3 Stocks Set to Explode After the Midterm Elections

Summer may be starting, but the midterm elections are now just months away. And these three stocks could have some huge potential before November. Joining us now is Marketbeat analyst Chris Marage. He will share that list of three stocks in three different sectors that are down right now with really interesting entry points and an interesting story about how the midterm elections and the economic uh geopolitical factors could influence the growth that these stocks could see down the road. So Chris, let's just get started out with a look at why midterm elections can impact the market and how they typically impact the market in other years. >> So typically in the 9 months or the 12 months prior to a midterm election, the S&P 500 has done a whole lot of nothing. It's basically averaged about maybe like 3% and that's going back to 1980. This year the S&P 500 is doing a lot better than that. It's up about 8% for the year. And there's a lot of reasons for that. It's the AI boom that's continuing to go on. There's uh there's obviously the energy stocks that have gone up since the conflict with Iran started and other reasons why that's happened. But the key thing to note is that in the 12 months after the midterms are concluded, the S&P 500 has averaged a growth of over 16%. That suggests that 2027 could be a very strong year. But there's even one data point I want to go to beyond that, Bridget, and that's looking at small and midcap stocks. So, small and midcap stocks have outperformed by 83% in that time. So, five times the growth of the a the S&P in that time. And that's something for investors to think about. The reason for that, or at least one of the reasons for that, is once the midterms are over, no matter which way they go, it removes an uncertainty that's hanging over the market about what's going to happen, which party is going to have control of Congress heading into the general election just another two years from now. So once you remove that uncertainty, which investors hate, it generally is fuel for the stock market no matter what the outcome of the election is. Yeah, it's always so good to look back at history to see what has happened in the past during these election cycles in the market because so often they do repeat themselves, but you already hinted to it. Things are not typical this year. We have already seen that that typical S&P 500 slowdown. Uh that pattern is very different right now and like you said, it has to do with AI, but there's so many uh anomalies happening right now. We have the AI uh momentum in investment, tons of money flooding into the market for that right now. We have a conflict going on in the Middle East. We have a new Fed chair that just came on and there's all these things in the air about what could happen with rate cuts and things like that. So, a lot of anomalies. Do you think that that could mean that this typical midterm election pattern could change or do you still think that that idea of looking at small to midcap stocks now is a good investment strategy for paying off after those November midterms come? I think it is a good strategy and I have a specific reason for that. And to set that up, Bridget, I want to talk about right now the S&P 500, the average of the S&P 500 is is trading at roughly 27 times earnings. That's elevated. Maybe not by historic factors, but it's elevated. Stocks are expensive no matter how you look at it. But you've got a lot of very well-run companies that are trading at five times earnings, nine times earnings, 11 times earnings, and they're just not getting any attention from the market. And there's a couple of reasons for that. Obviously, one reason for it is investors are leaning into AI still and they're also leaning now into energy. But there's a whole lot of opportunities that are being missed. One of the reasons is a catalyst that I think a lot that might be contrarian to some investors, but I think it's hiding kind of in plain sight if they're willing to look at it. The thing I'm watching closely for though is a contrarian indicator with the Fed that if investors will just be patient with me for a little bit, I'll explain my reasoning behind it and why I think it can be a catalyst for the three stocks that we're going to be talking about. and that is I believe the next rate cut decision by the Fed is going to be a cut. And I want to be upfront with you, Bridget. I know that's a contrarian opinion with what a lot of people have been saying over the past, especially over the past week. But here's three reasons why I believe that's going to be the case. The first one is the federal government has $9.7 trillion that they have to refinance before the end of the year. That's a real number. It's a big number. It's a number that none of us can comprehend. I think investors need to understand. If you were to refinance that just at the current rates, that's that's a lot of money. But so it's going to even be more expensive if the Fed goes to raise interest rates. So I think even a quarter point rate increase is off the table at the very least until after the midterms are over. I can't even fathom them doing that. So that's one reason why I think I don't think you have to believe the Fed will cut. I think you just have to believe that the math wins. And I think in this case, the Treasury doesn't want them to to raise rates. And I don't think they will raise rates because the Fed has to refinance this debt at at least the rates there are. Now, the second reason, this is a little bit more semantic, but Kevin Worsh isn't a stupid guy, and he's kind of given himself a little bit of an escape hatch that has nothing to do with what the president may say or tweet or do anything about even before his nomination. And that's