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Post-Election Rally Stalls, But These 3 Stocks Can Keep Going

Photo of a pile of American voting pins.Right after the United States presidential election, markets seemed pleased with the results and the potential new policy paths that might develop in the coming years. What might eventually be termed the “everything rally” the days after the election, when virtually every asset class saw bullish price action, is starting to cool off. However, the footprints are still there, as investors can deduce enough from the sectors and stocks that did best during that period.

It seems that the manufacturing sector, particularly the U.S. basic materials sector, is poised to outperform the market in the coming years. More than that, it appears that some of Wall Street’s best are starting to shift their capital into the energy sector and international technology stocks with high margins.

Investors could benefit from analyzing the strategic moves surrounding Caterpillar Inc. (NYSE: CAT), Exxon Mobil Co. (NYSE: XOM), and Adobe Inc. (NASDAQ: ADBE)—here's why. 

Caterpillar: Primed for Double-Digit Gains in the Next Quarters

Even after delivering a rally of up to 54.7% during the past 12 months—an impressive feat considering this is a $187 billion behemoth—Wall Street analysts still think another double-digit rally is possible Caterpillar as the economic tide shifts.

The new direction seems to call for a weaker dollar, which would help boost employment figures in the manufacturing sector. According to the manufacturing PMI index, the sector has been contracting for over 24 months now. A weaker currency would incentivize foreign buyers, who would then have a relatively stronger currency, to buy American exports.

If that were to happen, corporate earnings in the space would benefit, but not all companies would be treated equally. A weaker dollar also means potentially weaker consumer cycles in the United States, so manufacturing companies with international exposure, such as Caterpillar, are poised to do well.

JPMorgan Chase and Truist Financial would agree, as they have recently called for $500 and $456 share price targets, respectively, on Caterpillar stock. To prove each of these rights, the stock would have to pull off a rally as big as 30.2% from where it trades today, confirming this potentially weaker dollar narrative.

Exxon Mobil: Why Warren Buffett Believes in Oil

With the implications of a better Caterpillar stock and manufacturing sector comes the implication of inflation, as the dollar needs to decline to make this happen. Just like any other dollar-quoted commodity, oil prices could be set to rally as the dollar falls.

This is why Buffett bought up to 29% of Occidental Petroleum Co. (NYSE: OXY). However, there is a more scalable way to invest and ride the wave of the energy sector through a more significant player like Exxon Mobil.

The stock has delivered a rally 16.5% over the past 12 months. However, Exxon's scale may limit the potential for another similar rally, much like Caterpillar. Jefferies Financial Group recently reiterated their Buy rating on Exxon Mobil stock, this time placing a price target of $145 a share.

This new view implies that the stock needs to rally by up to 21.5% from where it trades today, not to mention a new high for the year. Of course, the primary catalyst for this one to pay off is a lower dollar, which is almost a given considering the way Buffett is betting today and how analysts are boosting the stocks that do well on a weaker dollar.

Then there’s the institutional buying side of things, where Geode Capital Management recently boosted their holdings in Exxon Mobil by 1.8%, netting their position to a high of $10.8 billion today, or 2% ownership in the company.

Adobe: Why High-Margin Tech Stocks Will Dominate This Market Cycle

Stanely Druckenmiller has recently shuffled his portfolio around a bit. In a recent Bloomberg interview, he stated that he's going to short bonds in anticipation of high inflation. Remember, this also means a weaker dollar ahead, giving more momentum to the previous stocks in this list.

Druckenmiller has now focused his portfolio on high-margin technology stocks in the United States. However, due to the size of his fund, he can only buy into the biggest ones. But retail investors can ride this theme with more flexibility on the size of the companies they choose to buy, and this is where Adobe stock comes into play.

Adobe's transition to a subscription-based business model has significantly enhanced the stability and predictability of its financial performance. This approach provides consistent revenue streams, which is particularly advantageous in uncertain market conditions. With a gross margin of up to 88.7%, Adobe's management can reinvest more capital into further growth, creating a compound effect in its valuation.

It shouldn't come as a surprise for investors to see analysts at Bank of America raise their price targets to $640 a share for Adobe stock. They call for a rally as big as 27.1% from where it trades today, which is not too far away from a new 52-week high for the stock as well.

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Photography by Christophe Tomatis
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