Four-plus years passed without an interest-rate cut from the Federal Reserve. That changed Wednesday when the Fed lowered rates by an unexpectedly large 0.5%.
Investors' initial 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 Fed's move could be just the ticket to inject more oomph into the bull market that began in late 2022. And it presents a great opportunity for investors. Here are three stocks to buy hand over fist.
1. Dominion Energy
Utility stocks are usually boring. They plod along, primarily attracting income investors. However, it's been a much different story for many utilities in 2024. Dominion Energy (NYSE: D) is a great example. The stock has jumped more than 20% year to date.
I think the Fed's rate cuts will boost Dominion Energy's share price even more. Lower rates translate to lower borrowing costs. That's great news for Dominion, which has roughly $8.3 billion in debt reaching maturity over the next three years and a $6 billion credit facility.
Bond yields also fall when rates decline, spurring many investors to seek higher income. Dominion Energy looks like a great alternative, with its forward dividend yield of around 4.7%.
The stock is even an unlikely way to profit from the artificial intelligence (AI) boom. Dominion Energy serves Northern Virginia, a region that's the world leader in data centers.
2. D.R. Horton
D.R. Horton (NYSE: DHI) hasn't needed lower interest rates to deliver sizzling gains. Shares of the homebuilder have soared close to 30% this year after skyrocketing 70% in 2023.
Make no mistake about it, though: Rate cuts will help D.R. Horton considerably. Mortgage rates usually fall in lockstep with interest rates, and when they do, new houses are more affordable. That's music to D.R. Horton shareholders' ears.
D.R. Horton ranks as the largest homebuilder in the U.S. based on volume. The company operates in 121 markets in 33 states and closed on a whopping 94,255 homes during the 12 months ending June 30, 2024. If any stock benefits from lower mortgage rates resulting from the Fed's move, D.R. Horton will.
There's also a major long-term tailwind for D.R. Horton. Fannie Mae estimates the country needs around 4.4 million new homes, which is close to Zillow's recent 4.5 million estimate. The only solution to this shortage is building new homes.
3. Realty Income
Realty Income (NYSE: O) hasn't been a huge winner in 2024. Its share price is in positive territory year to date, but not by much. However, this real estate investment trust (REIT) has been hot over the last 12 weeks, with much of the momentum due to the anticipation of interest-rate cuts.
REITs are similar to utility companies in some ways. Both typically take on debt to fund expansion and often offer juicy dividends. As a result, REIT stocks and utility stocks tend to be highly sensitive to interest rates.
I think lower rates will make Realty Income even more attractive to income investors who are dumping bonds. The REIT's forward dividend yield is 5.2%, and Realty Income pays its dividends monthly. Even better, the company has increased its dividend for 27 consecutive years.
Like Dominion Energy, Realty Income should benefit from the surge in AI demand. The company views the data center market as a lucrative growth opportunity. It's also looking to expand in Europe, which has an estimated total addressable market of $8.5 trillion.
Should you invest $1,000 in Dominion Energy right now?
Before you buy stock in Dominion Energy, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Dominion Energy wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $694,743!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of September 16, 2024
Keith Speights has positions in Dominion Energy and Realty Income. The Motley Fool has positions in and recommends Realty Income and Zillow Group. The Motley Fool recommends Dominion Energy. The Motley Fool has a disclosure policy.
The Fed Just Cut Interest Rates: 3 Stocks to Buy Hand Over Fist was originally published by The Motley Fool