3 Stocks to Buy as Rate-Cut Hopes Power Them Higher

Stocks to buy

Although the Federal Reserve remains committed to an aggressively hawkish monetary policy for now, that trajectory is not guaranteed to hold indefinitely. That fact bodes well for certain stocks to buy for interest rate cuts.

Diving deeper, the latest report showcases a dip in hourly wages, placing the Fed in a tight spot. On one side, they’re combating inflation, but they also can’t sideline the labor market’s health. This wage drop may ripple through the economy, dampening consumer spending and challenging sectors reliant on discretionary income.

Moreover, continual increases in borrowing costs can choke off innovation. That’s particularly concerning as industries like artificial intelligence (AI) stand on the brink of widespread integration. As the Fed navigates these challenges, astute investors should keep their eyes peeled for stocks to buy for interest rate cuts.

In this unpredictable market landscape, foresight could be golden.

Starbucks (SBUX)

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For many in corporate America, the daily caffeine jolt is non-negotiable. Yet Starbucks (NASDAQ:SBUX) finds itself grappling with the trade-down effect, especially against lower-cost competitors like McDonald’s (NYSE:MCD). Amid inflation and mounting borrowing costs, consumers are increasingly leaning towards these cheaper alternatives.

But there’s something magnetic about Starbucks. Beyond the caffeine, there’s an addiction to its iconic brand experience, which makes SBUX quite compelling.

Should interest rates taper off and the job market swell, Starbucks could very well rise as one of the prime stocks to buy for interest rate cuts. Yes, SBUX carries a premium, trading at 3.2x trailing-year sales. Yet that valuation encapsulates a globally recognized brand, consistent growth, and a robust profit trajectory.

Analyst sentiment offers more encouragement. They rate SBUX as a Moderate Buy, setting an average price target of $116.53. That suggests a promising 20% upside, making that cup of coffee look even more tempting to investors.

Sempra (SRE)

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Whenever I discuss the ebb and flow of market dynamics, Sempra (NYSE:SRE) invariably comes up in the conversation. Ordinarily, I spotlight this entity when discussing the impact of rising interest rates. The logic is elementary: Utility bills are one of those inescapable aspects of life. However, Sempra intriguingly stands as a dual-edged sword, qualifying as one of the stocks to buy for interest rate cuts as well.

How does that work? Well, Sempra currently offers an appealing forward dividend yield of 3.26%. While many investors turn to utility giants like SRE due to their stable, almost recession-proof nature, a dip in interest rates would paint this yield in an even more favorable light.

Especially when juxtaposed against the returns from government-backed bonds, SRE could be perceived not just as a protective play. But it’s an attractive income opportunity in its own right.

Another undeniable advantage? Sempra predominantly caters to Southern California, a region renowned for its affluence and economic robustness. Reflecting this potential, analysts give SRE a Moderate Buy recommendation, setting a price target at $81.95. That suggests room for over 12% upside.

Kelly Services (KELYA)

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One of the stocks I’ve been eyeing recently, especially in the context of interest rate cuts is Kelly Services (NASDAQ:KELYA). At its core, Kelly offers a value that’s intrinsically understood by every business leader — the streamlined recruitment process.

With anticipated interest rate cuts potentially rejuvenating the labor market, businesses will grapple with an influx of applications. As the volume grows, it’s not only about finding a candidate but about finding the right fit quickly and efficiently. That’s where Kelly’s expertise truly shines.

Beyond this streamlined service, Kelly’s offerings are impressively diverse, defying the stereotype of a typical staffing agency. It’s not just about populating cubicles; its vast network accommodates the demand for warehouse roles, manual labor jobs and a spectrum of roles in between.

Financially speaking, KELYA presents a compelling case for stocks to buy for interest rate cuts. KELYA’s forward earnings multiple sits at a mere 10.3x, a noticeable discount compared to the sector median of 14.54x. Essentially, you’re looking at a stock undervalued relative to nearly three-quarters of its industry counterparts.

Reflecting this underlying potential, analysts lean towards a Moderate Buy stance on Kelly Services. A projected price target hovering at $25.50 suggests an enticingly bullish horizon, with upside potential reaching about 40%.

On the date of publication, Josh Enomoto 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.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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