Stocks Reach New All-Time Highs
It’s been an incredible few weeks for stock market investors.
A few weeks ago, the stock market dipped based on concerns the Fed would raise interest rates.
But the sell-off seems more like a hiccup.
Interest rate worries are in the rearview mirror.
And the stock market is hitting all-time highs.
Last week, the S&P 500 crossed 7,800 for the first time ever.
What’s the reason for the market’s rally?
Following the crash at the end of July, more economic data was released.
In particular, a bad jobs report showed our economy losing about 23,000 jobs last month.
Wage growth also fell to just 3.2%, which is its lowest level in over 5 years.
On the surface, it sounds really bad for stocks.
But digging in further shows why the stock market rallied so much.
First, weak jobs data means the Fed can’t raise interest rates.
If the economy is slowing down, raising rates will make it worse.
Second, declining wage growth means companies’ labor costs aren’t rising as fast.
It means more profit for companies if they don’t need to give large raises to retain workers.
Now, if the bad jobs report is a sign of things to come, then stocks will suffer.
If nobody has a job, then these companies can’t make any money!
However, as long as we don’t enter a recession, the stock market will continue to chug along.
These are the stocks on my radar right now.
First up is the AI darling Nvidia (ticker: NVDA).
Nvidia designs semiconductor chips used to power gaming and AI data centers.
Today, Nvidia’s chips are considered the gold standard for AI development and are sold at a premium.
Interest rates staying stable or declining will help Nvidia by lowering borrowing costs for AI developers.
Plus, Nvidia’s profitability is already off the charts.
Its profit margin of 63% is one of the highest in the semiconductor industry, let alone the entire stock market.
Nvidia’s price-to-earnings (P/E) ratio of 35x might seem high, but it’s near a 5-year low for the company.
Labcorp Holdings (ticker: LH) is not an exciting name, but the company is a profit machine.
Labcorp is an independent medical lab with over 2,000 locations spread across the US.
Its locations provide various medical lab work ranging from strep tests to cancer screenings.
With all of its locations, Labcorp employs over 70,000 people, so lower wage growth will keep its salary expense in check.
Labcorp’s profit margin of 7% isn’t nearly as high as Nvidia’s, but it’s one of the highest among independent labs.
Plus, Labcorp’s forward P/E ratio of 17x (which uses next year's expected income) is much lower than other labs’ ratios.
Last up is Ollie’s Bargain Outlet Holdings Inc (ticker: OLLI), which is a discount retailer selling home goods, appliances, and even food.
If wage growth continues to slow, consumers are going to be shopping for deals.
And the biggest sale right now at Ollie’s is probably its stock price.
Its current P/E ratio is only 19x, which is the lowest it’s been in over a decade.
Retailers aren’t known for high margins, but Ollie’s is an exception.
Last year, Ollie’s profit margin was over 9%, which is more than 4x higher than the retail average.
New all-time highs in the stock market are exciting for investors.
What stocks are you looking at right now?
Coach Parker
Category: Stocks
