Why These 3 Stocks Are Set to Gain From a Bond Market Shift

Key Points

• The new path for the United States economy will be made more explicit by how bonds are performing currently.
• Changing yields will bring a few stocks and industries into favor, where today's list comes into play.
• Wall Street analysts and institutional buyers agree with this.

The days of individual price action in the financial market are long gone, as one asset class like stocks, bonds, or commodities used to move independently without much pressure from others. However, the past few decades have changed all that, especially as more participants join the stock market and data becomes available nearly instantly in the palm of investors’ hands.

Knowing this, investors need to pay attention to different price actions in asset classes to determine where the next wave of volatility (and opportunity) might be. That is precisely why the current decline in bond prices, with an inverse rise in bond yields, can signal to investors what other asset classes or specific stocks might do in the coming months, if not quarters.

To follow this theme, investors can look to the iShares 20+ Year Treasury Bond ETF NASDAQ: TLT, which was made to track the price action in the overall long-term treasury bond market. The implications of a potential bottoming in the ETF, particularly around the $87 a share mark, will be made clear for technology stocks like Intel Co. NASDAQ: INTC or energy stocks like Occidental Petroleum Co. NYSE: OXY, but especially for discounted shares of Celsius Holdings Inc. NASDAQ: CELH.

Why Bonds Could Rally Soon

Simply put, their yields go on an uptrend when bond prices come down. This usually means that the market is calling for—or at least expecting—inflation scenarios to resurge in the broader United States economy. However, the price action in domestic markets like the iShares Russell 2000 ETF NYSEARCA: IWM or the SPDR S&P Regional Banking ETF NYSEARCA: KRE would show otherwise.

This price action would mean that bonds might be wrong in their high yield assumptions, so their prices would have to bottom out soon and adjust their yields by having a bull run in the coming months. With this rally and lower bond yields, the stocks in today’s list will make a lot of sense for investors to keep in their portfolios.

The Bottom Case in Intel Stock

Now that Intel trades at a low of 40% of its 52-week high, there are reasons to believe that lower yields and interest rates could make this stock a potential buy today. This is especially the case as the government is granting Intel most of its budget under the CHIPS and Science Act, meaning that Intel might lead the domestic production of semiconductors.

That's why Wall Street analysts now have a consensus price target of $30 a share on the stock, calling for as much as 50% upside from where it trades today. Bonds are sending the message that inflation may not be the outcome here and that an easier financing environment might be the reality instead.

No wonder those at State Street decided to boost their Intel stock holdings by 2.8% as of November 2024, bringing their net positions to a high of $4.6 billion or 4.6% ownership in the company. This is a bullish sign for investors to consider having Intel stock in their own portfolios.

Celsius Stock Needs a Boost

After falling in price with PepsiCo Inc. NASDAQ: PEP and Coca-Cola Co. NYSE: KO, shares of Celsius traded as low as 26% of their 52-week high. However, lower bond yields will have two implications for the company’s user base.

First, if inflation is not actually an issue, then people can spend more freely on discretionary items like energy drinks. Second, lower credit card rates will only act as another tailwind in this broader theme. With this in mind, investors won’t see the $50.3 a share price target currently placed on Celsius stock.

To achieve this, a net rally of up to 91% from today’s prices is needed, making Celsius stock one of the best risk-to-reward ratios in the industry.

Warren Buffett: Right Again With Occidental Petroleum

Lower bond yields bring more business activity and trade, as financing rates and liquidity become more abundant. This might explain why Warren Buffett chose to buy up to 29% of Occidental Petroleum, knowing that energy stocks tend to do well in this type of environment.

But Buffett wasn’t the only one willing to express his bullish outlook on the company. Analysts from Mizuho now see the stock trading as high as $70 a share through their December 2024 price targets, which call for a net upside of as much as 42% from where the stock trades today.

More than Buffett being a bull, there is the net $2.9 billion of institutional capital that made its way into Occidental Petroleum stock over the past 12 months, showing investors another optimistic gauge to consider for this stock in the coming months and quarters.