The likelihood of a rate cut in the coming quarters is the biggest catalyst for equities. Higher interest rates have impacted consumption and investment spending. As GDP growth decelerates, there is a strong case for expansionary policies. From an investment perspective, there are blue-chip rate-sensitive stocks to buy for healthy returns. At the same time, there are meme stocks to buy before the rate cut for 100% to 300% returns in a quick time.
This column focuses on the rate-sensitive meme stocks to buy. As a first screener, I have chosen meme stocks that represent companies with good fundamentals. Further, my focus is on the upside in underlying assets that are likely to trigger a rally for these meme stocks.
In my view, rate cuts are likely to translate into a weaker dollar. This will be positive for asset classes that include gold, energy, commodities, and cryptocurrencies. Therefore, the stocks discussed are related to these asset classes.
Let’s also talk about the company-specific factors that will support a big rally in these meme stocks.
Bitfarms (BITF)
Bitfarms (NASDAQ:BITF) stock has trended higher by 60% in the last 12 months on the back of the rally in Bitcoin (BTC-USD). The stock still seems attractive considering the fundamentals and the aggressive growth plans.
Further, I believe that expansionary monetary policies are likely to be positive for cryptocurrencies. Therefore, as Bitcoin trends higher on rate cuts, it’s likely that BITF stock will go ballistic. I would bet on 2x to 3x returns from current levels in quick time.
Specific to Bitfarms, there are two points to note. First, the company has a strong balance sheet with zero-debt as of Q1 2024. A liquidity buffer of $124 million adds to the financial flexibility.
Further, Bitfarms has ambitious plans for hash rate capacity expansion. As of Q1 2024, the Bitcoin miner reported a capacity of 10.4EH/s. Bitfarms is planning to increase its capacity to 21EH/s by the end of the year and to 35EH/s by the end of 2025. With low-cost mining operations, the company is therefore positioned for stellar EBITDA and cash flow upside.
Ring Energy (REI)
Crude oil has gradually trended higher by almost 14% for year-to-date. Even with macroeconomic headwinds, oil has been in an uptrend on expectations of rate cuts. When the fed cuts rates, it’s likely that crude will trade near $100 per barrel. I therefore expect energy stocks to surge higher.
Ring Energy (NYSE:REI) stock has rallied by 35% year-to-date. I still believe that REI stock is undervalued. In a rate cut scenario, I would bet on 100% returns from current levels.
Recently, Ring Energy increased Q2 2024 sales guidance to 19,500 to 19,700 Boepd. Further, the energy company reduced its debt by $15 million in Q2. With expectations of higher oil prices, Ring Energy is likely to have increased flexibility to deleverage. As credit metrics improve in the coming quarters, I expect REI stock to trend higher.
I must add here that Ring Energy has 129.8mmboe in proved reserves. Further, the company has increased production at a CAGR of 26% between 2018 and 2023. It’s likely that production growth will remain robust and support cash flow upside.
IAMGOLD (GOLD)
IAMGOLD (NYSE:IAG) is another name that’s likely to double in quick time once the fed pursues rate cuts. It’s worth noting that gold is already trading above $2,400 an ounce. When expansionary policies are underway, it’s likely that the precious metal will be well above $2,500 an ounce. Gold miners are positioned to benefit from higher realized prices and IAMGOLD looks attractive among the smaller companies.
Of course, upside in gold is not the only reason to be bullish. IAMGOLD commenced production from the Côté asset in March. It’s among the largest gold mines in Canada, and it has a mine life through 2041. As production is ramped-up from the asset, IAMGOLD is positioned to deliver healthy growth. This, coupled with higher realized price, is likely to translate into robust cash flows.
It’s worth noting that in May, IAMGOLD completed a $300 million bought deal financing. With this, the company will increase its stake in Côté gold assets to 70%. Further, IAMGOLD ended Q1 with a strong liquidity buffer of $693.8 million. This provides ample flexibility to aggressively invest in exploration activities.
On the date of publication, Faisal Humayun did not hold (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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
