With the next Federal Reserve decision looming, identifying stocks to buy before the next Fed decision is vital to optimizing portfolios. Learning a company’s fundamentals is also vital as it reveals its financial health, strategic initiatives, and market positioning.

A diversified REIT, or real estate investment trust, stands out due to its strategic investments across various sectors and geographies, boasting high occupancy rates and robust returns, which could improve further with lower borrowing costs.

The homebuilding industry, represented by a leading homebuilder with strong financial metrics and effective inventory management, is poised to gain from increased mortgage affordability spurred by lower interest rates, boosting home sales.

Additionally, a home improvement retailer focusing on expanding its Pro customer base and leveraging strategic acquisitions is well-positioned to capitalize on increased consumer spending in a favorable economic environment.

Each company is strategically aligned within its industry to benefit from potential rate cuts, making them solid picks for optimizing portfolios ahead of the Fed’s decision.

Realty Income (O)

Realty Income (NYSE:O) is a diversified real estate investment trust focusing on retail, industrial and data centers. The company leverages diversification across geography, asset types and clients.

Beginning in 2023, rate hikes adversely impact the company’s market value due to its high debt levels.

In the same relationship, a rate cut may boost Realty Income’s stock value.

In Q1 2024, Realty Income invested $598 million. This investment had a 7.8% initial weighted average cash yield. Over half, $323 million, was in Europe and the U.K. The yield was 8.2%, and this strategy optimizes risk-adjusted returns and mitigates risks. 

Moreover, Realty Income’s portfolio health is strong, reporting a 98.6% occupancy rate. This rate was consistent with the projections for the previous quarter. Realty Income achieved a rent recapture rate of 104.3%.

This rate was on 198 renewed or re-leased leases. Further, the portfolio has over 1,500 clients. These clients are across all the U.S., the U.K and six Western European countries.

This diversification underscores the resilience of its cash flow. Overall, geographic and asset-type diversification ensures stable returns and makes Realty Income a high mark among the top stocks to buy before the next Fed decision.

DR Horton (DHI)

DR Horton (NYSE:DHI) is a leading homebuilder. It has sharp inventory management and strong financial metrics.

The company’s return on equity and homebuilding return on inventory are notable. For the trailing 12 months, D.R. Horton reported a homebuilding ROI of 29.5% and an ROE of 21.5%.

These metrics highlight the company’s effective asset and equity management. Indeed, this generates substantial returns, driving the street’s confidence and growth.

D.R. Horton has strong inventory management and sales efficiency, closing 24,155 homes in the third quarter, a 5% increase from last year. 

Further, home sales revenue increased 6% to $9.2 billion with an average closing price of $382,200. This is up 2% sequentially and 1% year-over-year.

Moreover, the company maintains a large inventory of 42,600 homes with an average selling price of $380,000. This positions D.R. Horton to hit market demand and consolidate higher market share.

Improved construction cycle times enhance the operational edge. Certainly, D.R. Horton will benefit from an upcoming rate cut based on reduced mortgage rates and price reductions that will reduce affordability challenges.

Finally, the company’s solid returns and large inventory ahead of a rate cut solidify its presence among the top stocks to buy before the next Fed decision. 

Home Depot (HD)

Home Depot (NYSE:HD) is a home improvement retailer with a strong pro-customer focus. It operates in a $45 trillion residential asset class, which represents the installed base of homes in the U.S.

Moreover, Home Depot serves an addressable market of about $1 trillion. The biggest opportunity lies with the residential pro contractor, with a total addressable market of $250 billion.

Home Depot will be on edge after the Fed initiates a rate cut, as this will promote spending on residential improvements. This highlights significant growth potential.

The Pro ecosystem includes expanded fulfillment options, a dedicated sales force, specific digital assets, trade credit and order management capabilities. This ecosystem is expanding to 17 markets by fiscal year-end. 

Indeed, these mature markets outperform other large Pro markets, suggesting the success and scalability of this initiative.

Home Depot plans to acquire SRS, a residential specialty trade distributor. SRS operates in three large, fragmented specialty trade verticals, complementing Home Depot’s Pro ecosystem. The acquisition will enhance Home Depot’s service to specialty trade Pro customers.

Overall, strategic acquisitions and ecosystem development have derived Home Depot’s growth potential and solidified its position on the top stocks to buy before the next Fed decision.

As of this writing, Yiannis Zourmpanos held a long position in O. 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.