While Powell has reached a relatively weak tone in the contraction plan, some are concerned that both the stock and bond markets may see some instability after the change in “conical jealousy”.

Yet, even if such a sale were to take place, some shares would survive better than others. The last time the Fed slowed bond buying, in May 2013, the most successful sectors in the coming months were materials and industry.

This time, there is even more wind behind these areas. The $ 1.2 trillion investment and jobs law on infrastructure has recently been passed by the Senate. If Parliament approves it and signs the law, it will give material and industrial companies a significant increase in revenue in the coming years. This could offset some of the Fed’s headwinds.

Less Fed money in the market can cause problems for companies that are short of money and dependent on funds raised from the bond market. In these areas, investors should look for companies that have more money on their balance sheets and can use them efficiently.

Barronin screened

S&P 500

industrial and material stocks that meet three criteria:

  • Cash flow per share, which shows how much money the company generates for each outstanding share. For display, it had to be more than 10.

  • The share price to cash flow, which shows how much investors are paying for each dollar of cash flow that had to be less than 20;

  • Return on equity, which determines how much profit a company earns from each dollar of assets and was supposed to be over 30.

This has left us with nine names that are rich in money and effective in raising capital. They are more likely to continue marching forward even if the Fed takes its feet off the gas. The Wall Street consensus shows analysts expect to see more gains in all of these stocks over the next 12 months.

The nine are:

Combined parcel service

(UPS),

Union Pacific

(UNP),

Deere

(FROM),

3M

(MMM),

Lockheed Martin

(LMT),

Northrop Grumman

(NIGHT),

LyondellBasell Industries

(LYB),

WW Grainger

(GWW) and

Celanese

(THIS).

Cone resistant

As the US Federal Reserve is likely to downsize its bond-buying plan later this year, investors should look for companies that are rich in money and efficient in raising capital.

Company / Ticker Cash flow / share Price to cash flow Return on equity Expected price increase
United Parcel Service / UPS 12.0 11.6 89.1 14.8%
Union Pacific / UNP 12.6 16.0 46.9 13.8
Deere / DE 23.6 18.8 41.0 9.8
3M / MMM 13.9 14.6 38.7 5.8
Lockheed Martin / LMT 29.1 11.7 82.2 19.0
Northrop Grumman / NOC 25.7 15.4 32.0 12.4
LyondellBasell Industries / LYB 10.2 4.4 48.8 19.2
WW Grainger / GWW 20.9 19.3 45.7 11.1
Celanese / CE 11.3 9.8 45.4 14.5

Source: FactSet

Write to Evie Liu at [email protected]

Leave a Reply

Your email address will not be published. Required fields are marked *