S&P 500   4,455.48
DOW   34,798.00
QQQ   373.33
S&P 500   4,455.48
DOW   34,798.00
QQQ   373.33
S&P 500   4,455.48
DOW   34,798.00
QQQ   373.33
S&P 500   4,455.48
DOW   34,798.00
QQQ   373.33

7 Stocks That Can Withstand a Taper Tantrum

Posted on Friday, August 27th, 2021 by MarketBeat Staff
7 Stocks That Can Withstand a Taper TantrumThe stock market is stimulated like a child with a sugar high on Halloween night, and investors are enjoying the ride. It seems like nearly every sector continues to point in one direction. But seasoned investors know that the markets don’t move in the same direction all the time. And even long-term bulls admit that a correction may be coming.

One reason for this is that the Federal Reserve (i.e. “The Fed”) is “talking about, talking about” an end to its asset purchase program. If that talk turns into concrete action, then it would be almost a sure sign that interest rates will rise sooner than expected.

That combination is typically negative for equities, such as stocks. Yet, even if the Fed announces an earlier-than-expected tapering plan, there are stocks that will hold up well and even thrive. And that’s the focus of this presentation. We’re taking a looks at seven stocks that stand to benefit from a less accommodative monetary policy. Financial stocks are one group of stocks that will benefit from rising interest rates. And you should also consider stocks with a high return on equity (ROE).

ROE = Net Income/Shareholders’ Equity

Stocks with a high ROE are reinvesting cash at a high rate of return which can make them an ideal choice when that cash becomes more valuable.

#1 - KLA Corporation (NASDAQ:KLAC)

KLA logo

The first stock on our list is KLA Corporation (NASDAQ: KLAC). This is a stock that certainly checks the box on Return on Equity. In its last quarter, KLA recorded an ROE of 68.1%. The company manufactures and services the equipment that makes microchip wafers. That means the company is going to be essential to resolving the global chip shortage which is affecting many sectors in the short term.

KLA Corporation delivered a strong earnings report in July. In addition to beating on the top and bottom lines, KLA announced a 16% increase in its dividend. That makes it 11 years of consecutive dividend growth and a three-year dividend payout ratio of 54.87%. Some may turn up their nose at the company’s dividend yield that is only 1.28% as of this writing. However, KLA announced a $2 billion share buyback program.

Analysts love KLAC stock. Since the company delivered its earnings report the stock has received one upgrade and six increases in its price target.

About KLA
KLA Corp. engages in the supply of process control and yield management solutions for the semiconductor and related nano-electronics industries. The company operates through the following segments; Semiconductor Process Control, Specialty Semiconductor Process, PCB, Display & Component Inspection and Other.Read More 

Current Price: $369.53
Consensus Rating: Buy
Ratings Breakdown: 10 Buy Ratings, 6 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $377.63 (2.2% Upside)


#2 - Lockheed Martin (NYSE:LMT)

Lockheed Martin logo

Like KLA Corp, Lockheed Martin (NYSE: LMT) checks the boxes on a couple of different fronts. First, it delivers a high return on equity of over 123%. Second, it is one of the leading stocks in the defense sector. And with events unfolding as they are in Afghanistan, defense stocks are likely to perform very well. That is likely to serve as a buffer for the stock in the event that the Fed would begin to taper its asset-buying program.

LMT stock is up 24% since the beginning of the pandemic in March 2020. However, it’s been a choppy ride. The stock is down 8% since early June, but is flat in the 30 days ending August 26.

Analysts currently list the stock as a Hold and give the stock a 10% upside, but it’s clear that the analyst community has not yet considered how the recent geopolitical instability may affect LMT stock.

About Lockheed Martin
Lockheed Martin Corp. operates as a global security and aerospace company, which engages in the research, design, development, manufacture, integration, and sustainment of technology systems, products, and services. It operates through the following business segments: Aeronautics, Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS) and Space.Read More 

Current Price: $349.52
Consensus Rating: Hold
Ratings Breakdown: 2 Buy Ratings, 6 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $401.03 (14.7% Upside)


#3 - Best Buy (NYSE:BBY)

Best Buy logo

Best Buy (NYSE: BBY) is another of the “cash cows” you can consider to offset a tapering announcement from the Federal Reserve. The company’s ROE as of May 21, 2021 is a healthy 53.8%. But Best Buy has a strong story to back up its balance sheet.

Best Buy was a strong, if not surprising, pandemic winner as many Americans needed to upgrade their technology to fit their work-from-home lifestyle. This demonstrated to investors that Best Buy was successfully executing its digital and omnichannel strategy. And although 2021 is shaping up to be slightly weaker, the company raised its outlook for comparable sales to decline in the range of 0% to 3% from previous guidance that called for a full-year decline in the high single-digits.

But the good news for investors is that this is not fully baked into the BBY stock price which is only up 18% for the year. And analysts suggest that the stock has another 8% to go with 75% of analysts saying that the stock is set to outperform.

