All eyes are on the US Federal Reserve right now. On Wednesday, the Fed will reveal whether it decides to slash interest rates or keep them steady at 2.25% - 2.50%. Ahead of the announcement, the general consensus is that the Fed will keep rates steady but set the groundwork for cuts when it next meets in July. “The markets are set up for a cut in July, and if they don’t get it, financial conditions will tighten” Carl Tannenbaum, chief economist at Northern Trust, told Reuters.
So how should investors prepare their portfolios going forward? Goldman Sachs has some advice. “If the Fed does cut rates, the S&P 500 usually rallies afterward, with health care and consumer staples outperforming and information technology consistently lagging,” Goldman's chief U.S. equity strategist David Kostin said. The “communication services sector has generated the best relative returns and hit rate of outperformance during the subsequent 3 months (+4 pp, 100%), but has underperformed over a 12-month horizon.”
Here we take a closer look at three stocks that fit into these two categories, with 2 healthcare stocks and 1 consumer staples stock. What’s more, all three of these stocks show a ‘Strong Buy’ Street consensus. That’s based on all ratings received over the last three months. Let’s take a closer look at why analysts are so bullish on these stocks now:
1. Boston Scientific (BSX)
Boston Scientific manufactures medical devices used in interventional medical specialties, including everything from needles to pacemakers. Shares are up 14% year-to-date, and over 80% on a three-year basis.
Right now, the company is gearing up for its investor day on June 26. This is the first event since 2017- and expectations are high that BSX met or exceeded all of the 2017 and 2018 financial targets. Needham analyst Mike Matson is confident that BSX can sustain high single digit growth over the next few years, and expects it to target organic revenue growth of 7-9% from 2019 to 2022 at the event.
“Given BSX’s strong fundamentals (durable high single digit revenue growth, diversified product portfolio, margin expansion potential, etc.), we believe there is potential for upside to consensus estimates and additional multiple expansion and we reiterate our Strong Buy rating” writes Matson.
2. Medtronic (MDT)
Ireland-based Medtronic is one of the world’s largest medical device makers. Although the company manufactures a wide range of products, most of the hype right now is centered on the MazorX robotic platform. Medtronic snapped up Mazor Robotics for $1.7 billion late last year, and the two companies have now developed the MazorX Stealth Edition robotic guidance platform. The power of the platform is a preoperative planning suite with 3D analytics and tools, which allows surgeons to optimize the surgical process in advance.
“Part of MDT’s revenue acceleration thesis depends on the success of MazorX in driving spine share gains” writes Evercore ISI analyst Vijay Kumar. He recently reiterated his Medtronic Buy rating with a $108 price target. “We think MDT’s view of ‘several hundred bps of share gains’ in spine remains a credible thesis given early trends we are seeing. Extrapolating these to general surgery (~80% systems placed for committed implant / consumable volume) lends further credence to why we think robotic surgery could be a big deal for MDT” writes Kumar.
The analyst concludes: “We think MDT is the perfect stock for a choppy environment, and should be a core holding given this revenue reacceleration thesis.” That’s alongside Wells Fargo analyst Larry Biegelsen upgrading Medtronic from Hold to Buy with a $110 price target. The analyst comments "We believe MDT is an accelerating growth story trading at a steep discount to its peers."
3. Tyson Foods (TSN)
While many investors are pouring money into Beyond Foods, it’s also worth taking a closer look at Tyson Foods. This is the world's second largest processor and marketer of chicken, beef, and pork. However the company has also recently branched out into plant-based meat alternatives, including chicken nuggets and patties.
Shares have rocketed with a 53% gain so far year-to-date. Boosting prices further was a rating upgrade from Argus Research’s John Staszak. He has a $92 price target on TSN (12% upside potential).
Staszak cited a “growing demand for proteins" and notes that Tyson's beef division is experiencing "especially strong demand". Plus the company is working hard to increase prepared foods sales to satisfy the "steady demand and strong margins." And to top of it, Tyson trades at a multiple of just 12.8-times forward earnings, which is below the average large-cap food processor multiple of 18.4-times. It’s also easily towards the low end of Tyson’s own historical 9- to 19-times range.
The stock boasts 7 recent bullish calls, with only 1 analyst publishing a Sell rating (Pivotal Research's Timothy Ramey).