While inflation may have been the theme of 2022, disinflation could be the defining label for the outgoing year, thus warranting a closer examination of stocks to buy for lower interest rates. To be sure, you want to be careful about betting too heavily on the monetary policy pivot. We just don’t know for sure what will happen. Still, we also don’t want to fight the tape.
Here’s the deal. Recently, Federal Reserve Chair Jerome Powell hinted at the possibility of interest rate cuts in 2024. Nothing has been set in stone and a real possibility exists that the central bank could continue raising rates. Let’s face it – the job market has been incredibly robust. Usually, it’s not a good thing to cut rates when the labor market is so hot.
Nevertheless, other evidence points to the viability of stocks to buy for lower interest rates. As my InvestorPlace colleague William White mentioned, a major financial institution announced plans to reduce its workforce. If more people with high-paying jobs start receiving pink slips, that’s a problem. A huge problem, one that could necessitate lower borrowing costs.
If you want to speculate that Powell will go through with it, these are the stocks to buy for lower interest rates.
Chewy (CHWY)
An online retailer of pet food and other pet-related products, Chewy (NYSE:CHWY) suffered badly from the deadly combo of stubbornly high inflation and high borrowing costs. In late October, CGTN America invited me on its Global Business program to discuss the matter. One factor I mentioned was that for pet owners, they were effectively paying double the inflation rate compared to normal, non-pet-related expenditures.
Now, when I say that, CHWY might not appear a viable candidate for stocks to buy for lower interest rates. After all, lower rates usually translates to more dollars chasing after fewer goods. And yes, it’s a complicated matter. However, one must also consider other factors. For example, buy now, pay later (BNPL) usage soared during the holidays this year. With lower interest rates, consumer spending should swing higher.
In other words, expenditures didn’t really drop. If anything, they increased. So, by allowing people to make it easier to spend, expenditures should continue a northward trajectory. That’s a positive for Chewy as Americans sure do love t heir furry friends.
Bank of America (BAC)
At first glance, Bank of America (NYSE:BAC) appears another challenging prospect for stocks to buy for lower interest rates. All other things being equal, higher rates means a higher magnitude of profitability for lenders. So, it’s only natural for Bank of America and its ilk to have interest rates shoot to the moon – assuming again that all things are equal.
Of course, they’re not – not even close. With higher borrowing costs comes the reality that people refuse to sign on the dotted line. And in other cases, would-be borrowers simply don’t qualify for loans. At that point, you get into the unsavory business of loan sharks popularized in many Hollywood crime dramas. You get the point.
However, if the Fed lowers rates, people would be much more willing to buy. If anything, the reduced strain on borrowing would expand Bank of America’s total addressable market. That’s because more folks would be qualified to borrow. Subsequently, we could see increased demand for big-ticket items like homes and cars and what not.
Carnival (CCL)
A risky enterprise due to the Covid-19 crisis imposing a huge number on the underlying cruise ship industry, Carnival (NYSE:CCL) nevertheless may be one of the stocks to buy for lower interest rates. Primarily, cruise ships have long garnered attention for their cost-effective profile. For a relatively cheap price, vacationers can enjoy a rich experience. And the sector certainly benefited from the revenge travel phenomenon.
However, with high borrowing costs comes the reality that consumers tighten their belts. Subsequently, the pain goes upline, forcing enterprises to cut back on their expenses. In turn, you see mass layoffs, even at storied institutions. At that point, people have little choice but to cut back on discretionary purchases. And as cost-effective as cruising may be, it’s definitely a discretionary (luxury) experience.
Of course, one positive aspect of reduced borrowing costs is that policymakers essentially communicate that they have the backs of the economy. Given this underlying confidence, consumers may ramp up their non-essential spending. That would be very positive for CCL, as demonstrated by its recent stratospheric run.
