3 Stocks to Buy Before the Fed Starts to Cut Interest Rates

  • Rate cuts will substantially boost the cash flows of these companies, leading to a rally in their already depressed stock price.
  • Brookfield Asset Management (BAM): A third of its $225 billion debt is subject to variable interest. Once rates start dropping, Brookfield will become a cash machine.
  • Stanley Black & Decker (SWK): Trading at compelling levels, now is a good time to buy before industrial companies start to rebound.
  • MGM Resorts (MGM): The leisure and hospitality industry continues to boom, and rate cuts will only accelerate it.
Best Stocks Before Fed Rate Cut - 3 Stocks to Buy Before the Fed Starts to Cut Interest Rates

Source: Shutterstock

Most analysts agree that the Federal Reserve will likely start to cut rates later this year, and buying stocks of companies that benefit from such a rate-cut environment is a good idea. It’s hard to say whether or not we are at the terminal rate, but I can confidently say that we are pretty close to it. 

The latest U.S. inflation report showed much cooler inflation than expected at 5%. In contrast, core inflation increased by 0.1%, in line with consensus, while nonfarm payroll employment rose by 236,000, with unemployment declining by 0.1%. The hotter core and employment figures could still cause one more 25 basis-point hike, but as the recent Fed Minutes showed, many officials were already considering a pause back in March.

Here are three stocks to buy before the Fed rate cuts:

Brookfield Asset Management (BAM)

bam international stocks
Source: Shutterstock

If you are looking for a solid dividend stock that can thrive in a low-interest-rate environment, you should consider Brookfield Asset Management (NYSE:BAM). This company owns and operates a diversified portfolio of assets across real estate, infrastructure, renewable energy, and private equity. At current levels, it is certainly a buy.

For starters, lower interest rates will benefit Brookfield’s floating-rate debt. According to its latest quarterly report, Brookfield has $225 billion of debt, and around a third is floating-rate debt. This means that as interest rates go down, Brookfield will pay less interest on its debt and increase its cash flow. 

Once the Fed cuts interest rates, Brookfield’s performance in renewable energy and utility sectors will increase. These sectors are typically defensive and attractive when rates are low, as they offer stable cash flows and high dividends. Brookfield owns and operates one of the largest renewable power platforms in the world with a capacity of 24,000 megawatts and a global portfolio of regulated utilities.

As a sweetener, BAM stock has a 3.9% forward dividend yield with 12 years of consecutive increases.

Stanley Black & Decker (SWK)

Stanley Black and Decker (SWK) is a manufacturer of industrial tools and household hardware and provider of security products
Source: ricochet64 / Shutterstock.com

Stanley Black & Decker (NYSE:SWK) has been struggling since last year due to its high debt load of $8 billion, causing the business to make losses despite strong demand for industrial products. It recently closed its factories in Texas and South Carolina as part of a $2 billion cost-cutting measure. However, as interest rates peak and supply chain problems are steadily fixed, the headwinds may soon turn into tailwinds for this company. That’s a great buying opportunity for investors since SWK is changing hands below its trough during the 2020 recession.

Furthermore, industrial companies are among the first to make a comeback during a rate-cut environment. That’s why I think the market is overlooking the company’s strong long-term fundamentals and growth potential despite the recent setbacks.

It’ll certainly take some patience until the stock starts to make any big moves, but with a compelling 4.04% forward dividend yield, it’s worth it at these levels.

MGM Resorts (MGM)

A photo of the MGM logo on the MGM casino building.
Source: Michael Neil Thomas / Shutterstock.com

MGM Resorts (NYSE:MGM) is one of my favorite stocks to buy right now. The company operates luxury resorts in Macau and Las Vegas, two of the most popular gambling destinations in the world. Both cities are experiencing a strong recovery from the economic downturn, thanks to the booming leisure and hospitality industry.

But that’s not the only reason why I’m bullish on MGM. The company also stands to benefit from the gambling craze that has swept the market in recent months. From sports betting to online casinos, MGM has a diversified gaming portfolio that caters to different customer segments and preferences. The company also has a strategic partnership with Entain (OTCMKTS:GMVHY), a leading online gambling operator, to expand its digital presence and reach new audiences.

Once rate cuts happen, I believe MGM is set to capitalize on the increased consumer spending even more. Thus, it’s one of the best stocks before the Fed rate cuts, in my book.

On the date of publication, Omor Ibne Ehsan 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.

Article printed from InvestorPlace Media, https://investorplace.com/2023/04/3-stocks-to-buy-before-the-fed-starts-to-cut-interest-rates/.

©2024 InvestorPlace Media, LLC