According to the CME Group's FedWatch Tool, there is a 57% chance that the Federal Reserve will cut interest rates by 25 basis points (one-quarter of a percent) at its September 2024 meeting. The anticipation of this action has been driving stocks higher despite the impact of lingering inflation on consumer spending and, potentially, corporate earnings.
However, many analysts believe the price action in stocks so far in 2024 is just the appetizer for a much larger movement if and when the Fed cuts rates. A distinguishing feature will likely be a broadening out of the market winners beyond the technology sector.
If you don't already have a watchlist, now would be a good time to start putting one together. In this special presentation, we list seven stocks that should perform well if the Federal Reserve cuts rates in September. And even if the Fed delays that cut, you'll be in a better position to take action when the rate cut eventually comes.
Quick Links
- Amazon
- Walmart
- UPS
- Tesla
- Energy Transfer
- D.R. Horton
- CrowdStrike
#1 - Amazon (NASDAQ:AMZN)
With a market cap of “only” 1.93 trillion, Amazon.com Inc. (NASDAQ: AMZN) feels like an afterthought among the Magnificent Seven stocks. But AMZN stock is up 20% in 2024, making it one of the year’s top-performing stocks.
Much of that growth is coming from the company’s Amazon Web Services (AWS) business. This is the company’s cloud computing business, which has a 31% market share in the cloud infrastructure market. AWS delivered $25 billion in revenue in its most recent quarter, a 17% year-over-year improvement.
That made up for slightly lighter revenue in its signature e-commerce business. Lower interest rates are likely to boost that area, but the analyst community is probably not pricing it in.
Amazon is already using its AWS business to enhance the artificial intelligence (AI) capabilities of its e-commerce unit. And a September rate cut would be like having a second Prime Day (which the company will hold in July).
About Amazon.com
Amazon.com, Inc engages in the retail sale of consumer products, advertising, and subscriptions service through online and physical stores in North America and internationally. The company operates through three segments: North America, International, and Amazon Web Services (AWS). It also manufactures and sells electronic devices, including Kindle, Fire tablets, Fire TVs, Echo, Ring, Blink, and eero; and develops and produces media content.
Read More - Current Price
- $195.89
- Consensus Rating
- Buy
- Ratings Breakdown
- 43 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $215.86 (10.2% Upside)
#2 - Walmart (NYSE:WMT)
Walmart Inc. (NYSE: WMT) has been a shining star in a flattish retail sector. The company continues to deliver year-over-year increases in revenue and earnings despite what are supposed to be tough comparisons.
One reason is that more affluent consumers are starting to shop at Walmart to manage inflation. That is likely offsetting the cutting back that’s happening in low- and middle-income consumers. To help those consumers, Walmart is lowering prices on thousands of products.
Like Amazon, WMT stock is having a solid start to 2024, up over 28%. That currently has the stock near the top of analyst estimates. Some analysts argue that a rate cut may benefit retailers that compete with Walmart. That may be true on the high end, but any relief that lower-income consumers get will benefit the company as well.
And since the company split its stock early in the year, investors can buy and hold WMT stock, collect a strong dividend now, and be set up for strong growth when the rate cuts take effect.
About Walmart
Walmart Inc engages in the operation of retail, wholesale, other units, and eCommerce worldwide. The company operates through three segments: Walmart U.S., Walmart International, and Sam's Club. It operates supercenters, supermarkets, hypermarkets, warehouse clubs, cash and carry stores, and discount stores under Walmart and Walmart Neighborhood Market brands; membership-only warehouse clubs; ecommerce websites, such as walmart.com.mx, walmart.ca, flipkart.com, PhonePe and other sites; and mobile commerce applications.
Read More - Current Price
- $67.41
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 27 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $70.41 (4.4% Upside)
#3 - UPS (NYSE:UPS)
United Parcel Service Inc. (NYSE: UPS) was the canary in the coal mine when it came to consumer sentiment. The package delivery giant’s stock is down 24% in the last 12 months and 16% in 2024 as it continues to forecast lighter volume.
UPS has been instituting cost-cutting measures to improve its bottom line, which is keeping its earnings per share (EPS) above forecast but down year-over-year.
That issue will take care of itself with higher consumer demand. As will the company’s debt, which is higher than it was 10 years ago at a time when it is costing the company more to service that debt.
Through it all, however, UPS has continued to reward investors with a high-yield dividend. That yield is currently 4.78%, with an annual payout of $6.52 per share - not a bad benefit to enjoy today as you wait for the stock price to get a lift from lower interest rates.
About United Parcel Service
United Parcel Service, Inc, a package delivery company, provides transportation and delivery, distribution, contract logistics, ocean freight, airfreight, customs brokerage, and insurance services. It operates through two segments, U.S. Domestic Package and International Package. The U.S. Domestic Package segment offers time-definite delivery of express letters, documents, small packages, and palletized freight through air and ground services in the United States.
Read More - Current Price
- $136.07
- Consensus Rating
- Hold
- Ratings Breakdown
- 10 Buy Ratings, 12 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $164.55 (20.9% Upside)
#4 - Tesla (NASDAQ:TSLA)
Since closing at over $400 per share in November 2021, Tesla Inc. (NASDAQ: TSLA) has had a rough two-and-a-half years. The company is facing pressure to deliver a lower-priced electric vehicle (EV) model to help blunt rising EV sales in China. It’s also on a mission to make autonomous driving a reality. Both initiatives require capital, and a weaker dollar could help lower the company’s borrowing costs as it funds these initiatives.
