Investors anticipate a central-bank-inspired rally this summer…3 Stocks for the Summer of Yellen

How can you profit in a risk-on environment?

The market is afraid of it’s own shadow, but Janet Yellen promises to take away the fear.

No fear means risk-on, and risk-on means stocks are poised to rally in the near term.

Heading into summer it seemed crystal clear that the central bank would increase interest rates. Strong economic data, calm financial markets and a global recovery paved the way for normalization.

It was a near slam dunk that a rate hike would come in June—or July at the latest.

Then Janet Yellen spoke.

In her last communication with the market before the next central bank meeting, Yellen gave a particularly rote speech reiterating many of the same topics espoused previously.

The Federal Reserve is entirely data dependent in determining interest-rate policy.

Sounds good on the surface, but there was a telling moment during the Q&A session after Yellen’s speech…

Isn’t the central bank concerned about the impact of a Donald Trump presidency?3 Stocks for the Summer of Yellen

The moment triggered a light-hearted reply by Yellen that tells you all you need to know about policy over the coming months.

Think about it. There’s no way Yellen will risk derailing the economy before the election. A Trump presidency will dramatically change the role of the central bank.

More importantly, as a woman breaking the glass ceiling in finance, Yellen is clearly biased toward the Democratic candidate for the White House.

Make no mistake, the central bank, despite efforts to the contrary, can be just as political as any other institution. Yellen will do everything in her power to prevent Trump from winning the election.

Investors can anticipate a central-bank-inspired rally this summer—the Summer of Yellen.

Here are 3 stocks to buy in a risk-on environment:

Freeport McMoRan (NYSE:FCX)

Inflation will be good for material stocks like Freeport. Gold prices will soar. So too will copper prices, as the global recovery takes hold.

It appears that economic activity in China is accelerating, or at least it hit a bottom earlier this year. In late April shares of Freeport hit $14 per share.3 Stocks for the Summer of Yellen

During the Summer of Yellen, you could exceed that by 10% or more.

If so, gains from current prices, including a 10% rally in shares on Wednesday, Freeport is an excellent stock for near-term earnings.

KB Home (NYSE:KBH)

Yellen is data dependent.

Yeah, right.

The data tells us and has told us that rates are on the rise. The long end of the yield curve knows what’s coming. That’s why we see the curve flattening over the last few months.

That flattening is great for the homebuilding sector. Mortgage rates are still incredibly low. Supply is tight, and home prices are rising.3 Stocks for the Summer of Yellen

Not so much for shares of homebuilder stocks.

KB Home trades for a low valuation relative to expected profit growth. The real kicker: the stock trades for less than book value. Historically, that equates to a great buying opportunity.

During the summer of Yellen, that’s particularly true.

Delta Airlines (NYSE:DAL)

When it comes to risk-on market trading, the best returns come from the best bargains.

The airline sector sold off hard in the last few months over concerns of fickle consumers and higher fuel prices. Terror attacks don’t help matters.3 Stocks for the Summer of Yellen

Still, these valuations are attractive, and in July these airline stocks will likely jump with the release of operating results. Numbers will likely be better than expected given tight capacity and full planes.

Pricing remains firm for airlines with little threat of government complaints over fuel surcharges that keep prices high.

During the Summer of Yellen, you can make a quick buck or two owning Delta.

Your portfolio will survive, no matter what happens over the next few weeks. Just remember to look for great bargains and buying opportunities.

It’s a risk-on market, and there are profits to be had.

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