About Best Buy
Best Buy Co, Inc engages in the provision of consumer technology products and services. It operates through two business segments: Domestic and International. The Domestic segment comprises of the operations in all states, districts, and territories of the U.S., operating under various brand names, including Best Buy, Best Buy Mobile, Geek Squad, Magnolia Audio Video, Napster, and Pacific Sales.Read More 

Current Price: $104.74
Consensus Rating: Buy
Ratings Breakdown: 14 Buy Ratings, 5 Hold Ratings, 1 Sell Ratings.
Consensus Price Target: $128.75 (22.9% Upside)


#4 - Apple (NASDAQ:AAPL)

Apple logo

Although technology stocks in general stand to underperform if the Fed begins to taper, that’s not true in all cases. If you use ROE as a metric then you have to at least consider Apple (NASDAQ: AAPL) which has an ROE of 131%.

Apple delivered a surprisingly strong earnings report that further proves that the company is much more than the company that makes the iPhone. The last several years have proven to investors that the company is garnering significant revenue from its Services and Wearables business units.

However, it also doesn’t hurt that the company was able to launch the iPhone 12 in 2020. And, despite supply chain difficulties, the company is planning to launch the iPhone 13 in 2021.

Apple has also been one of the most upgraded stocks by analysts in the month of August. Analysts have much more access to company insiders. And with the Fed tapering being a known risk, the fact that analysts remain bullish is a strong catalyst for the stock.

About Apple
Apple, Inc engages in the design, manufacture, and sale of smartphones, personal computers, tablets, wearables and accessories, and other variety of related services. It operates through the following geographical segments: Americas, Europe, Greater China, Japan, and Rest of Asia Pacific. The Americas segment includes North and South America.Read More 

Current Price: $146.92
Consensus Rating: Buy
Ratings Breakdown: 25 Buy Ratings, 5 Hold Ratings, 1 Sell Ratings.
Consensus Price Target: $164.81 (12.2% Upside)


#5 - Virtu Financial (NASDAQ:VIRT)

Virtu Financial logo

Virtu Financial (NASDAQ: VIRT) is a way to invest in the market’s need for liquidity during what could be turbulent times. Virtu Financial is one of the leading financial services firms. The company uses cutting-edge technology to provide market-making and execution services. This isn’t the most exciting stock, but it’s a company that will be needed in the event of market volatility.

Virtu operates as a market maker by providing “deep liquidity and competitive bids and offers in over 25,000 securities, at over 235 venues, and execution technology to our clients while creating more efficient and stable markets worldwide.”

The company is not heavily covered by the analyst community. However, of the four analysts that cover VIRT stock, they give the stock a consensus price target that shows the stock may have a 21% upside in the next 12 months. The stock has been flat in the last month after an earnings report in which the company beat on revenue but missed on the bottom line.

About Virtu Financial
Virtu Financial, Inc engages in the provision of market making and liquidity services. It operates through the following segments: Market Making, Execution Services and Corporate. The Market Making segment engages in buying and selling of securities and other financial instruments. The Execution Services segment agency offers trading venues that provide transparent trading in global equities, ETFs, and fixed income to institutions, banks and broker dealers.Read More 

Current Price: $24.03
Consensus Rating: Hold
Ratings Breakdown: 2 Buy Ratings, 0 Hold Ratings, 1 Sell Ratings.
Consensus Price Target: $31.88 (32.6% Upside)


#6 - Coinbase (NASDAQ:COIN)

Coinbase Global logo

If you’re a contrarian investor, you may want to consider investing in Coinbase (NASDAQ: COIN). There is one camp that believes the end of the Fed’s $120 billion monthly asset purchases would be bearish for cryptocurrencies. This is because cryptocurrencies, such as Bitcoin (CCC: BTC-USD), rely on their reputation as a risk-on asset for the dollar.

However, there is also a sentiment that there are many cryptocurrencies that would be unaffected by the Fed tapering because of strong investor sentiment towards the underlying blockchain technology.

Still, cryptocurrencies are still a young, emerging market. And investors don’t really know what will happen to digital currencies with a less accommodative monetary policy. But it also seems like an asset class that shouldn’t be ignored. A way for investors to get exposure to a full basket of cryptocurrencies is by investing in Coinbase which is the first exchange platform for cryptocurrencies. Since its public debut in April 2021, COIN stock is down 24%. However, the consensus opinion of analysts is that the stock has an upside of nearly 45%.

About Coinbase Global
Coinbase Global, Inc provides financial infrastructure and technology for the cryptoeconomy. The company provides primary financial account for the cryptoeconomy, a platform to invest, store, spend, earn, and use crypto assets; an online marketplace for hedge funds, money managers, and corporations; and a platform with technology and services to developers, merchants, and asset issuers that enables them to build applications that leverage crypto protocols.Read More 

Current Price: $231.82
Consensus Rating: Buy
Ratings Breakdown: 13 Buy Ratings, 5 Hold Ratings, 1 Sell Ratings.
Consensus Price Target: $362.24 (56.3% Upside)


#7 - JPMorgan Chase (NYSE:JPM)

JPMorgan Chase & Co. logo

The last stock on this list is arguably the best of the bank stocks, that being JPMorgan Chase (NYSE: JPM). Financial stocks are likely to perform well in the event of a tapering event. That’s because once the tapering starts, interest rate hikes are the next likely step.

