You can think of the S&P 500 and the NASDAQ 100 indexes as the sun that gets the rest of the stock market booming or busting. As these have been making all-time highs lately, you’ll notice that not all stocks joined the party. Likely pricing in the potential interest rate cuts that the Federal Reserve (the Fed) is looking to make later this year, some stocks have much catching up to do.
Falling behind the bull run, three stocks stand out as opportunities for you to catch the rally before it gets here. With optimistic earnings per share (EPS) outlooks for this year, price action has yet to reflect the growth that is to come in these names.
Watch for the coming price action and developments in SoFi Technologies Inc. (NASDAQ: SOFI), CleanSpark Inc. (NASDAQ: CLSK), and even Albemarle Co. (NYSE: ALB). This stock-picking strategy is as simple and elegant as can be this cycle, with above-average EPS growth at lower-than-average prices relative to the rest of the market.
The Root of All Profit
Lower interest rates can impact the entire market and even other asset classes like real estate and cryptocurrencies. This is why you can build a proper portfolio around a trend that is more than accepted by the broader markets.
While the timing and size of these rate cuts remains uncertain, the FedWatch tool at the CME Group Inc. (NASDAQ: CME) points to traders betting on May or June of this year. That means there is a small – and closing – window of opportunity for you to prepare yourself before the move.
Focusing on three industries, you can take advantage of the three best stocks to catch up to this trend. In the world of real estate, SoFi technologies are likely to get busy in the coming months. As lower interest rates make mortgage financing cheaper and more affordable, new homebuyers may look to SoFi for their financing solutions.
More than that, the National Association of Realtors (NAR) eliminated agent commissions, making homebuying more accessible and cheaper.
Cryptocurrencies like Bitcoin also tend to go up (as they have been) when interest rates are set to be cut. Because markets start to look for—and justify—riskier assets when rates are low, it isn’t the currency itself but those who mine it who will profit the most, which is where CleanSpark comes into play.
Lastly, more economic activity, such as manufacturing, can increase oil prices. The Goldman Sachs Group Inc. (NYSE: GS) expects oil up to $100 per barrel this year, making alternative fuel and energy sources more attractive.
Among these are solar stocks, whose batteries must store energy for cloudy days to keep panels running. Because Albemarle provides the lithium materials for storage, analysts are all over it today.
Wall Street Has Spoken: 3 Top Picks
Analysts expect EPS growth of up to 257% in the next 12 months, giving you a good enough reason (with a thesis you are now familiar with) to consider SoFi stock. Because this stock trades at 60% of its 52-week high, it falls behind the rest of the technology names.
The Technology Select Sector SPDR Fund (NYSEARCA: XLK) has performed 23% in the past six months, while SoFi fell by 18%. This massive gap and industry-leading EPS growth is why institutions like the Vanguard Group bought up to $53 million worth of SoFi stock as of March 2024.
Moving over to potentially the best way to play Bitcoin’s rally, CleanSpark is expected to see up to 128% growth in its EPS this year. The reasoning comes from the profit margins that will hit the company after they can sell their mined Bitcoin at higher prices.
Because the stock trades at a forward P/E ratio of 455x, the market must have a good reason to be paying this much for the stock's future earnings. One reason could be the expectancy of an earnings beat, as analysts are typically conservative in their projections to not stick their necks out.
Last but not least, Albemarle stock trades at only 50% of its 52-week high price. Analysts project a bold 106% jump in EPS this year, accompanied by a $176 price target calling for a 44% upside from where the stock trades today.
Albemarle’s 17.6x forward P/E places it 36% above Dow Inc. (NYSE: DOW) and its 12.9x forward P/E valuation. Again, there must be a good reason why the market is willing to pay a premium for the future earnings of this stock; now you know what that reason is.