3 Stocks With a BIG Upcoming Catalyst

In today’s article, I want to highlight 3 growth stocks who will particularly benefit from rate cuts: Vertiv Holdings (VRT), Hims & Hers Health (HIMS), and Veeva Systems (VEEV).

But first, a little backstory. 

The stock market achieved an impressive milestone last week as the S&P 500 made new, all-time highs. 

In the process, it successfully managed to completely reverse all of its losses from the nearly 20% decline that took place between mid-February and early-April.

[These sharp declines can be quite challenging especially for conservative investors. However, a proven and effective quantitative ratings system like the Zen Ratings can help you outperform under these conditions. Further, investors can evaluate and select stocks according to their goals and risk profile.

As an example, stocks with strong scores in defensive categories like Financials, Value, and Stability managed to avoid the worst of the selling during the selloff.]

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The recent all-time highs are quite remarkable considering the abundance of risks, facing the stock market and economy:

• Interest rates above 4%
• Inflation that continues to linger above the Fed’s desired levels
• A slowing economy with some pockets likely already in a recession
• Two ongoing wars with risk of further escalation
• Continued uncertainty regarding tariffs. 

Yet, these headwinds have been more than overwhelmed by positive tailwinds. Now, another catalyst looms on the horizon which could fuel further gains for the overall market. Today’s newsletter will discuss this catalyst and ways that investors can capitalize.

The Next Catalyst

While many are focused on the acrimony between President Trump and Chair Powell, a bigger story is unfolding: Fed funds futures now point to a longer, deeper rate-cutting cycle than before the trade war.

This could bring relief to sectors hurt by high rates, like housing, and fuel rallies in speculative assets like crypto and meme stocks. Precious metals may also benefit, as they often rise on expectations of easier monetary policy.

The risk, of course, is reigniting inflation — one reason the Fed has held rates steady amid trade and tariff uncertainty.

Despite these concerns over the intermediate and long-term, this development is unambiguously bullish for asset prices. In fact, all-time highs for the stock market imply that the party is starting. Now, the Fed looks like it wants to spike the punch bowl.

3 Stocks to Watch 

When long-term rates decline, it tends to benefit growth stocks and more speculative stocks. On the other hand, it also provides a boost to companies with stock buybacks and dividends as these payouts become more valuable in a lower-rate world. 

So, there are many different strategies for investors to take advantage of this catalyst depending on their preference, risk profile, style, and goals. Here are three excellent picks: 

1. Vertiv Holdings (VRT)

VRT is a leader in providing services and solutions for communication networks, data centers, and industrial environments that include power, cooling, and IT management. 

Its customers include aggressive hyperscalers like Microsoft (MSFT) and Amazon (AMZN). Recent growth has been driven by growth in data centers and the need for cooling solutions given the large amounts of power consumption, especially when it comes to handling AI workloads. 

Of course, the AI boom is in its early stages. Next year, AI spending is expected to reach $300 billion with data center infrastructure, comprising a significant portion of this spending. Over the next decade, total investment in AI is forecast to exceed $7 trillion. 

The coming buildout and investment in data centers is similar to the buildout in fiber and connectivity which was necessary for the Internet boom or the investment in 5G and cloud computing which was an essential precursor to the mobile internet becoming ubiquitous. 

As a consequence of these trends, VRT’s earnings have increased by more than 400% over the last 4 years. Lower rates would be a catalyst for VRT as it would lead to higher multiples. Additionally, lower cost of capital could also accelerate AI investment as well. 

In terms of the Zen Ratings, VRT is rated a Strong Buy (A). A-rated stocks have delivered an average annual performance of 32.5% which is significantly better than the S&P 500’s average 10.8% gain. 

2. Hims & Hers Health (HIMS)

HIMS is one of the original telehealth providers. Originally, the company started with men’s wellness but has expanded into other areas like mental health, weight loss, skin care, and primary care. Currently, it has around 1.5 million subscribers. 

The stock has been a darling of momentum traders given that it’s part of the growing telehealth industry as well as a distributor of GLP-1 therapies which is a booming growth market. However, there is also risk as evidenced by the stock’s more than 30% tumble following a disagreement with Novartis (NVS). 

Yet considering HIMS has an overall Zen Rating of B (Buy), it’s possible this dip could be an intriguing buying opportunity for investors who believe in the company’s long-term mission.

HIMS is also in the midst of a revenue and earnings surge. Over the last year, the company has gone from being barely profitable to expectations of $1 in earnings per share for the full-year. Over the next 3 years, the consensus forecast is for 25% annual earnings growth. 

Given this earnings trajectory, it’s not surprising that HIMS is in the top 4% of Growth stocks in our universe of over 4,500 stocks. Additionally, it’s a standout in terms of Financials, ranking in the top 3% of all stocks. This can be attributed to the company’s high margins and capital-light business. Revenues are also stable given that it is a subscription-based business. 

3. Veeva Systems (VEEV)

Veeva Systems is a cloud-based software solutions provider for the global pharmaceutical industry that serves over 1,400 customers — including 47 of the top 50 biotech and pharmaceutical companies in the world. 

The company has the makings of a high-quality growth stock as it combines the attractive economics of a software business while selling into the healthcare market which provides steady, long-term growth, higher pricing power, and stability. 

During periods of falling rates, stocks with high margins and secular growth potential tend to be among the biggest winners. Over the last 10 years, VEEV’s net margins have increased from 12.6% to 27.5%. Demographics ensure that growth in healthcare spending will increase at a faster pace than the overall economy. Meanwhile, VEEV is also well positioned to deploy AI solutions for its customers within its platform, unlocking another potential source of growth. 

In terms of the Zen Ratings, Veeva earns an overall Buy (B) rating. B-rated stocks have delivered average annual performance of 19.88% which easily beats the S&P 500’s average annual gain of 10.8%. 

It also scores an A for Sentiment, driven by positive analyst upgrades and insider activity. VEEV ranks in the top 4% of stocks for Financials which can be attributed to its high margins, low debt ratio, generous cash position, and steady earnings growth. 

Conclusion

In a previous article, we discussed another piece of the puzzle — why many investors are now on the sidelines or underweight. This dynamic is one reason why the market has been so strong despite several negative headlines over the past few weeks and a lack of meaningful progress on the trade front. 

Now, we have a Fed that is certainly going to turn more dovish over the next year regardless of the economy.

This is likely to be the biggest factor driving asset prices higher over the next few months as investors re-adjust to a falling-rate environment after more than 4 years of restrictive monetary policy.

What to Do Next?

• 9 Special Stock Lists You Need Now >
• See All “A” Rated Stocks with +32.52% Average Annual Return >
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