The anticipated interest rate cuts at the Federal Reserve’s September meeting have put several stocks to buy in the limelight.
With interest rates above 5% for over a year and an economic slowdown, investors anticipate a potential rate cut at September’s meeting. This comes after Federal Reserve Chairman Jeremy Powell indicated that a potential rate cut would be on the table at the next meeting after leaving interest rates unchanged in July.
Also, the possibility of a rate cut has been fueled by fears of an impending recession after a weaker-than-expected jobs report. Unemployment rates increased while payroll growth declined. The sentiments were felt across the U.S. Bonds and Treasury markets where yields, which are closely tied to interest rates, dropped to new lows this year.
Given that a rate cut is on the horizon, several stocks emerge as clear winners in a low-interest environment. Let’s explore three stocks that investors should consider adding to their portfolio.
Ford (F)
Automobile giant, Ford’s (NASDAQ:F) stock is down 19% this year but the dip makes it one of the best stocks to buy. The Michigan-based company is a household name in the automobile industry. Its operates an expansive lineup of cars from the Ford Pro to the Ford F-150 Lighting. However, recent earnings dragged shares lower as the company missed analyst expectations by a wide margin.
For its second quarter, earnings per share (EPS) came in at 47 cents over the anticipated 68 cents. Net income dropped to $1.83 billion despite a 6% growth in revenue year-over-year (YOY). According to the company, the decline in profitability was due to an increase in warranty reserves for older vehicles. It anticipates that recent quality control initiatives will help mitigate this in the future.
As for its electric vehicle (EV) business which continues to incur losses, the company remains confident that its next generation of EVs will drive growth. Moreover, interest rate cuts in September could catalyze to reignite demand as lower borrowing costs increase spending. This can potentially provide a significant boost to Ford’s EV business.
Verizon (VZ)
Verizon (NYSE:VZ) is feeling the heat of rising costs as its stock dipped following its second-quarter earnings. However, with a hefty dividend yield of 6.56% and trading at an incredible value of just 8.9x its estimated fiscal year 2024 earnings, VZ is one of the top stocks to buy this year.
Looking at its previous quarter financials, revenue came in at $32.8 billion over the estimated, $33.06 billion. The company attributes the decline to an increase in phone plan prices and a historically low number of people upgrading their phones. This ties into sentiments in the broader economy as consumers tighten spending amidst an impending recession. Adding to this, rising interest payments on its debt load ($1.7 billion in Q2) have pushed earnings lower.
Therefore, Verizon stands to gain a lot from the interest rate cuts. Lower rates will reduce the cost of its debt while boosting demand for its phone plans. In parallel, it will also make it more cost-efficient for VZ to maintain its extensive wireless network while increasing investments to maintain its competitive edge.
PayPal (PYPL)
PayPal (NASDAQ:PYPL) stock had its ups and downs but shows strong signs of better days ahead. Its latest earnings report serves as a great indicator. For the second quarter, revenue grew 8% YOY to $7.9 billion over an estimate of $7.81 billion. This was fueled by an increase in payment volumes which were up by 11% and payment transactions which were up 8% to $6.6 billion. The company also maintained a strong liquidity position with free cash flow (FCF) of $1.4 billion.
While its Q2 earnings were certainly impressive, PayPal is likely to see a boost in earnings with interest rate cuts. Lower interest will spur spending in the economy which will translate to higher payment volumes for the company. And, it may reignite active account growth which declined 0.4% in the previous quarter.
The rate cuts will be amplified by the rollout of new features across its platform. This will help lock in users, expand market share and translate to gains in the long haul. PayPal’s strong business model and optimistic market outlook make it one of the top stocks to buy before September’s meeting.
On the date of publication, Divya Premkumar did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
