As the calendar turns and a new trading month dawns, HSBC urges investors to expand their horizons, particularly in this crucial fourth quarter, by hunting for stocks that present more palatable valuations. September proved to be yet another triumphant month for equities; the S&P 500 completed its impressive five-month streak of gains, culminating in a record close on the month’s final trading day. This remarkable performance added to a staggering 20% uptick for the index in 2024. Not to be overshadowed, both the Dow Jones Industrial Average, representing the blue-chip stalwarts, and the tech-laden Nasdaq Composite also celebrated a positive conclusion to the month.
Nicole Inui, the head of equity strategy for the Americas, articulated a thought-provoking perspective in a recent correspondence with clients, positing that the inflated valuations observed are largely a reflection of the preeminence of “big” companies within the index. “It’s not just big tech; we’re talking about considerable retail giants, banking behemoths, and pharmaceutical powerhouses,” she remarked. Indeed, these large entities have been pivotal, accounting for a substantial portion of the year-to-date returns across equity indices.
These booming returns are set against the backdrop of the Federal Reserve’s recent decision to slash interest rates by a half point—marking the first reduction since the onset of the Covid-19 pandemic. Inui anticipates that the central bank will follow suit with a quarter-point cut at each of the next six FOMC meetings. “As we transition into a lower, yet not minuscule, rate environment, with growth showing impressive resilience (as evidenced by a third-quarter GDP forecast hovering around 2.3% year-over-year), we believe that opportunities abound for investors willing to seek out companies with less aggressive valuations,” she suggested.
However, caution was advised regarding small-cap stocks, which historically tend to lag during periods of rate cuts. Instead, Inui recommended a selection of 15 companies that are currently trading at discounted valuations—enticing prospects for investors. Among these is automaker General Motors, which has seen its shares soar by over 27% year to date, boosted recently by robust third-quarter sales that exceeded analysts’ expectations, aided by a staggering 60% rise in electric vehicle sales year-on-year. GM now claims a 9.5% slice of the domestic EV market, a notable bump of three percentage points since the first quarter of this year. HSBC has assigned a buy rating to GM, and a significant majority of the 29 analysts monitoring the stock echo this sentiment, with 16 recommending a strong buy or buy. The average price target of $54.35 suggests a potential upside of nearly 19% from Friday’s closing price.
Pharmaceutical titan Pfizer also features prominently on this list. Although its shares are down nearly 1% for the year, there’s been a modest uptick over the past month. The market sentiment, however, is somewhat divided, as 14 out of 25 analysts maintain a hold rating on the stock, while the remaining 11 endorse buy or strong buy recommendations. The consensus price target stands at $33.34, indicating a possible upside exceeding 16% based on Friday’s closing figures.
Additionally, powerhouse Goldman Sachs and airline favorite Delta Air Lines have made the cut. Goldman’s shares have surged by over 28% in 2024, whereas Delta has enjoyed a commendable rise of 22.5%. The landscape is alive with opportunity—a riveting narrative for investors to decode in these dynamic times.
