Have you noticed the headlines about potential interest rate cuts this year? I bet your portfolio has, too. The potential for the Federal Reserve to begin cutting interest rates is a big deal. Indeed, such a move could mean big upside for some unloved stocks in 2024.
Inflation is cooling, and the economy seems strong enough for the Fed to step back and take a breather. Rate cuts could come as early as this spring. That means now could be the perfect time to grab shares in a few companies that should pop when interest rates fall.
Higher rates have bruised many stocks as borrowing got pricier and customers pulled back on spending. But those stocks could bounce back fast when interest rates decline. Thus, it is a good idea to snap up some of these beaten-down names before the Fed capitulates to the market, and investors pile in.
These companies have solid businesses that should thrive again as capital becomes cheaper and demand recovers. Let’s dive in!
Aehr Test Systems (AEHR)
Aehr Test Systems (NASDAQ:AEHR) nosedived 71% from its peak in September 2023. This has led many investors to ask – what gives?
Blame the overall EV market slowdown for dragging this semiconductor firm down, or blame higher interest rates. Aehr provides critical testing equipment to EV-related chipmakers. So, when Tesla (NASDAQ:TSLA) and other EV makers hit speed bumps from higher rates, it rocks Aehr’s business as EV-related semiconductor demand decelerates.
But I believe Aehr has promising upside when rates fall, especially considering EV adoption still stands at just 1% of vehicles on roads globally. Thus, the company’s long-term growth story remains intact. Aehr has no worrisome debt levels, and a strong balance sheet to boot.
Despite the industry cooldown, analysts still forecast strong earnings per share growth of around 30% this year. Once the Federal Reserve cuts rates, renewed optimism should also recharge Aehr’s sales growth. Revenue expansion is expected to accelerate from 19% to 34% year-over-year in the company’s fiscal years from May 2024 to May 2025.
To me, that screams “buying opportunity.” Indeed, buying AEHR stock around 20-times forward earnings seems to be a bargain. This is a stock to buy before more investors catch on and bid the company’s share price higher.
Unlike Aehr, online lender Moneylion (NYSE:ML) has actually defied the market gloom and doom over the past year, with its stock up 90%. However, ML stock is still down 22% in 2024 after a slight Q3 revenue miss. To me, that looks like a temporary hiccup. There’s no reason to doubt this leading fintech disruptor over the long-haul.
Remember – softer rates typically translate into more risk-taking among financial institutions as lending volumes improve. Moneylion’s AI-powered lending platform should attract even more banking partners and customers when rates drop. Borrowing and lending activity has slowed lately amid interest rate-driven uncertainty. But clarity on the Fed’s path hiking (or cutting) path could bring back loan demand in a big way.
Moneylion’s management knows it, too. The CEO recently noted that the current rate fog has made lenders extra cautious. Once this fog lifts and interest rates fall, lending activity should pick back up. Moneylion is making big strides toward profitability, regardless. Analysts are projecting the company could reach that milestone in 2025.
For a fintech growing revenue of around 20% annually through that period, I’m happy to buy ML stock before the herd catches on.
Realty Income (O)
Real estate has felt understandably sketchy amid spiking interest rates. But I don’t believe Realty Income (NYSE:O) warrants the persistent 33% discount off its pre-2020 highs in the $80 per share zone.
In fact, real estate prices overall have climbed substantially higher since then, though they’ve dipped recently. Still, Realty Income managed to produce healthy 24% year-over-year revenue growth last quarter.
This is a company perfectly positioned to capitalize when mortgage rates drop and unleash pent-up housing demand. Many prospective home buyers have delayed their home purchase plans, choosing instead to stash their cash until lower mortgage rates return. Notably, Realty Income can also benefit from these lower interest rates, as its $21 billion in debt will become much easier to service as rates come down.
Best of all, investors can sit back, collecting 5.7% dividends while awaiting a rebound. With modest downside risk here, buying O stock at these levels makes sense, despite the current uncertainty in the real estate market. This is a long-term, income-producing cornerstone holding to buy ahead of the crowd.
On the date of publication, Omor Ibne Ehsan 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.