Time to ditch tech stocks?

Earn While You Learn! ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏  ͏ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ ­ [EARN WHILE YOU LEARN! JOIN OUR FREE LIVE TRADING SESSION!]( Hello investor, Time to ditch tech stocks? Get ready for a potential change in the stock market. Why? Yesterday’s inflation data was waaaaaay better than Wall Street hoped. The core consumer price index rose 0.1% from May — the smallest gain in three years. The overall measure (including good and energy costs) fell for the first time since the beginning of the pandemic. Even housing costs slowed down. In the graphic below, you can see how inflation has been in a clear downtrend: (Source: Bloomberg) So, the reading makes it likely for the Federal Reserve to cut interest rates in September. - “We are sufficiently confident — even if the Fed is not yet ready to admit they are — that inflation is on the way back to the 2% target,” said Joseph Brusuelas, chief economist at RSM US LLP. “The road is now open to a rate cut by the Federal Reserve in September.” As for the labor market, recurring applications for jobless benefits was hovering at the highest level since late 2021. Another data showed that first-time filings fell by 17,000 last week, the biggest drop in a year. These data points paint a picture of a solid labor market. So far, this indicates a soft landing. Investors are behaving differently now: As a result of these positive data, investors exited their positions in Big Tech companies. Why? They anticipated lower rates, so they jumped to small-caps and housing stocks because they could benefit from lower rates. For example, Home Depot and D.R. Horton rose because investors think lower rates could spark the housing sector. Sure enough, the small-cap benchmark Russell 2000 Index jumped 3% on the day. Comerica Wealth Management chief investment officer John Lynch pointed out several benefits from lower rates: - “Reduced borrowing costs can help personal spending, as consumer stocks have lagged the S&P 500 this year. Lower rates can also aid debt service payments for the federal budget deficit. And finally, the equity market can benefit from lower discount rates for future profits, helping to support P/E multiples going forward,” Lynch said. Comerica Wealth Management chief investment officer John Lynch (Photo: Yahoo Finance) In the last few months, Big Tech companies dominated the market. Things could change from now on. Even though the Russell 2000 soared on the day, the Nasdaq actually finished the day in red. This may indicate that investors are ready to rotate out from tech stocks and into other sectors. At the same time, John Lynch warned that if the Federal Reserve rushes to cut interest rates, it could be bad news. A sense of urgency means the economy is struggling. That’s not what Wall Street wants to see. Not all rate cuts are positive. So, it will be important to monitor the pace of rate cuts to determine whether it is healthy or not. - “If the Fed cuts much beyond that, it will be because the Fed has to cut! That is not an environment conducive for economic or market growth,” said Lynch. Top Stock To Seize Interest Rate Cuts Today’s Stock Pick: The AZEK Company (AZEK) You’ve read the bulletin above. The Federal Reserve looks poised to start cutting interest rates. As an investor, you might be thinking… “How can I seize an opportunity that might present itself when the Federal Reserve starts to cut rates?” The AZEK Company is one of them. This company is the competitor of another stock that we’ve recommended in the past — TREX. AZEK is a manufacturer of wood-alternative composite decking, railing and others. Basically, the company transforms disposed plastics into beautiful deckings that would be the envy of neighbors. (Source: The AZEK Company) It is not a “charity” product, though. It is good for the environment, but there are massive economic benefits from using composite materials. You’ve seen wooden decks. They become old quickly and prone to splinters. They require seasonal maintenance such as sanding, sealing, staining and painting. (Source: The AZEK Company) With composite, there is low maintenance. The beauty lasts long. The company even offers 25-to-50 Fade & Stain warranty! The deal is simply no-brainer. (Source: The AZEK Company) Composite decking is still early in the game. Wood remains the largest market leader, but it is losing share to composite. Right now, wood owns about 35% to 75% of the core market. AZEK believes that the composite market could grow from 23.2% in 2022 to ~50% in the next 10-15 years. (Source: The AZEK Company) AZEK is a good stock to bet on the growing market. It is the leader in premium decking on the market. It has arguably the most “realistic visuals of premium woods” compared to other competitors. It also offers home exteriors, such as trim boards, moulding, cladding, and shingle siding. (Source: The AZEK Company) Its composite decking business (TimberTech) is #2 for most-used and brand familiarity. Home exteriors is #1 for brand familiarity and #2 for most-used brand for exterior trim. Both makes AZEK the industry leader in outdoor living. (Source: The AZEK Company) What’s more, architects voted outdoor living spaces the most popular project (AIA Survey). Decking projects are #1 in outdoor upgrades category (Houzz Survey). This shows that AZEK is operating in markets with strong tailwinds. What about financials? AZEK has a solid track record of revenue growth. Its net sales grew 16% CAGR from FY17 to FY23 in the residential segment. Its adjusted EBITDA margins expanded from 20.7% in 2017 to an estimated of ~26.1% in FY24. (Source: The AZEK Company) All in all, AZEK expects to post an annual sales growth of ~9-11% over the long-term. Any bolt-on M&A could be the icing on the cake. It also expects to expand margins by 100bps per year. (Source: The AZEK Company) Bottom line: The AZEK Company enjoys the advantage of playing in a growing market of composite decking. Lower interest rates could spark demand for outdoor living spaces, and the company is poised to benefit from it. This is a good business to hold for multiple years. [EARN WHILE YOU LEARN! JOIN OUR FREE LIVE TRADING SESSION!](       © All Rights Reserved, Trade Alliance [Unsubscribe]( | [Manage Preferences](