More than four years have passed without a government cut in interest rates. Federal ReserveThat changed on Wednesday when the Federal Reserve cut rates by an unexpectedly large 0.5%.
Initial investor reactions were muted. However, the stock market soared on Thursday as they digested the impact of the big rate cut. Even better, the Federal Open Market Committee indicated that interest rates could be reduced by another 0.5% by the end of the year.
The Federal Reserve's move could be the key to injecting more momentum into the bull market that began in late 2022. And it presents a great opportunity for investors. Below are three stocks worth buying in bulk.
1. Energy of Domain
Utility stocks are typically boring. They move slowly, attracting mostly income-seeking investors. However, the story has been very different for many utility companies in 2024. Energy of the domain (NYSE: D) is a great example. The stock is up more than 20% so far this year.
I think the Fed's rate cuts will further boost Dominion Energy's stock price. Lower rates translate into lower borrowing costs. That's great news for Dominion, which has about $8.3 billion in debt maturing over the next three years and a $6 billion credit line.
Bond yields also fall when rates fall, prompting many investors to seek higher income. Dominion Energy looks like a great alternative, with a forward dividend yield of around 4.7%.
Even stocks are unlikely to benefit from the rise of artificial intelligence (AI). Dominion Energy serves Northern Virginia, a region that is a world leader in data centers.
2. Doctor Horton
Dr. Horton (NYSE: DHI) It hasn't needed lower interest rates to generate spectacular gains. The homebuilder's shares have soared nearly 30% this year after skyrocketing 70% in 2023.
But make no mistake: Rate cuts will help DR Horton considerably. Mortgage rates typically fall in lockstep with interest rates, and when they do, new homes become more affordable. That's music to the ears of DR Horton shareholders.
DR Horton ranks as the largest homebuilder in the U.S. in terms of volume. The company operates in 121 markets across 33 states and closed a whopping 94,255 home purchases during the 12 months ending June 30, 2024. If any stock benefits from the lower mortgage rates resulting from the Federal Reserve’s move, it will be DR Horton.
DR Horton also has a significant long-term tailwind. Fannie Mae estimates that the country needs around 4.4 million new homes, which represents about ZillowAccording to the latest estimates, the shortage is as high as 4.5 million. The only solution to this shortage is to build new housing.
3. Real estate income
Real estate income (NEW YORK STOCK EXCHANGE:O) hasn't been a big winner in 2024. Its share price is in positive territory so far this year, but not by much. However, this real estate investment trust (REIT) has been on a tear over the past 12 weeks, with much of the momentum coming from anticipation of interest rate cuts.
REITs are similar to utilities in some ways. Both often borrow to fund their expansion and often offer healthy dividends. As a result, REIT and utility stocks tend to be highly sensitive to interest rates.
I believe lower rates will make Realty Income even more attractive to income-seeking investors who are transitioning out of bonds. The REIT's forward dividend yield is 5.2%, and Realty Income pays its dividend monthly. Even better, the company has increased its dividend for 27 consecutive years.
Like Dominion Energy, Realty Income is expected to benefit from rising demand for AI. The company sees the data center market as a lucrative growth opportunity. It is also looking to expand in Europe, which has an estimated total addressable market of $8.5 trillion.
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Keith Speights The Motley Fool has positions in Dominion Energy and Realty Income. The Motley Fool has positions in Realty Income and Zillow Group and recommends them. The Motley Fool recommends Dominion Energy. The Motley Fool has a Disclosure Policy.
The Federal Reserve Just Cut Interest Rates: 3 Stocks Worth Buying By the Bucket Originally published by The Motley Fool
