3 Rate-Sensitive Stocks to Gain as Fed Sounds Dovish for 2024
As widely anticipated, the Federal Reserve held interest rates steady in its latest policy meeting and signaled multiple rate cuts are coming in 2024, with more to be followed in 2025.
Utility and real estate players cheer the Fed’s dovish stance as they stand to benefit from the central bank’s motive to lower the policy rate soon. Thus, astute investors should invest in stocks such as American Water Works AWK, CenterPoint Energy CNP and Granite Construction GVA as of now for solid returns.
Fed Signals Rate Cuts in 2024
The Fed has held interest rates unchanged at 5.25% to 5.5% for the third successive meeting. The Fed also hinted at three rate cuts in 2024, with further rate cuts expected in 2025 as inflation cools down amid sturdy economic growth.
The third-quarter GDP has already increased at the fastest annual rate in two years as consumers opened up their wallets to splurge on discretionary items.
Inflationary Pressure Subsides
Conversely, inflation came in line with estimates, allowing the Fed to keep interest rates unaltered. The consumer price index (CPI) increased 0.1% month over month in November, while the annual rate went up 3.1%. However, year over year, the CPI declined following an uptick of 3.2% in October.
The core CPI that eliminates volatile energy and food prices was up 0.3% month over month and 4% from a year ago. Both data were in line with market’s expectations and changed little from a month earlier.
Rate-Sensitive Stocks to Gain
With interest rate cuts expected soon, companies from the utility and real estate sectors are poised to gain. Utilities, for instance, are capital-intensive businesses, which compels them to rely on third parties for funding. Thus, they have a high level of debt. In a low-interest-rate environment, they can pay off their debt and register profit.
It's also worth pointing out that in case of rising interest rates, credit ratings of utility companies may go down, and they will find it hard to get lenders. Moreover, they can’t borrow at realistic rates, eventually leading to an increase in operating costs.
Interest rate hikes are also a drag on real estate activities. The borrowing costs of real estate projects of construction companies increase amid higher interest rates and impact profit margins.
Top 3 Choices
We have, thus, selected three stocks that are positioned to benefit from the Fed’s intention to slash interest rates. These stocks flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
American Water Works is a water supply and wastewater service provider. The company currently has a Zacks Rank #2.
The Zacks Consensus Estimate for its current-year earnings has increased 0.4% over the past 60 days. AWK’s expected earnings growth rate for the current and next year is 6.9%.
CenterPoint Energy provides electric transmission & distribution, natural gas distribution, and competitive natural gas sales and services operations. The company presently has a Zacks Rank #2.
The Zacks Consensus Estimate for its current-year earnings has increased 0.7% over the past 60 days. CNP’s expected earnings growth rate for the current and next year are 8.7% and 8%, respectively.
Granite Construction is the nation’s largest infrastructure contractor and producer of construction materials. The company at the moment has a Zacks Rank #1.
The Zacks Consensus Estimate for its current-year earnings has increased 9.9% over the past 60 days. GVA’s expected earnings growth rate for the current and next year are 35.1% and 37.5%, respectively.
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CenterPoint Energy, Inc. (CNP) : Free Stock Analysis Report
American Water Works Company, Inc. (AWK) : Free Stock Analysis Report
Granite Construction Incorporated (GVA) : Free Stock Analysis Report
