7 Stocks That Should Outperform on the Next Fed Rate Cut


  • Sempra (SRE): Diversified utilities company poised for growth with a natural monopoly and geographic advantage.
  • Kroger (KR): Leading food and drug retailer offering stability and value, with resilience against inflationary pressures.
  • Coca-Cola (KO): Iconic beverage company positioned to benefit from increased money velocity and potential price inflation.
  • Here are the stocks to buy on rate cut if the trigger is pulled.
stocks to buy on rate cut - 7 Stocks That Should Outperform on the Next Fed Rate Cut

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With the Federal Reserve having seemingly engineered a viable pathway to a soft economic landing, the topic of stocks to buy on rate cut have enjoyed significant momentum. Of course, as with anything involving high finance these days, the matter got more complicated.

Yes, the central bank previously expressed measured optimism that inflation was generally moving in the right direction. However, with the latest jobs report showing continued robustness in the labor market, the reality is difficult to ignore: more dollars are chasing after fewer goods. And that of course is inflationary.

Still, American households have struggled for years now with elevated borrowing costs, which means it’s not out of the realm of possibility that the Fed can adopt a dovish approach. Also, keep in mind that this year represents a critical election cycle. On that note, below are intriguing stocks to buy on rate cut.

Sempra (SRE)

The logo for Sempra (SRE) is seen at the top of an office building.
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Operating under the diversified utilities space, Sempra (NYSE:SRE) enjoys a host of advantages. First and foremost, as a utility company, it benefits from a natural monopoly. Basically, the barriers to entry are so steep that would-be competitors don’t even try. Second, Sempra carries a geographic advantage. By covering key segments of the Southern California market, it should accrue predictable revenue and earnings growth.

Best of all, SRE makes a great case for stocks to buy on rate cut due to the underlying implications. Reduced borrowing costs generally translate to higher money velocity. And that can easily lead to more inflation. If so, you want to be levered to enterprises that command pricing power; that is, even if the product or service price rises, customers will open their wallets.

For Sempra, its customers have no choice but to pay up. Of course, that has led to significant controversies. However, there doesn’t seem to be a realistic solution other than to just live with it. So, it goes first on this list of stocks to buy on rate cut.

Kroger (KR)

Kroger (KR) Supermarket. The Kroger Co. is One of the World's Largest Grocery Retailers.
Source: Eric Glenn / Shutterstock.com

Speaking of having little choice, let’s talk about Kroger (NYSE:KR). Part of the consumer defensive sector, Kroger of course operates a combination of food and drug stores. It also operates multi-department and marketplace stores. We all know about food inflation. It’s one of the many bitter things that Americans complain about. And it could cost President Joe Biden his job.

Still, if borrowing costs decline, I’m not entirely sure how that would be helpful for lowering food prices. I’m pretty certain that the pain in the aisle will only increase. Still, here’s why KR represents one of the stocks to buy on rate cut. Even if inflation accelerates, people will have little recourse but to sacrifice other elements in the family budget.

Basically, you can live without video games and other luxuries. You can’t live without food and water.

Plus, with KR stock priced at only 12.9X forward earnings and 0.28X trailing-year sales, it seems significantly undervalued. Combined with a forward dividend yield of just over 2%, Kroger should be on your radar.

Coca-Cola (KO)

KO stock PEP stock: a can of Coca-cola and a can of Pepsi on either side of a glass of brown soda and sitting on top of a pile of ice
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A soft-drink specialist, Coca-Cola (NYSE:KO) needs no introduction. As a blue-chip giant, KO isn’t exactly what you would call an exciting investment. However, it could easily be one of the stocks to buy on rate cut. Again, reduced borrowing costs carry a tendency of boosting money velocity. In this situation, inflation for myriad goods and services may rise, which could cynically benefit Coca-Cola.

One area that could see price inflation is the premium ingredients that trendy coffee shops use. I visited a particular store that shall not be named and was quite shocked at the price. For two large lattes, you’re approaching the cost of a decent lunch anywhere else. Should inflation be stubbornly elevated, I anticipate grocery-store-bought caffeinated products to rise.

If so, that should help KO stock. To be fair, you’re not getting a deal on paper because the projections for the current fiscal year are relatively modest. However, if growth reaches on the higher end of the analyst spectrum (or even above), Coca-Cola could get very interesting. It’s a name to watch.


