Rate cuts may finally be upon us. After a tentative few months, inflation is showing signs of faltering and the market is beginning to price in rate cuts coming as early as September. The possibility has encouraged investors and institutions to start rotating out of large-cap and mega-cap companies, and rotating into small-cap stocks. These companies would benefit from rate cuts as they lower the cost of capital, allowing the companies to invest more at a lower cost.
This would increase the rate of growth for small-cap stocks, which makes them more attractive investments than large-caps as they have largely matured and will no longer offer eye-popping returns.
Hawaiian Electric Industries (HE)
As the name suggests, Hawaiian Electric Industries (NYSE:HE) is a utility company based in Hawaii that also operates a banking division. It is responsible for the majority of the electrical throughput in Hawaii’s main islands and is currently trading at $12.81, up almost 33% over the last month.
Quarterly revenues seem hit or miss. It has greatly disappointed investors in the last three of four quarters. Quarterly revenue was down by 3.30% and earnings are down 23%. This change can be attributed to the Hawaii wildfires, which caused the company to invest heavily in rebuilding the state’s infrastructure. With infrastructure still recovering, the revenue and earnings are bound to grow over the long term.
The company needs access to capital and recently received permission to take on $250 million in loans to help with rebuilding efforts. The quicker the rebuilding happens, the faster operations go back to normal. Rate cuts will allow Hawaiian Electric to do this at a lower cost. It makes HE stock one of the best small-cap stocks to buy.
Serve Robotics (SERV)
Serve Robotics (NASDAQ:SERV) develops advanced AI-powered, zero-emission delivery robots, focusing on sustainable and economical solutions for last-mile delivery. It was spun off from Uber Technologies (NYSE:UBER) in 2021. Serve has completed tens of thousands of deliveries and has scalable multi-year contracts.
SERV stock has popped off recently, gaining over 12% on July 18. However, the company has yet to see profitability and is incurring losses and consequently racking up debt. This debt has amounted to over $8.47 million, while the company only has $427,480 in cash. With lower interest rates, the company will get the chance to refinance its debt, leading to lower expenditure on interest. Like for other companies, it will also lower the cost of capital. That, of course, is a big focus for small-cap tech companies, which require significant investment in research and development.
The company enjoys the support of big industry names like Uber and NVIDIA (NASDAQ:NVDA). The company is poised to greatly benefit from the Fed’s rate cuts, and investors should jump onto it. It should be noted that Serve Robotics is soaring 75% after hours today on no known news being released.
Humacyte (HUMA)
Humacyte (NASDAQ:HUMA) develops and manufactures bioengineered human tissues for treating various diseases and conditions. Its products include off-the-shelf, implantable tissues aimed at addressing needs across multiple therapeutic areas. The company focuses on providing innovative solutions for conditions affecting different anatomic locations.
HUMA stock is currently trading at $8.17 with a market cap of $972.9 million. Although the company is losing money now, $31.9 million in Q1 2024, fundamental analysis suggests that might change. The company’s focus on expanding its product pipeline and improving operational efficiency could lead to significant growth.
With anticipated Fed interest rate cuts, Humacyte will benefit from cheaper capital.That will allow it to focus on developing newer technology and better products. Additionally, recent collaborations, such as the one with Pluristyx to enhance their bioengineered tissue development, will further drive up the stock price.
On the date of publication, Achintya Pasricha 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.
