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Fed to Start Cutting Rates Midyear 2024: 4 Stocks to Benefit
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The broader equity market is poised to close on a high note in 2023, following a dismal performance in the previous year. The major stock indexes, the Dow Jones Industrial Average, the Nasdaq Composite and the S&P 500, have risen 12.5%, 41.5% and 22.9%, respectively, year to date.
The rally has been primarily driven by cooling inflationary pressure and declining gasoline prices, which have subsided the fears of a recession. The U.S. stock market is poised to continue the momentum in 2024 as the Federal Reserve has signaled three rate cuts next year.
The U.S. Federal Reserve's robust series of rate hikes, escalating from record-low levels in March 2022 to the current range of 5.25%-5.50%, contributed to stock market challenges, particularly impacting growth-oriented companies. The Fed’s shift in stance from an aggressive monetary policy to a dovish policy is going to boost investor sentiments.
Amid the Federal Reserve's indications of potential rate cuts in the middle of 2024, investors should evaluate sectors that could be buoyed by such monetary policy changes. These anticipated rate cuts could trigger significant movements in specific industries, presenting strategic investment opportunities.
Here, we have picked up four stocks from four different industries that could thrive on the Fed’s easing monetary policy.
Realty Income Corporation (O - Free Report) is our first pick, which belongs to the Zacks Real Estate Investment Trusts (REITs) industry. Reduced interest rates often drive increased demand in the real estate sector. Residential and commercial REITs might benefit from heightened interest as borrowers seek more affordable mortgages.
Realty Income is engaged in the acquisition and management of freestanding commercial properties that reap rental revenues under long-term net lease agreements. The company’s sustained focus on deriving the majority of its annualized retail contractual rental revenues from tenants with a service, non-discretionary and a/or low-price-point component to their business has helped it as such businesses are less susceptible to economic recessions and competition from Internet retailing.
Realty Income’s solid underlying real estate quality and prudent underwriting at acquisition have helped the company maintain high occupancy levels consistently. Since 1998, O’s occupancy level has never been below 96%. Moreover, Realty Income is focused on external growth through the exploration of accretive acquisition opportunities and developments. The solid property acquisition volume at decent investment spreads has aided the company’s performance so far.
Additionally, the stock carries a Zacks Rank #2 (Buy), which indicates a solid investment opportunity. The Zacks Consensus Estimate for 2023 earnings has remained unchanged at $4.01 per share over the past 60 days, while estimates have been revised upward by 2 cents to $4.18 for 2024 during the same period. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Our second choice is The Honest Company, Inc. (HNST - Free Report) , which comes under the Zacks Consumer Products – Discretionary industry. The company is a digitally-native, mission-driven brand focused on leading the clean lifestyle movement, creating a community for conscious consumers and seeking to disrupt multiple consumer product categories.
Cheaper borrowing costs tend to spur consumer spending on non-essential goods and services. The stock might experience an uptick as discretionary spending gains momentum. This Los Angeles-based company has been gaining market share from increased household penetration, brand awareness and product accessibility to more consumers. Despite a tough environment, the company is benefiting from strong demand for its clean and natural products.
The stock carries a Zacks Rank #2 at present. The Zacks Consensus Estimate for the 2023 and 2024 bottom lines has witnessed positive estimate revisions in the past 60 days. For 2023, the Zacks Consensus Estimate is pegged at a loss of 50 cents per share, lowered from 57 cents 60 days ago. The consensus mark for 2024 stands at a loss of 26 cents, down from 33 cents 60 days ago.
NVIDIA Corporation (NVDA - Free Report) is our third choice, which comes under the Zacks Semiconductor - General industry. Innovative technology firms often thrive during rate-cut cycles, particularly those leading advancements in areas like cloud computing, AI and digital transformation. Lower rates might prompt increased investments in tech innovations, fueling growth for these companies.
Despite more than two-fold gains year to date, NVIDIA is likely to continue momentum in 2024, driven by strong demand for its chips used in computing and networking. The company’s Compute & Networking segment’s revenues are gaining from the strong growth of artificial intelligence (AI), high-performance computing and accelerated computing.
