Slowly but surely, it appears that inflation is starting to cool off, and the Federal Reserve will be able to start cutting its benchmark interest rate.
Last week, the monthly employment report hinted at a gradual deceleration in the economy. Specifically, the unemployment rate ticked up to 4.0% for May. That ended a 27-month streak of the U.S. unemployment rate remaining below 4%.
While unemployment is hardly a crisis at current levels, it does appear that the economy’s post-pandemic boom is starting to moderate. This should pave the way for interest rate cuts. That, in turn, makes these three stocks to buy great options to cash in on the shifting macroeconomic landscape.
First American Financial (FAF)
Title insurers are one of the best types of real estate stocks for falling interest rates. Title insurance is a niche financial product that people buy when taking out housing and commercial real estate mortgages; the insurance protects against any defects on a property deed, such as back taxes or conflicting wills.
First American Financial (NYSE:FAF) is one of the big four American title insurance firms. These four, combined, make up about three-quarters of the overall market. This makes for great unit economics. When a limited number of vendors offer a product that potential homeowners must purchase to obtain a mortgage, that tends to lead to high and consistent profit margins.
However, while the title insurance industry has great structural dynamics, it isn’t immune to a downturn in the housing market. Understandably, high interest rates have reduced the velocity of transactions in many local real estate markets. Also, title insurers earn money when a mortgage is refinanced, but right now there is very little demand for refinancing, given how high interest rates are today.
These negatives will flip to positives once interest rates start to drop. Then, housing activity will rebound and refinancing transactions will pick up steam as well. Even with First American currently in a bit of a slump, shares are still available for less than 14 times forward earnings while offering a 3.94% dividend yield.
Sirius XM Holdings (SIRI)
Sirius XM Holdings (NASDAQ:SIRI) is a leading audio entertainment platform. In addition to its namesake Sirius satellite radio offering, the company also runs its Pandora streaming audio service.
SIRI stock surged in 2023 on a short squeeze tied to takeover rumors. However, no deal ended up occurring and the stock has now dropped more than 65% from last year’s peak.
Debt is a huge reason why. Sirius XM had more than $8.7 billion of long-term debt as of March 31, 2024. At the same time, it had just $71 million of cash on hand. Needless to say, Sirius XM is facing a heavy debt load, and higher interest rates haven’t helped matters.
However, with interest rates seemingly set to decline heading into 2025, relief should be on the way for Sirius XM from a balance sheet perspective. And while the company is heavily leveraged, it remains strongly profitable. Shares trade for less than nine times forward earnings.
There’s one other positive factor as well. Warren Buffett’s Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B) has been loading up on a tracking stock tied to the value of SIRI stock, and Berkshire now effectively controls more than 20% of Sirius’ outstanding stock.
Vail Resorts (MTN)
Vail Resorts (NYSE:MTN) is one of the world’s largest ski resort operators. It controls 42 mountain resorts in North America, Europe and Australia, including flagship properties like Breckenridge, Keystone, Vail Mountain and Whistler Blackcomb.
MTN stock was a huge winner coming out of the 2008 financial crisis. As the economy heated up and people started spending again, Vail Resorts shares surged from $50 in 2012 to $300 per share in 2018.
Since then, Vail Resorts has lost its balance. From its 2021 peak onward, MTN stock has now lost half its value, with shares taking a particularly steep tumble last week after an earnings miss.
Poor snowfall drove a big part of the earnings shortfall. However, more broadly, high interest rates and inflation are also dampening consumer discretionary spending. After several years of robust economic activity, the Federal Reserve’s tight monetary policy is starting to make a major impact on companies like Vail Resorts.
At this price, however, MTN stock is back to levels where it traded in 2017, and it’s not all that far above its COVID-19 pandemic lows, either. Vail’s world-class assortment of tourist destinations will only gain value over time, and shares are also on sale at a reasonable 20 times forward earnings following the recent decline.
On the date of publication, Ian Bezek held a long position in FAF stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
