It’s officially a new trading month, and HSBC is encouraging investors to look for stocks with more reasonable valuations to widen their exposure in the fourth quarter. September was another good month for the stock market, with the S&P 500 index posting positive results for the fifth consecutive month. On the last trading day of the month, the broad market index set a new record closing price, pushing the index’s gain in 2024 to more than 20%. Along with the S&P, the blue-chip Dow Jones Industrial Average, and tech stocks, the Nasdaq Composite Index was also high, closing the month in positive territory. “We argue that much of this froth and loftyness is due to the dominance of ‘big’ companies in the index, not just big tech companies, but big retailers, big banks, big pharma.” says CEO Nicole Inui. Equity strategy firm Americas wrote in a recent note to clients: “These ‘big’ companies have accounted for the bulk of the stock index returns year-to-date.” These gains are the first since the beginning of the coronavirus pandemic that the Federal Reserve announced last month. This was brought about by lowering interest rates by 0.5 points. Inui expects the central bank to cut interest rates by a quarter of a percentage point at the next six FOMC meetings. “As we move into a lower (though not low) interest rate environment and growth still looks fairly resilient (consensus GDP forecast for Q3 is at 2.3% y/y), “We believe there is an opportunity for investors to increase exposure to companies with less demanding valuations,” the strategist also said. However, he noted that small-cap stocks have historically been excluded, and these companies have historically underperformed when the Fed cuts interest rates. Instead, Inui listed 15 stocks with discounted valuations that investors should keep an eye on going forward. Below are some of the names on that list. Car manufacturer General Motors was named to the list. The stock price has increased more than 27% since the beginning of the year. Shares rose slightly on Tuesday after the company’s third-quarter sales beat Wall Street expectations, in part due to a 60% year-over-year increase in EV. GM estimates its share of the domestic EV market at 9.5%, an increase of 3 percentage points compared to the first quarter of this year. HSBC rates the stock a “buy.” According to LSEG, 16 of the 29 analysts covering GM have a buy or strong buy rating, and the average price target of $54.35 suggests an increase of nearly 19% from Friday’s closing price. Suggests. Pharmaceutical giant Pfizer was also named. The U.S.-based company’s stock is down almost 1% this year. However, the stock price has increased slightly over the past month. Still, public opinion on Pfizer is somewhat divided, with 14 out of 25 analysts giving it a hold rating, according to LSEG. The remaining 11 stocks are rated “buy” or “strong buy.” Still, the consensus price target of $33.34 as of Friday’s close suggests an upside of more than 16%. Goldman Sachs and Delta Air Lines are both on the list. In 2024, Goldman stock soared more than 28%, and Delta stock rose 22.5%.