important to note. This was before he was nominated. He's talked publicly about the fact that he believes AI in the long term is has is going to have a deflationary impact on the economy because of what it's doing with productivity. So if that's the case, it sets him up to give him an intellectual argument for rate cuts that have nothing to do with any person's desire for rate cuts. He's already kind of set up an intellectual case for making that. Now, people will say wholesale prices are up, the Iran conflicts driving energy stocks up. Worsh himself has made no promises of rate cuts. All of that's true, but again, he's given himself kind of this intellectual framing to say, I can cut rates because he believes that AI is going to be deflationary, and you want to get ahead of that. Because if there's one thing that the Fed hates more than inflation, it's deflation. Okay, third one. I'll try to make this quick, Bridget. The consumer at that lower leg of the K is breaking. And politicians are starting to feel that. The University of Michigan sentiment numbers have been terrible. Now granted, that's a small sample size of consumers and some people say there's a bias in that. It doesn't really matter. I think again, Bridget, you don't you just have to use your eyes and you just have to say, "Look around. What's going on?" That lower leg of the K is breaking. They're under a lot of pressure. Politicians know that. And in a midterm year, that's really not a good idea to raise interest rates on them and put more paint on them. So, I think again there's political there's economic pressure to at the very least hold rates where they are, but I certainly think it's more of an argument to say you're going to see a cut and you're going to see it probably sooner than later. >> That's a big contrarian argument. Again, very different than what we're hearing from other analysts who are out there talking on all of the finance shows right now. But, thanks for sharing your take on that. And I know with the list that you have for us today, we are getting to this list now. the Fed rate cut thesis does play a role in these three names that you're talking about as well as the midterm election. So, all three of these are names that could benefit from both uh both events that could happen later on this year. And right now, all three of these are at pretty good entry points. So, we're going to talk about three stocks in three different sectors. Chris, let's get started with that first one. >> Okay, so the first name I have on the list, Bridget, is Zion's Bank Corporation. Uh ticker symbol is Zion, Zio N. Now, this is going to be more of a yield curve story, which I know it can kind of get in the weeds for some investors, but let's set the table here. Stock is only up about 3 1/2% for this year. It's down about 3.4% in the last month. So, it's basically not doing a whole lot. But here's the attractive part about it. It's trading at a PE ratio of around 9 times earnings as we talk about this. So, that's really consistent also with what its forward PE is, is about 9.4. Regional banks as Zion is tend to do well with rate cuts. But the reason behind that is because usually when you have rate cuts, you see the short end of the yield curve, which is the shorter the 2-year Treasury rate, let's say, it starts to dip lower than where the higher end is in the 10-year. However steep that curve is, the steeper it gets, the better it is for regional banks like Zion. That's why I'm putting them on this list. They need a steeper yield curve where short terms fall, longer rates get elevated. It's a profitable, it's a growing bank. It's trading at a singledigit multiple. This is the time, the sector itself, regional banks, is kind of out of favor right now. This would be a good time to get in on a stock like Zion before something would happen with a rate cut and certainly before the midterms. Yeah, I want to talk about both of those factors here. So, if your thesis isn't quite right and we don't get that rate cut, but instead either get nothing or even a rate hike, how would that impact not only Zion, but this whole regional bank financial sector? And the same thing with the midterms. How are the midterms tied to the financial sector and specifically this kind of small to midcap finance stock? >> Yeah. So I think with something like Zion, Zion's in in that in that sweet spot where they don't need a rate cut, they're doing fine without it, but a rate cut sort of is the rocket fuel that is that can that can really propel the stock higher. So without a rate cut and just heading into the midterms, I think they're going to be just fine. And they're probably again there is it's a sector that's out of favor because I think there's a lot of uncertainty just in terms of what direction rates are going to go. Once that direction is settled, even if that rate even if that direction is for higher interest rates, I think a a bank like Zion benefits because they're not one of those um financially stressed regional banks that absolutely do not want a rate hike at this point. they're okay no matter what happens. >> Yeah, this one has some pretty uh bullish analysts, too, who are at least showing some upside ahead for this stock in the year ahead. It's also a pretty good favorite of institutions for a stock of this size to have roughly 75% institutional ownership. It shows there's enough big players in the market who are interested in this name. So, it's an interesting one to look at. I also think there's a good argument to be made here about that certainty factor that the market just wants some certainty and that's also why I think we see uh a lot of investors, a lot of people moving their money around a little bit and then gold story is starting to resurface again. If you're interested in that part of the