3 Stocks Enjoying the Fed's Decision to Delay Tapering
Sep 19th 2013 3:09PM
Updated Sep 19th 2013 3:12PM
The Federal Reserve's announcement that it would delay winding down its $85-billion-per-month asset-purchasing program gave an immediate boost to the markets, but that has largely faded today, and the Dow Jones Industrial Average is down 0.21% as of 2:45 p.m. EDT. Regardless of the Fed's time table for "tapering" its bond buying, there will always be valuable stocks on the move. Here are some of today's movers and shakers.
Home Depot is one of the winners in the Dow today, trading 1.3% higher with a little boost from the housing industry. Existing-home sales rose 1.7% in August to 5.48 million, according to the National Association of Realtors. Sales were up 13.2% compared to last year to reach the highest level since February 2007. Home Depot and rival Lowe's have both posted excellent quarterly results and continue to ride the housing rebound. With the Fed continuing its bond buying, these two home improvement retailers could continue to witness a faster-than-expected upturn in housing that should drive sales and profit margins.
As one of the Dow's heaviest-weighted components, Boeing is doing its part to prop up the index, trading 0.9% higher. Boeing has had some positive headlines lately; Sterne Agee reaffirmed its "buy" rating and upped its price target from $120 to $164. There's more at play here, though. As markets flirt with record highs, short-term investors are wondering whether the bottom will fall out once the Fed does begin pulling back its bond-buying program. In that case, Boeing offers something few companies can: revenue transparency. Boeing has a well-documented $410 billion backlog of orders, which is more than 4.5 times its 2013 revenue estimate -- providing a cushion if rough times are ahead.
Outside the Dow, Ford and General Motors investors are likely rejoicing in the Fed's announcement to delay tapering. As interest rates remain low, more consumers on the fence regarding a vehicle purchase still have a good opportunity to buy now. While this is definitely short-term thinking, it should be noted that even as seasonally adjusted annual rates of vehicle sales have surged, they haven't put a dent in the average age of vehicles, which sits at a record high of 11.4 years. Itay Michaeli, director of U.S. autos for Citigroup Investment Research and Analysis, sees more good news. Studying Polk Co. data, he found that the vehicles have a much higher chance of being scrapped as they reach 13 years of age.
"No later than 2015, we should see an incredibly strong scrap recovery in this cycle, and it hasn't even begun," Michaeli said. "In 2014 and 2015, the rate of vehicle designs and refreshes with tremendous new technology is going to come right at the time when we think the vehicle age will start to hit that ideal range when scrap rates tend to balloon."
That, in combination with a rebound in housing construction, should lead to strong sales of full-size pickups and could deliver a perfect storm for well-positioned automakers. Considering that Ford's F-Series and GM's Chevy Silverado full-size pickups are their most profitable vehicles and have been the top-two vehicles in the U.S. by sales for some time, it's no surprise their stocks are trading at highs not seen in years.
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The article 3 Stocks Enjoying the Fed's Decision to Delay Tapering originally appeared on Fool.com.Fool contributor Daniel Miller owns shares of Ford and General Motors. The Motley Fool recommends Ford, General Motors, and Home Depot. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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