Continuing the trend known as the “September Effect,” this month began with a market pullback. Over the past week, the S&P 500 (SPX) fell by 1.65%, while the Nasdaq Composite (IXIC) dropped 3.38%. Nvidia (NASDAQ: NVDA) was the largest contributor to the decline, with its shares losing 17% of their value, wiping out nearly $500 billion in market capitalization since August 27th, when it stood at $3.147 trillion.
This market pullback mirrors what occurred in early August. Many investors saw that dip as a buying opportunity, and Nvidia was able to recover to its July pre-drop value of around $122 within just two weeks. Now, investors are eyeing the upcoming Federal Reserve meeting on September 17-18, where the first rate cut might be on the table. Fed Chair Jerome Powell hinted at the Jackson Hole conference that “the time has come” to end the current hiking cycle, which stands at the highest interest rate level in 23 years, between 5.25% and 5.5%.
While a potential rate cut could trigger a stock rally due to cheaper borrowing costs, recession fears could overshadow it, leading to further market declines. In this scenario, which stocks should investors consider accumulating for long-term gains?
1. Costco (NASDAQ: COST)
Costco’s membership-based warehouse model continues to be a strong defensive play. Unlike other retail chains that are struggling with theft, Costco’s membership model and warehouse layout act as effective deterrents. The company recently increased its membership fee by $5 to $65 annually, reinforcing its revenue stream. Despite offering a limited range of products, Costco keeps prices low, which boosts customer loyalty, especially in uncertain economic times.
In Q2 2024, Costco’s net profit margin stood at 2.83%, compared to Walmart’s 2.34%. While Walmart has a higher gross margin (24.63%) compared to Costco’s (12.50%), Costco’s reliable membership revenue helps offset this difference. Moreover, the company reported a 9.07% year-over-year sales increase, significantly higher than Target’s 2.74%. Priced at $878.12 per share, Costco stock is approaching its 52-week high of $918.93, and Nasdaq analysts project a target price of $928.42.
2. Pedevco Corp. (NYSE: PED)
As oil prices hit a low of $72.75 per barrel, now may be the time to consider energy stocks. One of the more affordable options is Pedevco, which operates in the Permian Basin, focusing on oil and natural gas production. The company reported no debt in its Q2 2024 earnings, with net income almost doubling from $1.6 million to $2.7 million compared to the same period last year.
Pedevco’s stock has risen 24% year-to-date to $0.97 per share, and Nasdaq analysts forecast a potential price target of $1.95, representing a 101% upside. With zero debt and a potential economic recovery in sight, Pedevco could offer solid exposure to the oil sector.
3. Advanced Micro Devices (NASDAQ: AMD)
AMD, a long-time competitor to Nvidia and Intel in the GPU and CPU markets, finds itself in a rare discounted position. At $142 per share, it is trading below its forecast low of $150 and well beneath the average price target of $190.25. After Intel’s issues with its 13th and 14th generation CPUs, AMD seized the opportunity by reducing the price of its Ryzen 9000 Zen 5 CPUs by 12% shortly after their August launch. With Windows 11 optimization expected to enhance performance further, AMD’s prospects look promising.
Moreover, AMD’s acquisition of ZT Systems for $4.9 billion signals a push into AI, similar to Nvidia’s strategy over the past two years. In Q2, AMD’s data center division posted record year-over-year growth of 115%, contributing to a total net income increase of 19% to $1.12 billion. With its expanding AI capabilities, now may be the perfect time to enter AMD at a discount.
Tags:
Leave A Comment