Fed exhibits ‘rare dual stimulus’ to buy 3 cheap parts of stock market, BofA says Ask NetWorth

• Investors should pick value stocks in three specific sectors, according to Bank of America.

• The company says they are poised to outperform as the central bank cuts rates while corporate profits continue to accelerate.

• Savita Subramanian, head of US equity-strategy, calls the situation a “rare double trigger”.

The Federal Reserve typically doesn’t cut rates when corporate profits are still growing. But what we’re seeing right now is what Bank of America sees as creating a unique opportunity for investors.

Savita Subramanian, head of US equity and strategy at BofA, described the situation as a “rare double trigger”. And a Appearance on CNBCHe suggested some portfolio changes, suggesting that investors should play a major role in certain types of value stocks.

Value stocks — or those that trade below what fundamentals dictate — do best when profits rise and rates fall, as investors shun hedging and embrace unsupported high-upside names. That’s happening now, BofA said, adding that liquidity will be favorable to value.

In this context, he said, three sectors worth pursuing are real estate, finance and energy. These value industries provide quality and income.

The Large cap real estate sector Benefits of Wall Street’s massive investment in data centers, a necessary infrastructure component of artificial intelligence architecture. In the meantime, it’s not worth worrying about real estate exposure to problematic office space, Subramanian noted.

Meanwhile, Finance It has become a higher-end sector than it was in 2008, and is currently “starved” of capital. The same can be said Energyshe said.

“These companies have corrected themselves over the last decade and are now throwing away free cash flow and focusing on cash income. I think these are some areas of the market that you really want to squeeze,” Subramanian told CNBC.

In a similar vein, Citi’s US equity strategist Scott Kroenert also highlighted finance and energy. Bloomberg interviewCalling the latter “contradictory opportunity.”

In Subramanian’s view, part of the appeal of value sectors is the high dividends they offer.

As the central bank’s cut cycle lowers short-term yields, money market investors will look for new sources of income. Subramanian said dividend-paying stocks will benefit from the change.

“I think about where these assets that are in retirement accounts and money market funds are going; I think they’re going to safe, stable income. It’s more value than growth,” he said.

The story continues

she mentioned earlier Dividend yields are particularly attractive in real estate. Since 2008, real estate dividends have doubled the rate of high-end market cap.

According to BofA’s latest note, neither retail nor institutional investors seem to have adapted to the value trend so far, with portfolios leaning more towards long-term growth stocks and defensive exposures.

Hedge funds appear skeptical of China’s latest explosive rally, which was jumpstarted last week after Beijing pushed back on fresh stimulus.

Subramanian expects this to be the start of a long-term story, and suggested that investors keep an eye on the commodities sector.

Read the original article Business Insider