Smartphone with BHP Group logo in front of BHP website. BHP stock.
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If the Fed decides to adopt a dovish approach, then metals and mining firm BHP (NYSE:BHP) could be one of the top stocks to buy on rate cut. One of the key reasons I say this is because of BHP’s uranium business. For the past few months, a critical supply issue in Kazakhstan – a major supplier of uranium – saw the sector skyrocket. Now, things have started to somewhat calm down but they shouldn’t.

According to an article by The Washington Post, the boom in artificial intelligence and clean-technology manufacturing has pushed the nation’s power grid to the brink. Utility firms can’t keep up with the demand. That means nuclear power will likely enter the forefront. Scientifically, nuclear fuel commands exponentially massive energy density. So, if we have power issues, uranium must be part of the solution.

For full disclosure, it’s a risky idea. Yes, BHP stock carries a moderate buy consensus view among covering analysts. However, the average price target of $44.94 implies significant downside risk. However, the forecast might not reflect the severe power crisis. Thus, it could be one of the stocks to buy on rate cut.

Phillips 66 (PSX)

Phillips 66 gas station in the daytime
Source: Jonathan Weiss / Shutterstock.com

If the U.S. central bank goes for an accommodative monetary policy, Phillips 66 (NYSE:PSX) should definitely be on your radar. Yes, PSX has already enjoyed an incredible run this year. However, if money velocity accelerates from policy shifts, then it could rank among the stocks to buy on rate cut.

Generally, if prices of commonly purchased consumer goods and services rise, the underlying sectors should see demand decrease. However, hydrocarbon fuels represent an energy commodity that most people can’t live without. Sure, electric vehicle sales are increasing but they’re not increasing enough to make downstream oil and gas companies irrelevant.

Further, Phillips 66 may cynically benefit from geopolitical dynamics. Basically, the military conflict in Eastern Europe shows no sign of abating. The crisis could easily translate to western nations seeing their oil imports decline, which could skyrocket prices. Such a hike would also materialize at an awkward time.

For full disclosure, analysts see revenue erosion in fiscal 2024. However, I believe this is overlooking the broader context.

CarMax (KMX)

a Carmax (KMX) sign on a storefront
Source: Jonathan Weiss / Shutterstock.com

Should borrowing costs finally fall, CarMax (NYSE:KMX) could be one of the stocks to buy on rate cut. Granted, it’s a risky narrative. As a used-car dealership, CarMax faces viability concerns. Looking at statistics such as credit card debt, it’s apparent that many Americans have stretched themselves to make ends meet. They’re not exactly in the mood to buy a car.

Then again, vehicles don’t last forever. At some point, the repairs to keep cars roadworthy simply isn’t worth the price. Moreover, with reduced borrowing costs, consumers should be able to afford nicer vehicles. Well, check that – they’ll be able to finance nicer vehicles. Considering that we live in a buy now, pay later society, I can see CarMax sales rising.

Of course, it must be reiterated that the bullish argument for KMX stock is incredibly risky. For example, analysts see fiscal 2024 revenue reaching only $26.76 billion. That’s almost 10% down from last year’s print. Still, a monetary policy pivot is a major deal. Therefore, KMX could be one of the stocks to buy on rate cut.

B2Gold (BTG)

b2gold (BTG) logo on a web browser enlarged by a magnifying glass
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Falling under the basic materials industry, B2Gold (NYSEAMERICAN:BTG) as the name suggests is a gold producer. As such, it’s an obvious idea for stocks to buy on rate cut. Accelerated money velocity should bode well for commodities, especially the precious metals. Further, the rise of tech stocks means that gold demand may be augmented by multiple catalysts, not just inflation-related concerns.

After all, gold being an excellent conductor of heat and electricity is well represented in the electronics space. Combine that with monetary policy risks and the yellow metal could perform quite well this year. Indeed, the precious metal has enjoyed a strong run since the beginning of January. As economic jitters increase, gold miners should start accruing the benefits.

To be fair, BTG suffered a slow start to 2024. Much of the pensiveness is related to analysts’ less-than-encouraging fiscal 2024 revenue forecast of $1.76 billion. That’s off 9.2% from last year’s print. Still, the soaring gold price may require a revisiting of this assessment.

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.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.

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