The data center end-market business is likely to continue benefiting from the growing demand for generative AI and large language models using graphic processing units (GPUs) based on NVIDIA Hopper and Ampere architectures. A surge in Hyperscale demand and a solid uptake of AI-based smart cockpit infotainment solutions are acting as tailwinds. Collaborations with Mercedes-Benz and Audi are likely to advance its presence in autonomous vehicles and other automotive electronics space.
Currently, the stock carries a Zacks Rank #2. The Zacks Consensus Estimate for fiscal 2024 earnings has been revised upward by 13.2% in the past 30 days to $12.29 per share. The consensus mark for fiscal 2025 earnings has moved upward to $19.85 from $16.76 30 days ago.
Our next pick is Mobileye Global Inc. (MBLY - Free Report) , which belongs to the Zacks Automotive – Original Equipment industry. It provides advanced image sensing and processing technology for automotive applications. The company designs and develops vision-based advanced driver assistance systems (ADAS) that offer warnings for collision prevention and mitigation.
Lower interest rates often translate into reduced borrowing costs for consumers. Cheaper auto loans can incentivize car purchases, driving higher sales for automobile companies. With more favorable financing terms, consumers might be encouraged to upgrade vehicles or make purchases they might have postponed due to higher borrowing expenses, thereby enhancing prospects for the overall automotive sector.
Mobileye enjoys a leadership position in the ADAS market with an impressive sales growth trajectory. Both EyeQ and SuperVision business lines are experiencing strong growth, surpassing overall global auto production growth.
At present, the stock carries a Zacks Rank #2. The Zacks Consensus Estimate for 2023 earnings has been revised a penny upward to 77 cents per share in the past 30 days. For 2024, the consensus mark has been moved upward to 85 cents from 83 cents 60 days ago.
Image: Bigstock
Fed to Start Cutting Rates Midyear 2024: 4 Stocks to Benefit
The broader equity market is poised to close on a high note in 2023, following a dismal performance in the previous year. The major stock indexes, the Dow Jones Industrial Average, the Nasdaq Composite and the S&P 500, have risen 12.5%, 41.5% and 22.9%, respectively, year to date.
The rally has been primarily driven by cooling inflationary pressure and declining gasoline prices, which have subsided the fears of a recession. The U.S. stock market is poised to continue the momentum in 2024 as the Federal Reserve has signaled three rate cuts next year.
The U.S. Federal Reserve's robust series of rate hikes, escalating from record-low levels in March 2022 to the current range of 5.25%-5.50%, contributed to stock market challenges, particularly impacting growth-oriented companies. The Fed’s shift in stance from an aggressive monetary policy to a dovish policy is going to boost investor sentiments.
Amid the Federal Reserve's indications of potential rate cuts in the middle of 2024, investors should evaluate sectors that could be buoyed by such monetary policy changes. These anticipated rate cuts could trigger significant movements in specific industries, presenting strategic investment opportunities.
Here, we have picked up four stocks from four different industries that could thrive on the Fed’s easing monetary policy.
Realty Income Corporation (O - Free Report) is our first pick, which belongs to the Zacks Real Estate Investment Trusts (REITs) industry. Reduced interest rates often drive increased demand in the real estate sector. Residential and commercial REITs might benefit from heightened interest as borrowers seek more affordable mortgages.
Realty Income is engaged in the acquisition and management of freestanding commercial properties that reap rental revenues under long-term net lease agreements. The company’s sustained focus on deriving the majority of its annualized retail contractual rental revenues from tenants with a service, non-discretionary and a/or low-price-point component to their business has helped it as such businesses are less susceptible to economic recessions and competition from Internet retailing.
Realty Income’s solid underlying real estate quality and prudent underwriting at acquisition have helped the company maintain high occupancy levels consistently. Since 1998, O’s occupancy level has never been below 96%. Moreover, Realty Income is focused on external growth through the exploration of accretive acquisition opportunities and developments. The solid property acquisition volume at decent investment spreads has aided the company’s performance so far.
