The anticipation of interest rate cuts at the Federal Reserve’s September meeting has sparked excitement among investors eyeing potential stocks for purchase. With interest rates stagnant above 5% amid signs of an economic downturn, the possibility of a rate cut in September has gained significant traction. This anticipation follows Federal Reserve Chairman Jeremy Powell’s recent indication of a potential rate adjustment in response to leaving rates untouched in July.
The looming prospect of a rate cut has been fueled by concerns about an impending recession, particularly after a disappointing jobs report indicated an increase in unemployment rates alongside a decline in payroll growth. These reverberations were felt markedly in U.S. Bonds and Treasury markets where yields, intimately linked to interest rates, nosedived to new depths this year.
In light of the impending rate cut, several stocks emerge as promising winners in a low-interest-rate environment. Let’s delve into three such stocks poised for potential growth in the wake of imminent rate adjustments.
Ford (F)
Delving into the world of automobiles, Ford’s (NASDAQ:F) stock has experienced a 19% decline this year. Despite this downturn, the Michigan-based automotive giant remains a prime contender for astute investors. Ford boasts an extensive range of vehicles, from the Ford Pro to the Ford F-150 Lighting. However, recent earnings fell short of expectations, resulting in a considerable dip in share prices.
In its second quarter, Ford reported an earnings per share (EPS) of 47 cents against the anticipated 68 cents, with net income plummeting to $1.83 billion despite a 6% year-over-year (YOY) revenue growth. The dip in profitability was attributed to an increase in warranty reserves for older vehicles. The company remains optimistic that ongoing quality control initiatives will mitigate such issues in the future.
Amidst losses in its electric vehicle (EV) sector, Ford remains confident that its next generation of EVs will drive growth. Furthermore, the imminent interest rate cuts could potentially reinvigorate demand as reduced borrowing costs stimulate expenditure, potentially providing a significant boost to Ford’s EV business.
Verizon (VZ)
Verizon (NYSE:VZ) is grappling with escalating costs, reflected in a decline following its second-quarter earnings report. However, boasting a hefty 6.56% dividend yield and trading at an attractive value of just 8.9x its estimated fiscal year 2024 earnings, Verizon stands out as a top pick for investors.
Reviewing its financial results from the previous quarter, Verizon’s revenue came in at $32.8 billion, slightly below the estimated $33.06 billion. The company attributes this decline to a rise in phone plan prices and a historically low number of phone upgrades, mirroring broader economic sentiments as consumers tighten their purse strings amidst looming recession fears. Additionally, rising interest payments on its debt, amounting to $1.7 billion in Q2, have exerted downward pressure on earnings.
Consequently, Verizon stands to benefit significantly from interest rate cuts, as lower rates would slash its debt costs while simultaneously boosting demand for its phone plans. Simultaneously, it would enhance cost-efficiency in the maintenance of its vast wireless network and bolster investments to sustain its competitive advantage.
PayPal (PYPL)
Amid fluctuations in its stock performance, PayPal (NASDAQ:PYPL) exhibits strong potential for growth ahead. The company’s recent earnings report underscores this optimism, with revenue surging 8% year-over-year to $7.9 billion, exceeding estimates of $7.81 billion. This growth was underpinned by a robust 11% increase in payment volumes and an 8% rise in payment transactions to $6.6 billion, alongside a healthy free cash flow (FCF) of $1.4 billion.
While its second-quarter earnings were commendable, PayPal stands to reap the rewards of interest rate cuts. Lower interest rates are poised to fuel consumer spending, enhancing payment volumes for the company. This could potentially reignite active account growth, which witnessed a 0.4% decline in the previous quarter.
The impact of rate cuts will be magnified by the rollout of new features across its platform, fortifying user retention, expanding market share, and translating into sustained gains in the long run. PayPal’s resilient business model and positive market outlook position it as a top stock to consider before September’s pivotal meeting.