Occasionally, Wall Street fund managers come down from their ivory towers and let the rest of Main Street into some of the plays they have been making. These institutions manage the nation’s pensions and other crucial investment vehicles, so when their insights are released, it pays to keep up with them, or at least behind their reasonings.
Today, Morningstar released a list of ten stocks fund managers have been buying lately. However, some of them are just out of momentum and exposure to the technology sector, which has been getting all the attention thanks to NVIDIA Co. (NASDAQ: NVDA) and its splash in artificial intelligence. Sticking with fundamental analysis, the only discipline that never seems to go away, this is a better--potentially less volatile--curated list.
Starting it all off comes Realty Income Co. (NYSE: O), representing the real estate investment trust (REIT) space, a not-so-popular branch of the real estate sector as of late. Second on this list is consumer favorite Starbucks Co. (NASDAQ: SBUX), being the beacon of value for the consumer discretionary sector. Last but not least, there is the controversial Boeing Co. (NYSE: BA), which may be looking to close the gap left behind by its closest competitor.
Stagflation Defense: Lock in Realty Income's Reliable Dividends
That’s right. The U.S. economy is now in one of the conditions economists dread the most: stagflation. Defined as low economic growth with high inflation, the U.S. GDP growth rate (revised down to 1.3%) remained below 3% inflation to fit this description.
The best recipe for investors to beat stagflation is to pick stocks that are set to grow much faster than the economy or at least lock in a dividend payout that acts in the same way. Lucky for those looking to fill this list, shares of Realty Income fit the description.
As the stock has sold off to 83% of its 52-week highs, its dividend payout of $3.15 a share would translate into an annual yield of nearly 6%, close to twice today’s inflation rate and above any GDP growth expected in the next decade.
These fundamentals may cause analysts at KeyCorp to push their price targets on Realty Income stock up to $61 a share, daring it to rally by as much as 15.3% from its current level.
More than that, the Vanguard Group (Realty Income’s largest shareholder) boosted its stake in the stock by 18.3% in the past quarter, bringing its already sizeable stake up to $7.3 billion today.
Starbucks Stock Downturn Presents Double-Digit Upside Opportunity
After Starbucks shares traded down to only 74% of their 52-week highs, analysts on Wall Street did the opposite of condemning the stock for its bearish performance. Instead, they reiterated that the stock could see a double-digit upside ahead.
Those at Goldman Sachs saw fit to slap a $100 price target on Starbucks stock, daring it to rally by 26.1% from its current level. Bank of America analysts took it a step further, bringing their valuations for Starbucks stock up to $112 a share, implying even more upside at 41.2%.
As U.S. consumer sentiment readings fall again, some investors may be wary of investing in a consumer discretionary stock like Starbucks. However, most don’t realize that Starbucks has become more of a staple today. Regardless of the economy, consumers will likely be willing to make room in their budgets for a green Medusa cup.
Speaking of which, there’s a reason nobody walks into a business meeting with a Dunkin’ branded cup or a Dutch Bros Inc. (NYSE: BROS). This type of ‘social currency’ status keeps margins high at Starbucks, roughly 27.7% for gross margins.
Boeing's Rally Hinges on Rate Cuts: Timing is Everything
As the Transportation Security Administration (TSA) reported a record number of daily passengers in May 2024, some analysts wondered what Boeing’s upside could look like once the consumer sentiment readings recover.
In addition, Federal Reserve interest rate cuts, which may come as soon as September 2024, according to the CME’s FedWatch tool, could significantly boost consumer activity and travel demand.
Because Boeing has only one competitor, Airbus (OTCMKTS: EADSY), investors can take advantage of Airbus’ lower management guidance, which is announced in the company’s latest quarterly earnings results. Instead, analysts at the UBS Group value Boeing stock at $240, daring it to rally by 37% from where it sits today.
In the company’s latest quarterly earnings report, management states that Boeing’s total backlog value grew to over $529 billion, driven by 5,600 commercial airplanes. Now, why would backlogs and orders rise to these levels if customers in the airline industry didn’t expect to see busier times ahead?
