It’s officially a new trading month, and HSBC recommends investors broaden their exposure in the fourth quarter by seeking out stocks with more reasonable valuations. September was another winning month for stocks, as the S & P 500 saw its fifth consecutive month in the green. On the final trading day of the month, the broad market index posted another record close, adding to the index’s gains of more than 20% in 2024. Along with the S & P, the blue-chip Dow Jones Industrial Average and the tech-heavy Nasdaq Composite also closed out a positive month. “[W]e argue that much of this frothiness and loftiness is due to the dominance of the ‘big’ companies in the index, not only big tech but also big retail, big banks, and big pharma,” Nicole Inui, head of equity strategy, Americas, wrote in a recent note to clients. “These ‘big’ companies represent the lion’s share of equity index returns year to date.” These gains come as the Federal Reserve cut interest rates by a half point last month – the first since the beginning of the Covid-19 pandemic. Inui forecasts that the central bank will cut by a quarter point at the next six FOMC meetings. “[As] we move into a lower (but not low) rate environment with growth still looking pretty resilient (the 3Q consensus GDP forecast is tracking 2.3% y-o-y), we believe there are opportunities for investors to broaden exposure to companies with less demanding valuations,” the strategist also said. That excludes small caps, however, as she noted that those companies have historically underperformed when the Fed cuts rates. Instead, Inui listed 15 names with discounted valuations that investors should eye moving forward. Below are some of the names on that list. Automaker General Motors made the list. Year to date, shares have surged more than 27%. Shares were marginally higher on Tuesday after the company’s third-quarter sales beat Wall Street’s expectations due, in part, to a 60% increase in EVs compared with the year-ago period. GM estimates it has a 9.5% share of the domestic EV market, which is an increase of three percentage points versus this year’s first quarter. HSBC has a buy rating on the stock. In all, 16 of the 29 analysts covering GM have a strong buy or buy rating, and its average price target of $54.35 implies nearly 19% upside from Friday’s close, per LSEG. Pharmaceutical giant Pfizer is another name that made the cut. The U.S.-based drugmaker’s shares are down almost 1% this year. However, the stock is marginally higher in the past one month. That said, the Street is somewhat split on Pfizer, with 14 of 25 analysts having a hold rating, according to LSEG. The remaining 11 have a buy or strong buy rating. Still, the consensus price target $33.34 implies more than 16% upside, as of Friday’s close. Goldman Sachs and Delta Air Lines both appear on the list. In 2024, Goldman shares have soared more than 28%, while Delta’s have risen 22.5%.
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