route for wages to rise without boosting inflation significantly.

A large number of market watchers now think that rate hikes will remain on hold this year. In fact, the central bank might even consider a rate cut in the near future. It is clear now that rate-sensitive stocks are likely to gain from such a move. This is why it makes sense to invest in real estate and utility stocks.

Fed’s Preferred Inflation Gauge Declines

Personal income declined 1% in January, according to data from the Department of Commerce released on Mar 1. This was the first drop recorded in three years. Additionally, consumer spending, which makes up nearly two-third of U.S. GDP, declined 0.5% in December.

This is the largest decline recorded since September 2009. Together, the direction of the gauges indicates that an economic slowdown is in progress. These are hardly ideal conditions for additional rate increases.

Meanwhile, inflation remained sluggish in December. The core PCE price index increased 0.2% during this month. As a result, the Fed’s preferred inflation metric remained flat at 1.9% on a yearly basis in December.

Michael Pierce an economist with Capital Economic thinks the drop in December expenditure indicates that “the economy entered 2019 with much less momentum.” Sluggish inflation and under par growth led him to think that rate hikes are unlikely next year. The Fed’s next step could even be to lower rates.

Powell Indicates Further Rate Hikes Unlikely

Speaking to the Citizens Budget Commission in New York on Feb 28, Fed Chair Jerome Powell said that last year’s jump in productivity offers space for wage growth without concurrent increase in inflation. This provides another reason for the central bank to stave off additional rate hikes.

Other key central bank officials also mimicked the Fed Chair’s dovish stance. On Feb 28, Vice Chair Richard Clarida said the Fed should set aside projections of an upcoming inflation surge and depend instead on actual data. Speaking in Texas, Dallas Fed President Robert Kaplan said the Federal Reserve should hold off further decisions about rates till June.

Our Choices

Key economic data released on Mar 1 indicate that the U.S. economy is slowing even as inflation remains sluggish. Meanwhile, key central bank officials have indicated that further rate hikes may not be forthcoming this year. Some economists are even forecasting a rate cut in the near future.

Rate-sensitive investments like utilities and real estate stocks are useful additions to your portfolio under such circumstances. However, picking winning stocks may prove to be difficult.

This is where our VGM Score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score.

We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM Score.

Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD) is the largest provider of dredging services in the United States.

Great Lakes Dredge & Dock has a VGM Score of A. The company’s expected earnings growth for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved by 2.2% over the past 30 days. The stock has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

EMCOR Group Inc. (NYSE:EME) is one of the leading providers of mechanical and electrical construction, industrial and energy infrastructure, and building services for a diverse range of businesses.

EMCOR Group has a Zacks Rank #2 (Buy) and VGM Score of A. The company has expected earnings growth of 6.4% for the current year. The Zacks Consensus Estimate for the current year has improved by 1% over the past 30 days.

Comfort Systems USA, Inc. (NYSE:FIX) is a U.S.-based provider of comprehensive heating, ventilation and air conditioning installation, maintenance, repair and replacement services.

Comfort Systems USA has a Zacks Rank #2 and VGM Score of A. The company has expected earnings growth of 9.8% for the current year. The Zacks Consensus Estimate for the current year has improved by 1.4% over the past 30 days.

NRG Energy, Inc. (NYSE:NRG) is engaged in the production, sale and delivery of energy and energy products and services to residential, industrial as well as commercial consumers in major competitive power markets in the United States.

NRG Energy has a Zacks Rank #2 (Buy) and VGM Score of A. The company’s expected earnings growth for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved by 8.2% over the past 30 days.

Spark Energy, Inc. (NASDAQ:SPKE) is an independent retail energy services company.

Spark Energy has a Zacks Rank #2 and VGM Score of B. The company’s expected earnings growth for the current year is more than 100%.

Zacks' Top 10 Stocks for 2019

In addition to the stocks discussed above, wouldn't you like to know about our 10 finest buy-and-holds for the year?

From more than 4,000 companies covered by the Zacks Rank, these 10were picked by a process that consistently beats the market. Even during 2018 while the market dropped -5.2%, our Top 10s were up well into double-digits. And during bullish 2012 – 2017, they soared far above the market's +126.3%, reaching +181.9%.

This year, the portfolio features a player that thrives on volatility, an AI comer, and a dynamic tech company that helps doctors deliver better patient outcomes at lower costs.

See Stocks Today >>