Higher interest rates could potentially slow down the pace of the company’s consumer and commercial lending. However, the pace of increases will be measured. In the meantime, the bank will benefit from being able to charge slightly more interest on its lending without paying out too much more to depositors.

And by investing in JPM stock, investors also get access to the company’s fortress balance sheet that was recently strengthened when the bank added $3 billion that is was setting aside in loan-loss reserves.

JPM stock is up 63% in the last 12 months and 28.5% in 2021 which outpaces the growth in the S&P 500 Index.

About JPMorgan Chase & Co.
JPMorgan Chase & Co is a financial holding company. It provides financial and investment banking services. The firm offers a range of investment banking products and services in all capital markets, including advising on corporate strategy and structure, capital raising in equity and debt markets, risk management, market making in cash securities and derivative instruments, and brokerage and research.Read More 

Current Price: $163.04
Consensus Rating: Buy
Ratings Breakdown: 12 Buy Ratings, 5 Hold Ratings, 1 Sell Ratings.
Consensus Price Target: $166.69 (2.2% Upside)

 

The Fed’s annual meeting in Jackson Hole, Wyoming may provide some clues about when the Fed may begin to taper its asset purchases. Or not. The Delta variant is creating new concerns about the pace of the economic recovery. And that may be just the reason the Fed needs to take a more “measured” approach.

But even without the Delta variant, it’s entirely likely, and even probable, that nothing substantial will occur. But it’s best to be prepared because tapering is more a question of when and not if. The last significant tapering event occurred in 2013. At that time, investors rotated out of growth and cyclical stocks. Defensive stocks performed the best.

And although this presentation focused on individual equities, now could be a good time to consider investing in high-quality exchange-traded funds (ETFs). This would give you exposure to some areas like technology without having to rely on the performance of any one stock.

10 Great Cheap Stocks to Buy Now for Under $10

As the P/E ratios of most S&P 500 companies look very expensive and the stock market continues to hit new all-time highs regularly, it's challenging for investors to find cheap stocks to buy now.

This goes for both share price since most stocks are trading higher on a per-share basis and valuation relative to earnings. Right now, the typical S&P 500 company is trading at about 25 times forward-looking earnings. Historically, S&P 500 companies have traded at about 15 times earnings in more normal markets.

While the S&P 500 as a whole is expensive, there are still a handful of undervalued stocks trading at less than $10.00 per share. Value investing opportunities for value exist if you know where to look. Putting together a list of cheap stocks to buy now requires looking into some smaller, riskier, unloved, or undiscovered parts of the market. These low-priced stocks might not look especially attractive today, but long-term investors stand to profit if they are willing to be patient and hold onto shares of these companies through multiple market cycles.

Some of these companies are great investing ideas because they're too small and too risky to attract most mutual funds and Wall Street money managers. Others have been beaten up by the market after a period of slowing earnings and profits but are now trying to turn around and bounce back.

You might find marijuana stocks, dividend-paying stocks, large-cap stocks, growth stocks, small-cap stocks, and even some bitcoin stocks in this list. While these low-priced stocks have many differences, these 10 stock picks all share a common characteristic, a super-low share price of $10.00 or less.

View the "10 Great Cheap Stocks to Buy Now for Under $10" Here.





Resources

Premium Research Tools

MarketBeat All Access subscribers can access stock screeners, the Idea Engine, data export tools, research reports, and other premium tools.

Discover All Access

Market Data and Calendars

Looking for new stock ideas? Want to see which stocks are moving? View our full suite of financial calendars and market data tables, all for free.

View Market Data

Investing Education and Resources

Receive a free world-class investing education from MarketBeat. Learn about financial terms, types of investments, trading strategies and more.

Financial Terms
Details Here
MarketBeat - Stock Market News and Research Tools logo

MarketBeat empowers individual investors to make better trading decisions by providing real-time financial data and objective market analysis. Whether you’re looking for analyst ratings, corporate buybacks, dividends, earnings, economic reports, financials, insider trades, IPOs, SEC filings or stock splits, MarketBeat has the objective information you need to analyze any stock. Learn more about MarketBeat.

MarketBeat is accredited by the Better Business Bureau

© American Consumer News, LLC dba MarketBeat® 2010-2021. All rights reserved.
326 E 8th St #105, Sioux Falls, SD 57103 | U.S. Based Support Team at [email protected] | (844) 978-6257
MarketBeat does not provide personalized financial advice and does not issue recommendations or offers to buy stock or sell any security.

Our Accessibility Statement | Terms of Service | Do Not Sell My Information

© 2021 Market data provided is at least 10-minutes delayed and hosted by Barchart Solutions. Information is provided 'as-is' and solely for informational purposes, not for trading purposes or advice, and is delayed. To see all exchange delays and terms of use please see disclaimer. Fundamental company data provided by Zacks Investment Research.