“It is time for policy changes.”
Those eight words from Federal Reserve Chairman Jerome Powell last week were music to investors’ ears. Powell indicated that interest rates could be cut next month for the first time since March 2020.
While the stock market can rise when interest rates fall, some individual stocks should do particularly well. Here are three stocks to buy hand over fist before the Fed (likely) cuts rates in September.
1. Dominion Energy
Utility stocks tend to rise when interest rates fall for two main reasons. First, they attract more income investors looking for new places to put their money, since bond yields fall as rates fall. Second, utilities often have significant debt. Lower rates lower their borrowing costs, which boosts their bottom lines.
Dominion Energy (NYSE: D) should be a big winner if and when the Fed cuts rates. The Virginia-based company provides electricity or natural gas to more than 4.5 million customers in 13 states.
Many investors will be drawn to Dominion’s dividend — and for good reason. The company has paid dividends for 386 consecutive quarters. Its forward dividend yield is now 4.7%. While Dominion cut its dividend by 33% in 2020, I don’t expect further dividend cuts.
Dominion could also have pretty good growth prospects for a utility. Northern Virginia is home to the world’s largest data center market, and with artificial intelligence (AI) fueling growing demand for data centers, Dominion should be a major beneficiary of the trend.
2. DR. Horton
When interest rates fall, mortgage rates tend to fall as well. And when mortgage rates fall, more Americans can afford to borrow money to build new homes. So rate cuts can be a nice catalyst for housing stocks.
DR. Horton (NYSE: DHI) is not just a housing stock; it has been the largest homebuilder in the U.S. by volume for more than 20 years. The company operates in 118 markets in 33 states. DR Horton builds residential, single-family, and multifamily homes and provides mortgage financing and title agency services.
The stock is surprisingly cheap considering the profits it has made in recent years. DR Horton’s forward earnings multiple is just 12.2. Its price-to-earnings-to-growth (PEG) ratio, based on five years of expected earnings growth, is a low 0.64.
Even if the Fed doesn’t cut rates anytime soon, DR Horton should still be a huge winner in the long run. The U.S. is still facing an acute housing shortage and the obvious solution to this problem is to build more homes — exactly what DR Horton wants to do.
3. Real estate income
Real estate investment trusts (REITs) are another obvious beneficiary of rate cuts. These companies rely on borrowing to finance the purchase of new properties. When rates are lower, they can finance more growth.
While there are several great REIT stocks, Real estate income (NYSE: O) is arguably in a class of its own. The company pays dividends monthly and has increased its dividend payout significantly for 29 consecutive years.
Realty Income owns 15,450 commercial properties. Tenants include well-known companies such as Dollar General, Walgreens, Wynn ResortsAnd FedEx.
The REIT should have solid growth prospects in the U.S., especially with the increasing number of data center facilities. It has an even bigger opportunity in Europe, which represents a total addressable market of $8.5 trillion.
Should You Invest $1,000 in Dominion Energy Now?
Before you buy Dominion Energy stock, you should consider the following:
The Motley Fool Stock Advisor team of analysts has just identified what they think is the 10 best stocks for investors to buy now… and Dominion Energy wasn’t one of them. The 10 stocks that made the cut could deliver monster returns in the years to come.
Think about when Nvidia made this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $792,725!*
Stock Advisor offers investors an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks each month. The Stock Advisor has service more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns as of August 26, 2024
Keith Speights has positions in Dollar General and Dominion Energy. The Motley Fool has positions in and recommends FedEx and Realty Income. The Motley Fool recommends Dominion Energy. The Motley Fool has a disclosure policy.
3 Stocks To Buy Tooth and Nail Before The Fed (Likely) Cuts Rates In September was originally published by The Motley Fool
