The stock market’s volatility index (VIX) is now below 13%, a level not seen since the fourth quarter of 2023. Typically, when the VIX is this low, investors start looking for stocks that can offer them a more exciting ride in the markets. These volatile stocks can be termed high-beta names because they amplify any up–and–down move that the S&P 500 has.
Sticking around with the safety of low beta stocks is a strategy that works with a high VIX as investors look to get a tighter grip on their profit and loss (P/L) swings. However, this low VIX environment calls for more hands-on management, which is why names like Marathon Oil Co. (NYSE: MRO), XPO Inc. (NYSE: MRO), and especially Tesla Inc. (NASDAQ: TSLA) can become top choices soon.
These companies can be part of a broader play in the U.S. economy by relying on specific tailwinds. The market may have priced in potential interest rate cuts coming by the Federal Reserve (the Fed), giving it a – maybe unjustified – sense of safety.
Safety Checks Ahead
Traders are betting these interest rate cuts could come as soon as May or June 2024; investors can keep up with these expectations through the FedWatch tool at the CME Group Inc. (NASDAQ: CME) in case they change. If they change, markets could throw a major tantrum.
Investors could take advantage of this low VIX window until the Fed fulfills its promises. Because the expectation of lower interest rates will boost manufacturing and consumer activity, oil prices have been rising, helping energy stocks like Marathon Oil.
On the other hand, more economic activity will require stocks like XPO to aid through its robust logistics and transportation network, as goods must be delivered on the back of economic tailwinds.
Last but not least, Tesla stock could rebound from its recent decline. As that stock now trades at only 60% of its 52-week high, higher oil prices may make electric cars more attractive, and low-interest rates may make car financing easier.
Marathon Oil For an Expensive Barrel
Analysts at The Goldman Sachs Group Inc. (NYSE: GS) think that oil prices could reach $100 per barrel this year, making oil stocks an indispensable part of a portfolio with lower interest rates. Of course, markets won't randomly choose any oil stock, so why Marathon?
Competitors like Shell (NYSE: SHEL) and even Exxon Mobil Co. (NYSE: XOM) must catch up in what matters most. As stock prices are typically driven by earnings per share (EPS) growth, analysts give Marathon a path to outperform. An expectation for 20% EPS growth in the next 12 months justifies Marathon as a target.
Analysts think that Shell could grow its own EPS by roughly 5%, and Exxon by 10%. Despite their global recognition, these behemoths still fall behind Marathon, and investors may be looking for the high beta and high-growth character in this low VIX environment.
The Market Calls on XPO
If Goldman is right, and oil prices surge due to an increase in manufacturing activity, then all of these newly produced goods will have to find their way to consumers. Transportation stocks like XPO may be called upon to fulfill this coming need from the global economy.
The market is on board with picking XPO as a winner; analysts at Bank of America Co. (NYSE: BAC) boosted their price targets to $137 a share. These price targets would call for a net upside of 11.5% from where the stock trades today.
Wall Street institutions like PNC Financial Services Group Inc. (NYSE: PNC) and the Vanguard Group saw the trend coming, so they both increased their positions in the past quarter. Vanguard bought most until March 2024, boosting its exposure by 1.2% for roughly $11.4 million.
These analysts expect XPO’s EPS to jump by 36% this year, above the trucking industry’s average expected growth of only 23.3%. Peers like J.B. Hunt Transport Services Inc. (NASDAQ: JBHT) also fall behind in its 21% EPS growth projection.
Tesla’s New Discount
Tesla stock fell to only 60% of its 52-week high prices, and its 2.4 beta makes it a name to be considered in case the VIX decides to stay this low.
Wedbush analysts see a price target of up to $315 for Tesla, which is nearly 80% higher than today’s stock price. March was the month when analysts boosted their targets and the period when Vanguard decided to add to their Tesla position.
An increase of 1.7% meant a transaction of nearly $971 million. Lower interest rates during 2021 brought the stock to its all-time high price of $414 a share; history may repeat itself now that the Fed is looking to cut again.
Likewise, the stock hit its 2023 high of $300 right as oil prices reached their high for the year at $95 a barrel. Counting on a double tailwind in interest rates and expensive oil, Tesla stock could soon come back to its former glory.