market at all, make sure to check out our 2026 gold special report. There are a lot of interesting names in here and this is a place where investors tend to turn whenever there is that uncertainty in the market and a midterm election year could be one of them. So scan the QR code or click the link in the description to get that free report right now on marketbeat.com. All right, Chris, let's move on to that second stock in a whole new sector that you were talking about today. >> Yeah. So, let's talk about retail. Um, and let's get away from the big names like Walmart and and uh Target and even TJX. We're talking about Bath & Body Works. BBWI is the is the ticker symbol. This is the brand that everyone shops at and it's trading like a stock that's going bankrupt. And that alone is reasons why investors might want to keep this on their radar. Stocks trading right now currently at a P of about five times earnings. That's 50% below its own 10-year historical average. And obviously five times earnings is well below where the S&P 500 is at 27 times. Now, why do I think that Beth Bath and Body Works is a good buy regardless of what happens with interest rates? Company's still generating massive free cash flow. It's returning capital even before that free cash flow. It's returning capital to investors through dividends and buybacks. Combined yield between dividends and buybacks in 2025 was around 12%. It just launched on Amazon in February of this year. So, they're meeting customers where the customers tend to shop. They've got a new CEO. They're focused on the brand and its Blockbuster core products. You know, we're talking about fragrances and the candles and the soaps and all that stuff. I have two daughters that love Bath and Body Works and I know a lot about this company. So, where does the rate cuts fit in? Again, we're talking about that lower leg of the Kay economy. Um, this is this is where they're they may be inclined to shop right now. It's where they may be even more inclined to shop if the economy gets better. If consumers start feeling a little bit less pressure and they may want to say, "We're going to stretch and we're going to do more discretionary purchases at a place like Bath & Body Works." >> Yeah, I love that you say you know this company well. I I think the only thing I still buy there is the hand soap. Got to love the foaming hand soap at Bath & Body Works. But I think anecdotally talking about the success of this company, you said everybody shops there. It's always one of the busiest stores at the mall in our area anyway. There's there's usually always people in there. I think the other factor that's interesting is the Amazon factor that they are now online where the consumer is. So, this is all good good things for Bath & Body Works. Also, looking at their earnings report recently, that also seems like good news for this company. >> Yeah, and it certainly wasn't bad news for the company. You know, I'm not going to sit there and and tell investors that they had some sort of blowout quarter. Um, the earnings came in above expectations. They were a little lighter year-over-year, but they were still they were still very solid and and revenue held on. And so, you would look and say from 2025 to 2026, you would be thinking that there was going to be a steeper drop off in revenue, and they really didn't have one. Revenue basically came in flat. Bath & Body Works has their earnings report coming up on May 27th, so it's a week from Wednesday. good time to be thinking about looking into that earnings report if you're thinking about maybe getting in on this stock. >> Yeah. One more thing before we move on is simply just looking at why this is trading so low. I think you you had it pretty right when you said it looks like a a stock that's going into bankruptcy when you look at re retail stocks that have a chart that's this this ugly usually means some bad news. Why do you think that it's trading like this right now? And do you think that there really is upside potential for getting in now ahead of earnings next week, of course, but even further down the road as we're looking towards November? >> Yeah. Well, analysts certainly think so. So, you've got a stock that's trading around $16 now. They're looking at about 30% upside from where it's at right now. I think Bridget, it's interesting because I think there's there's two reasons. One is I think Bath & Body Works is playing in a sector that still is largely out of favor with a lot of investors. I think that's it. And I think the other one I would go back to saying it's sort of the contrarian play that supports my thesis about a rate cut is there's a lot of investors that will try to pretend that everything's humming along with the economy, but they're going to avoid a a stock like Bath & Body Works because they're thinking that there's going to be pressure on the consumer. So, you kind of can't have it either way. If you think the economy is going to be humming along, then there should be no reason why the stock is down. I think the reason why this stock is down is because I think there's a lot of people that don't necessarily believe that all areas of the economy are humming along. >> I think there are plenty of people who are feeling that way right now. I think I might be one of them at some points just given the state of grocery shopping and things like that uh when you go out or or filling your gas right now. But I do think that you make an interesting argument for the growth ahead for this one. Especially looking at the data. It will be interesting to see what that earnings report does show for Bath and Body Works next week. But this is a name I want to add to my Bridget Spies paper trading watch list. If you watch our show, you've seen me talk about this before. I like to pick