General Motors (GM)
As I stated earlier, lower borrowing costs should boost demand for big-ticket items. If the Fed goes through with its policy pivot, I’d take a look at General Motors (NYSE:GM). Sure, I’ll admit that sexier candidates for stocks to buy for lower interest rates exist. Nevertheless, as consumers gravitate toward electric vehicles, they’ll probably want a) choices and b) trusted brands.
As an American automotive icon, General Motors ticks both boxes. Aside from historical controversies, people trust GM. They know GM because it applies a pervasive influence. In turn, the company offers several well-recognized (even iconic) car models that could be electrified. We all know about the electric Hummer. Soon, we will get our hands on an electric Corvette.
And don’t worry – GM is still a gearhead at heart. So, it’s not giving up on its fire-breathing V8-engine Corvette. Sales of those bad boys continue to perform well and that’s conspicuous because drivers these days prefer SUVs.
Better yet, with lower borrowing costs, GM’s total addressable market should expand. Thus, it’s one of the stocks to buy for lower interest rates.
First Solar (FSLR)
Perhaps no other sector needs reduced borrowing costs quite like the solar energy industry. Therefore, First Solar (NASDAQ:FSLR) deserves a rethink. To be fair, FSLR ranks among the higher-risk entities for stocks to buy for lower interest rates. Let’s say the Fed reneges on its hinted dovish policy in 2024. That would not be great news.
Then again, there’s also the possibility that as long as circumstances don’t change much, names like FSLR could still benefit. For example, many companies in the space have effectively been de-risked. Okay, it’s true that FSLR isn’t a great deal, trading at 38.9X trailing-year earnings. However, looking back at its multiples across recent quarters, FSLR was priced into the stratosphere.
Now, let’s think about the situation if the Fed actually goes dovish next year. For one thing, consumers would be better able to afford (finance) solar solutions due to reduced borrowing costs. Also, on the business end of the table, solar companies can also borrow at lower rates to promote expansionary efforts.
Analysts agree, pegging shares a strong buy with a $230.68 average price target.
Canaan (CAN)
As a blockchain mining specialist, Canaan (NASDAQ:CAN) is a compelling idea for stocks to buy for lower interest rates. To be 100% clear, it’s a high-risk, high-reward opportunity. Truth be told, you might be better off considering other mining-related enterprises or another company related to the blockchain ecosystem. Still, Canaan’s specialized hardware could see increased demand next year.
If the Fed reduces borrowing costs, the action would imply a relative devaluation of the dollar. I know that phrase has a conspiratorial twang to it. But the reality is that the underlying cryptocurrency market is tied to the dollar. For instance, many if not most stablecoins are pegged to the dollar, not the yuan, yen or euro. So, whatever happens to the dollar effectively has a direct impact on crypto sentiment.
That’s a huge catalyst for Canaan because its top-line ebbs and flows with the crypto market. When people can’t get enough of virtual currencies, CAN represents an awesome investment. When circumstances go awry, you want to be involved in anything other than blockchain mining.
If you really think Powell will cut rates, Canaan is the promised land.
B2Gold (BTG)
Nothing shines more than gold (although crypto investors will probably beg to differ). Either way, if the Fed turns a dovish corner in 2024, you’ll want to consider B2Gold (NYSEAMERICAN:BTG). Now, you might be wondering, why BTG over myriad other gold-related investments? After all, if rates decline, then practically all valuable commodities should rise on the devalued dollar.
First, we would never get anywhere if we played this game of whataboutism to the extreme. Second and more importantly, B2Gold in my opinion offers a goldilocks opportunity among precious-metals-related stocks to buy for lower interest rates. It’s not such an established blue chip where upside growth in the charts would be difficult to generate. On the flipside, it’s not wildly speculative where the stock becomes completely unpredictable.
No, B2Gold owns and operates multiple gold mines internationally. It also features a respectable market capitalization of approximately $4.26 billion. And while it’s down on a year-to-date basis, shares have been picking up in recent sessions.
Oh yeah, analysts love it, rating BTG a strong buy with a $5.27 price target, implying almost 63% upside potential.
On the date of publication, Josh Enomoto 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.
