U.S. stock markets witnessed an astonishing rally in the last two years. However, volatility reappeared on Wall Street in mid-December. The much-hyped Santa Claus rally did not materialize in the 2024-25 sessions. Markets have been fluctuating since the beginning of this year due to various reasons. We believe that volatility will continue to grip the U.S. stock markets at least in the near term.
At this juncture, investors should be prepared to minimize fluctuations in their portfolio and consequently rebalance it with suitable financial assets to maintain stability. It would be prudent to pick value stocks with a top Zacks Rank to cushion the portfolio as well as make gains from the upside potential. These stocks could prove to be valuable additions once the rally resumes.
Five such stocks are Tyson Foods Inc. TSN, The Gap Inc. GAP, Norwegian Cruise Line Holdings Ltd. NCLH, American Airlines Group Inc. AAL and Pitney Bowes Inc. PBI.
Policy-Related Uncertainties
President-elect Donal Trump will finally take oath as the 47th President of the United States on Jan. 20. Market participants are uncertain regarding Trump’s economic policies. Trump’s popular policies like the reduction of corporate tax, deregulation and the imposition of tariffs on foreign products are expected to boost economic growth, especially for domestic industries. At the same time, these policies may lead to a higher inflation rate, making it harder for the Fed’s goal of a soft landing of the economy.
Fed’s Interest Rate Cut
Market participants remained uncertain regarding the Fed’s interest rate cut in 2025. The central bank has reduced the benchmark lending rate by 1% in 2024. The Fed fund rate is currently in the range of 4.25-4.5%.
In December, the Fed’s latest “dot-plot” showed just two rate cuts of 25 basis points in 2025 instead of four indicated in September. The CME Fedwatch interest rate derivative tool currently shows that market participants are not meaningfully (probability > 50%) expecting any rate cut by the central bank before May 2025.
AI Frenzy
It remains to be seen if generative artificial intelligence (AI) frenzy continues to dominate Wall Street like the past two years and whether Trump’s tariffs or policies related to China affect the much-hyped “Magnificent 7” stocks. Market participants will closely monitor how quick the big techs can monetize their enormous expenditures related to generative AI.
Q4 2024 Earnings
Fourth-quarter 2024 earnings results will flood Wall Street starting in the third week of January. This earnings season is likely to have strong implications for U.S. markets. Strong overall earnings and guidance will support the current stock market valuation, which some economists and financial experts have characterized as highly overvalued.
Geopolitical Conflicts
Geopolitical conflicts such as the prolonged war between Russia and Ukraine, the war between Israel and extremist group Hamas, Palestine, Iran and Lebanon, and political upheaval in Syria and Bangladesh add to investors’ woes.
5 Value Picks to Safeguard Your Portfolio in the Near Term
We have narrowed our search to five value stocks. Each of our picks carries a Zacks Rank #1 (Strong Buy) and a Value Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
Tyson Foods Inc.
Tyson Foods’ diversified protein portfolio enables the company to navigate market cycles effectively. TSN’s multi-channel, multi-protein strategy is central to its long-term resilience and growth, allowing it to capitalize on different market opportunities.
TSN boasts ownership of some of the most iconic protein brands, including Tyson, Jimmy Dean, Hillshire Farm and Ball Park. These brands hold the number one or two market share in eight core business lines, cementing TSN’s leadership position in the protein sector.
Tyson Foods has expected revenue and earnings growth rates of 2% and 13.2%, respectively, for the current year (ending September 2025). The Zacks Consensus Estimate for current-year earnings has improved 6.4% over the past 60 days.
The forward P/E of Tyson Foods for the current financial year is 15.80X, compared with 15.81X of the industry and 17.77X of the S&P 500. The forward P/S for the current financial year is 0.37X, compared with 0.67X of the industry and 2.99X of the S&P 500. It has a PEG ratio of 1.03X, compared with 0.83X of the industry and 2.09X of the S&P 500.
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The Gap Inc.
The Gap is well on track with its cost-control efforts and disciplined inventory management. It has been smoothly progressing on the reinvigoration of its brands. GAP has been witnessing lower commodity costs and improved promotions, which have been aiding margins. Fiscal 2024 sales are likely to grow 1.5-2% year over year.
The Gap has expected revenue and earnings growth rates of 2.1% and 6.6%, respectively, for the next year (ending January 2026). The Zacks Consensus Estimate for next-year earnings has improved 6.4% over the past 60 days.
The forward P/E of The Gap for the current financial year is 11.85X, compared with 16.64X of the industry and 17.77X of the S&P 500. The forward P/S for the current financial year is 0.59X, compared with 0.51X of the industry and 2.99X of the S&P 500. GAP has a PEG ratio of 0.55X, compared with 1.63X of the industry and 2.09X of the S&P 500.
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Norwegian Cruise Line Holdings Ltd.
Norwegian Cruise Line has been benefiting from strong consumer demand and a solid booking environment. NCLH witnessed a rise in onboard spending, boosted by shore excursions and improved communication offerings via Starlink high-speed Internet. NCLH intends to focus on strategic marketing efforts to drive demand and high-value bookings. Focus on fleet expansion efforts and strategic partnerships bodes well for NCLH.
Norwegian Cruise Line has expected revenue and earnings growth rates of 8.4% and 25.2%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1% over the past 30 days.
The forward P/E of Norwegian Cruise Line for the current financial year is 15.78X, compared with 18.07X of the industry and 17.77X of the S&P 500. The forward P/S for the current financial year is 1.22X, compared with 1.22X of the industry and 2.99X of the S&P 500. It has a PEG ratio of 0.24X, compared with 0.81X of the industry and 2.09X of the S&P 500.
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American Airlines Group Inc.
American Airlines Group has been benefiting from improved air travel demand (following the end of the pandemic and normalization of economic activities). Passenger revenues, which account for the bulk of AAL’s top line, have been very strong with people taking to the skies again.
With improvement in air travel demand, AAL is constantly looking to add routes and broaden its network. We believe that the positives surrounding AAL stock outweigh the concerns of decline in cargo revenues and high labor costs.
American Airlines Group has expected revenue and earnings growth rates of 5.1% and 35.6%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 3.6% over the past seven days.
The forward P/E of American Airlines Group for the current financial year is 10.74X, compared with 9.17X of the industry and 17.77X of the S&P 500. The forward P/S for the current financial year is 0.22X, compared with 0.60X of the industry and 2.99X of the S&P 500. It has a PEG ratio of 0.20X, compared with 0.81X of the industry and 2.09X of the S&P 500.
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Pitney Bowes Inc.
Pitney Bowes operates as a technology-driven company that provides SaaS shipping solutions, mailing innovation, and financial services to small businesses, large enterprises, and government entities around the world.
PBI operates through Global Ecommerce, Presort Services, and SendTech Solutions segments. PBI markets its products, solutions, and services through direct and inside sales force, global and regional partner channels, direct mailings, and digital channels.
Pitney Bowes has expected revenue and earnings growth rates of -25% and more than 100%, respectively, for the current year. The Zacks Consensus Estimate for current-year earnings has improved 2.9% over the past 30 days.
The forward P/E of Pitney Bowes for the current financial year is 6.72X, compared with 18.08X of the industry and 17.77X of the S&P 500. The forward P/S for the current financial year is 0.44X, compared with 0.44X of the industry and 2.99X of the S&P 500. It has a PEG ratio of 0.45X, compared with 3.70X of the industry and 2.09X of the S&P 500.
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