about one stock for every video that we talk about to add to this watch list and see how it moves over time. I have not had this name on my radar at all. I don't have many consumer names on that list either. So, I'm excited to add this one and see how it does and also helped to track kind of what's happening in that retail consumer sector, too. So, if you haven't visited Bridget Spies watch list yet, scan the QR code or just go to marketbeat.com/bid to take a look at some of the names of the stocks that we talk about on our YouTube channel. All right, Chris, let's get to that third and final stock that you have for us today. Again, a whole new sector to talk about. >> Yeah, so I'm talking about PY Group. Uh, ticker symbol is PHM. This is in the housing market. Now, I'll be upfront. PY is not a small cap. It's not a midcap. This is a large cap stock. But the reason why I wanted to bring it in is because it really does fit the overall premise of my article is stocks that are going to benefit heading into the midterm, especially if there is a rate cut. And that's where PY Group comes in. Now, let's back away a little bit here, Bridget, and start talking about the conversation as I've done with the other two stocks. What if nothing happens to rates? What if rates actually go up? So, basically, what if I'm wrong? There's still a good reason to buy PY Group just basically based on the fundamentals. It's trading at around 11 times earnings. It's trading down near 52- week lows. This week, we're supposed to be getting information about housing. You know, spoiler alert, it's not supposed to look good. In fact, it's supposed to be saying a lot of the same things about housing starts, about home builders. It's it's it's probably not going to be a good week for housing stocks. But the thing that investors have to remember is that the market is is forward-looking. And Evercore declared that homebuilder stocks hit a historic buy signal when the median small cap builder trades below.8 times book value. And PY Group is doing that. And they're not even a small cap, they're a large cap. The other thing to remember is that PY Group invested $5.2 billion in land in 2025. That's a big investment. Obviously, it's it's something that investors are going to notice because that's something that's an expense that happened during a year when they weren't generating very much earnings. That's a that's a hit. But what they're doing with that investment is they're growing their network of Delaware web active adult community. So, we're talking about communities for active seniors. And we all we've talked about this in the channel before and I know you've had other guests that have done the same. This is the play on the aging of America. It's just the play on the idea that there's not enough of this housing in our in our nation right now. It's going to be coming in high demand, especially as the boomers are starting to retire. Pte Group is on the leading edge of that. The other area is they're building build to order homes instead of building speck homes. And the idea there is they can get a better margin on the build to order homes than they can on the speck homes. And one thing just backing up real quickly on those on those active senior living homes, that's the company's highest margin product right now as you might expect because it's tapping into the to to consumers who are, let's just say, firmly on the upper leg of that K. >> Interesting. I really like some of the indicators you shared about what this says for the housing market to see where this stock is trading today. So that's important for investors to pay attention to kind of for this whole sector. uh you shared what would happen if rates don't change or if they even go up. Talk about what would happen if your thesis is right and rates actually do go down at some point this year. What would that mean for this stock and other homebuilders? >> This is fairly simple. And again, this isn't math that's coming from my head. This is math that's out there from analysts. Conventional wisdom is for every 50 basis points that mortgage rates drop, it's going to unlock a wave of buyers who have been sitting on the sidelines. And right now, those are people who can afford they they they want to buy. They can't afford the monthly payments because the math doesn't work right now, but the math may work better if those rates come down by a quarter percent, a half a percent. And PY Group is positioning themselves obviously because of these made to order homes. They're ready for that demand should it come. And again, you're you're talking about stock that's trading at a discount to the S&P 500. It's trading at a discount to the home builder sector. It's just a stock that seems to be in prime position to capture that demand. >> It's absolutely trading down closer to its 52- week low than the high. So, that's an interesting thing for investors to pay attention to. But, I also think what you mentioned that there could be some not so great housing news coming up later on this week. That could negatively impact the stock. So, this might not be the lowest it gets. But, is it something that you can watch and track that price to maybe get in at a lower point before a turnaround could be coming later this year, closer to that midterm election? Absolutely. And we just had a guest on the show on Friday who shared a really great strategy for uh options to say this is the price I want to get in at on this stock if it falls to this level and actually get paid to do it. If you want to hear a great explanation of that strategy and also three other contrarian stocks that are on a low right now that he suggested buying, make sure to watch that full interview with Jeff Clark right here. It's a really interesting option strategy. and take a left.