Additionally, the stock carries a Zacks Rank #2 (Buy), which indicates a solid investment opportunity. The Zacks Consensus Estimate for 2023 earnings has remained unchanged at $4.01 per share over the past 60 days, while estimates have been revised upward by 2 cents to $4.18 for 2024 during the same period. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Realty Income Corporation Price and Consensus
Realty Income Corporation price-consensus-chart | Realty Income Corporation Quote
Our second choice is The Honest Company, Inc. (HNST - Free Report) , which comes under the Zacks Consumer Products – Discretionary industry. The company is a digitally-native, mission-driven brand focused on leading the clean lifestyle movement, creating a community for conscious consumers and seeking to disrupt multiple consumer product categories.
Cheaper borrowing costs tend to spur consumer spending on non-essential goods and services. The stock might experience an uptick as discretionary spending gains momentum. This Los Angeles-based company has been gaining market share from increased household penetration, brand awareness and product accessibility to more consumers. Despite a tough environment, the company is benefiting from strong demand for its clean and natural products.
The stock carries a Zacks Rank #2 at present. The Zacks Consensus Estimate for the 2023 and 2024 bottom lines has witnessed positive estimate revisions in the past 60 days. For 2023, the Zacks Consensus Estimate is pegged at a loss of 50 cents per share, lowered from 57 cents 60 days ago. The consensus mark for 2024 stands at a loss of 26 cents, down from 33 cents 60 days ago.
The Honest Company, Inc. Price and Consensus
The Honest Company, Inc. price-consensus-chart | The Honest Company, Inc. Quote
NVIDIA Corporation (NVDA - Free Report) is our third choice, which comes under the Zacks Semiconductor - General industry. Innovative technology firms often thrive during rate-cut cycles, particularly those leading advancements in areas like cloud computing, AI and digital transformation. Lower rates might prompt increased investments in tech innovations, fueling growth for these companies.
Despite more than two-fold gains year to date, NVIDIA is likely to continue momentum in 2024, driven by strong demand for its chips used in computing and networking. The company’s Compute & Networking segment’s revenues are gaining from the strong growth of artificial intelligence (AI), high-performance computing and accelerated computing.
The data center end-market business is likely to continue benefiting from the growing demand for generative AI and large language models using graphic processing units (GPUs) based on NVIDIA Hopper and Ampere architectures. A surge in Hyperscale demand and a solid uptake of AI-based smart cockpit infotainment solutions are acting as tailwinds. Collaborations with Mercedes-Benz and Audi are likely to advance its presence in autonomous vehicles and other automotive electronics space.
Currently, the stock carries a Zacks Rank #2. The Zacks Consensus Estimate for fiscal 2024 earnings has been revised upward by 13.2% in the past 30 days to $12.29 per share. The consensus mark for fiscal 2025 earnings has moved upward to $19.85 from $16.76 30 days ago.
NVIDIA Corporation Price and Consensus
NVIDIA Corporation price-consensus-chart | NVIDIA Corporation Quote
Our next pick is Mobileye Global Inc. (MBLY - Free Report) , which belongs to the Zacks Automotive – Original Equipment industry. It provides advanced image sensing and processing technology for automotive applications. The company designs and develops vision-based advanced driver assistance systems (ADAS) that offer warnings for collision prevention and mitigation.
Lower interest rates often translate into reduced borrowing costs for consumers. Cheaper auto loans can incentivize car purchases, driving higher sales for automobile companies. With more favorable financing terms, consumers might be encouraged to upgrade vehicles or make purchases they might have postponed due to higher borrowing expenses, thereby enhancing prospects for the overall automotive sector.
Mobileye enjoys a leadership position in the ADAS market with an impressive sales growth trajectory. Both EyeQ and SuperVision business lines are experiencing strong growth, surpassing overall global auto production growth.
At present, the stock carries a Zacks Rank #2. The Zacks Consensus Estimate for 2023 earnings has been revised a penny upward to 77 cents per share in the past 30 days. For 2024, the consensus mark has been moved upward to 85 cents from 83 cents 60 days ago.
Mobileye Global Inc. Price and Consensus
Mobileye Global Inc. price-consensus-chart | Mobileye Global Inc. Quote