And lower interest rates may even be a stimulant for existing EV sales. If that’s the case, Tesla is well-positioned to capture a significant amount of that revenue. That's particularly true in the United States, where the company is far and away the market share leader among EV companies.
With the exception of strong price action around its first quarter earnings report in April, TSLA stock is chopping around near its June 20, 2024 price of approximately $183. The company is a favorite among retail investors, and a rate cut may be just the news event investors need to launch the stock higher.
About Tesla
Tesla, Inc designs, develops, manufactures, leases, and sells electric vehicles, and energy generation and storage systems in the United States, China, and internationally. The company operates in two segments, Automotive, and Energy Generation and Storage. The Automotive segment offers electric vehicles, as well as sells automotive regulatory credits; and non-warranty after-sales vehicle, used vehicles, body shop and parts, supercharging, retail merchandise, and vehicle insurance services.
Read More - Current Price
- $208.58
- Consensus Rating
- Hold
- Ratings Breakdown
- 11 Buy Ratings, 17 Hold Ratings, 6 Sell Ratings.
- Consensus Price Target
- $187.30 (10.2% Downside)
#5 - Energy Transfer (NYSE:ET)
The energy sector is likely to be a big winner from lower interest rates. Oil is already starting to rise due to geopolitical concerns, particularly concerns about an escalation and expansion of the Middle East conflict.
That should have you considering oil stocks. However, the case for Energy Transfer LP (NYSE: ET) is broader than that. For starters, Energy Transfer is a midstream company, which means its business model focuses on delivering oil through a network of pipelines. That makes it less sensitive to oil prices.
But that doesn’t mean you should completely ignore basic supply and demand dynamics. A growth driver for Energy Transfer will likely come from data centers' insatiable demand for natural gas. This demand is going to grow sharply in coming years, and after that, it will remain steady.
And ET stock is another high-yielding dividend player with a yield of 8.12%. That goes along with analysts’ projections for a 22% increase in the ET stock price.
About Energy Transfer
Energy Transfer LP provides energy-related services. The company owns and operates natural gas transportation pipeline, and natural gas storage facilities in Texas and Oklahoma; and approximately 20,090 miles of interstate natural gas pipeline. It also sells natural gas to electric utilities, independent power plants, local distribution and other marketing companies, and industrial end-users.
Read More - Current Price
- $16.25
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 7 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $19.29 (18.7% Upside)
#6 - D.R. Horton (NYSE:DHI)
D.R. Horton Inc. (NYSE: DHI) is one of the leading names among homebuilder stocks. This is another sector that’s likely to get a boost from lower interest rates. Not that 2023 was all that shabby. The industry is catching up to supply chain issues that brought it to a standstill in 2020 and much of 2021.
The game of catchup is underway, and D.R. Horton appears to be one of the beneficiaries. DHI stock is up 17.8% in the last 12 months, driven largely by a gain of over 60% from October 2023 through March 2024. Interestingly, Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK.B) purchased nearly 6 million shares of DHI stock in August 2023 but sold them by the end of the year.
The reason for that could be reflected in the analyst ratings for DHI stock that shows a consensus price with approximately 12% upside. However, two recent analyst opinions have a significantly higher price target, which suggests there could be stronger growth ahead.
About D.R. Horton
D.R. Horton, Inc operates as a homebuilding company in East, North, Southeast, South Central, Southwest, and Northwest regions in the United States. It engages in the acquisition and development of land; and construction and sale of residential homes in 118 markets across 33 states under the names of D.R.
Read More - Current Price
- $137.82
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 11 Buy Ratings, 4 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $158.31 (14.9% Upside)
#7 - CrowdStrike (NASDAQ:CRWD)
Cybersecurity is becoming a must-have service, not a nice-to-have service, and it will only continue to grow. AI is creating a new series of threats, and CrowdStrike Holdings Inc. (NASDAQ: CRWD) is well-positioned to help businesses of all sizes manage those threats.
One of the latest offerings from CrowdStrike is Charlotte AI, which is part of the company’s Falcon platform. Charlotte AI “enables users to unleash the transformative power of generative AI across security workflows.”
CRWD stock is up 156% in the last 12 months and 56% in 2024. Some investors may be concerned that there’s not enough upside to get involved. However, the company was just added to the S&P 500 index. This will cause more institutional investors to ensure they hold the stock in their funds, which should be enough to move the stock higher.
And even without the S&P 500 news, CrowdStrike is showing strong year-over-year revenue and earnings growth that is likely to continue.
About CrowdStrike
CrowdStrike Holdings, Inc provides cybersecurity solutions in the United States and internationally. Its unified platform offers cloud-delivered protection of endpoints, cloud workloads, identity, and data. The company offers corporate endpoint and cloud workload security, managed security, security and vulnerability management, IT operations management, identity protection, SIEM and log management, threat intelligence, data protection, security orchestration, automation and response and AI powered workflow automation, and securing generative AI workload services.
Read More - Current Price
- $384.00
- Consensus Rating
- Buy
- Ratings Breakdown
- 38 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $380.62 (0.9% Downside)
A common mistake investors make is fear of missing out (FOMO). There's nothing wrong with getting in on a stock late if it still has room to run. However, it's hard for investors to acknowledge that they may have missed out on a stock's rally. If you get in too late (buy the top), you could be trying to chase your losses for months or years.
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