3 Essential Stocks to Own During Market Rotation

Key Points

• A few investors may have gotten wind of the market's new rotation from the high-profile tech names and into other asset classes.
• Three stocks, each with financial and fundamental backing, make the list to give investors a look inside the market's outlook and favor the rotation.
• Wall Street analysts agree these stocks could be great additions to those looking to diversify from the rotation play.

While the majority of investors are still caught up in the technology sector’s rise, with stocks exposed to the artificial intelligence trend having the best price action, like Nvidia Co. NASDAQ: NVDA, there are some cracks in the foundation that others have started to pay attention to. The so-called rotation is approaching the market, with Wall Street personas like Stanley Druckenmiller (who traded shoulder-to-shoulder with George Soros) making the first move.

Druckenmiller sold out of Nvidia and reallocated his profits into two different asset classes, like small-cap stocks and bonds. The rotation is spreading widely now that Nvidia and others in the technology space, like Amazon.com Inc. NASDAQ: AMZN, have sold off sharply from their recent all-time highs. While not all money may follow Druckenmiller’s plan, some stocks warrant investor attention today.

Names like SoFi Technologies Inc. NASDAQ: SOFI, CleanSpark Inc. NASDAQ: CLSK, and even Waste Management Inc. NYSE: WM are on this list. Each of these stocks has its own set of fundamental reasons for why it might be a good buy, and these dug up enough evidence for Wall Street to justify new rallies in each of them, something investors would benefit from watching.

Why SoFi Technologies Stock Is Set to Shine in the New Market Rotation

The premise of this rotation is based on one belief: the Federal Reserve (the Fed) is now promising to cut interest rates before the end of the year. According to the CME’s FedWatch tool, these cuts might be here as soon as September 2024, but that’s only the beginning.

What comes next is the potential new wave of consumer demand, which includes mortgages (as mortgage rates are attached to national rates). Cheaper mortgages will let all the would-be homebuyers on the sidelines right now come back into the game and sweep up some new properties that increased U.S. home listings.

Now that the stock trades at only 64% of its 52-week high level, it has become a target for some in the market. This is especially so when investors consider that Wall Street analysts now forecast up to 200% earnings per share (EPS) growth in the next 12 months.

Driven by these EPS projections, analysts at Deutsche Bank saw fit to place (and keep) a price target of up to $11 a share for SoFi stock, daring it to rally by 47.2% from where it trades today. With a short interest of 18.5% today, an uptick in SoFi stock could also trigger a potential short squeeze and bring the stock to a new 52-week high.

CleanSpark Stock Set to Rally with Risk-On Market Attitude

Lower interest rates also bring a change in market sentiment, what’s termed a “risk-on” attitude. This means that riskier assets, like cryptocurrencies, will see an inflow of capital (as they did during 2020-2022) to bring their prices higher.

Investing in cryptocurrency could be risky, but there are other ways to do it, and that’s where CleanSpark stock comes into play. As the company now holds up to 6,591 Bitcoins in its balance sheet, this asset holding would translate to a dollar value of $440.9 million today. It is subject to keep rising if and when the market’s new attitude sparks another rally in Bitcoin.

That’s one reason Cantor Fitzgerald analysts boosted their price targets to $28 a share, implying that CleanSpark stock now has up to 57.3% upside from its current price.

More than that, there has been some institutional adoption in the past quarter. The Vanguard Group (CleanSpark’s largest shareholder) just boosted its positions in the stock by 58.5%, bringing its net investment in the company up to $270.5 million today.

Waste Management Stock: Price Momentum is Just the Beginning

Oddly, this stock is not part of the risk-on trade, but it is worth mentioning from a macro perspective. Investors should know that lower interest rates typically come with a weaker dollar, which makes American exports more attractive to foreign nations whose currencies go a long way.

Because Waste Management is the U.S.’s seventh largest exporter on a twenty-foot equivalent unit (TEU) basis, it is a safe stock to keep around a portfolio looking to reduce exposure to this rotation. Investors can start with the company’s financials to pinpoint the reasons why.

With gross margins of over 38%, Waste Management can keep more capital from each sale made. This enables management to reinvest in the business to create compounding effects. Speaking of compounding, this capital generates a return on invested capital (ROIC) rate of up to 14%.

Knowing that the trends favoring Waste Management are as true today as they will be on a potentially weaker dollar, markets had no problem bidding up the stock to reach a new all-time high recently, and it is just this type of momentum that investors should require from their portfolios.