There are signals from the US that inflation rate cuts might not be too far off. Will the UK follow suit soon after? And which stocks should investors consider looking to for growth in the near and long term as a consequence?
Barclays
What it does: Barclays is a UK high street bank. It also has significant operations in investment banking and credit cards..
By Stephen Wright. I think a cut in interest rates is likely to be better for some banks than others. And Barclays (LSE:BARC) could benefit more than most.
Unlike the the other major UK banks, Barclays has an investment banking division. That’s been struggling since interest rates have been rising, but this could be about to change.
If that happens, things could pick up for the company. And I think the market agrees – the stock has been more volatile than its peers in response to recent interest rate news.
Investors considering buying the stock ought to be aware of the firm’s credit card exposure. Consumer spending has been reasonably strong recently, but it’s worth noting that credit card balances are rising.
As the bank with the largest share of the UK credit card market, this is something worth keeping an eye on. On balance, though, the risks and rewards look attractive to me at today’s prices.
Stephen Wright does not own shares in Barclays.
Centamin
What it does: Centamin is a FTSE 250 gold producer with working mines and exploration projects in Egypt and Côte d’Ivoire.
By Royston Wild. Gold stocks are likely to be among the biggest beneficiaries of interest rate cuts from the Federal Reserve from 2024. This is because precious metals prices would likely rise as:
- Looser monetary policy boosts inflation.
- The opportunity cost of holding these assets falls as savings rates drop.
- Rate drops weaken the US dollar, making it cheaper to buy commodities.
Centamin (LSE:CEY) is a potential growth stock I’m considering buying for these reasons. Today it offers excellent all-round value, trading on a forward price-to-earnings (P/E) ratio of 9.5 times and offering a corresponding 3.7% dividend yield.
Centamin has a strong recent record of meeting production guidance, and it is making solid strides in ramping up capacity at its flagship Sukari mine in Egypt. For 2024 it expects to produce between 470,000 and 500,000 ounces, up from 450,058 last year.
I also like this FTSE 250 operator because of its deep balance sheet. This included cash and liquid assets of $153m as of December.
Royston Wild does not own shares in Centamin.
JD Sports Fashion
What it does: JD Sports Fashion sells sports fashion and outdoor footwear and apparel.
By Paul Summers. It’s fair to say that investors in retailer JD Sports Fashion (LSE: JD.) have endured a pretty rotten start to 2024. The shares have tumbled by more than a third in value as I type.
Not that we should be surprised. Back in January, the company lowered its profit forecast for the full year citing a nasty mix of consumer belt-tightening, warmer-than-expected weather and higher costs.
Naturally, there’s always a chance things could get worse before they get better. The ongoing cost-of-living crisis means new trainers won’t be a priority purchase for most of us. But I reckon a rate cut or two will likely lead to a bounce in discretionary spending and a reversal in sentiment.
The valuation also looks compelling at just eight times forecast FY25 earnings. News that CEO Regis Schultz was busy buying stock in his own company in January is surely encouraging.
Paul Summers has no position in JD Sports Fashion
Kingfisher
What it does: Kingfisher operates retail and DIY stores, with 1,300 locations spread around nine countries
By Jon Smith. Given the sharp rise in interest rates, some consumers have been unable to get a mortgage and buy a property. The squeeze on higher bills has also meant that some have put DIY projects on hold. Both are negatives for Kingfisher (LSE:KGF), the DIY brand owner of Screwfix and B&Q.
The growth stock is down 19% over the past year, with higher interest rates a key indirect factor in my view. So if we see interest rates cut later this year, I feel the stock could rally. It should see higher demand from people spending more on home improvement projects.
Further, it will also lower the cost of new debt. This will help Kingfisher, given the £2.2bn worth of net debt it has on the books. I do see this large debt pile as a risk going forward and so it needs to be managed carefully.
Jon Smith has no position in Kingfisher.
Scottish Mortgage Investment Trust
What it does: Scottish Mortgage is an investment trust that focuses on owning exceptional high-growth, disruptive technology companies.
By Charlie Keough. I’m optimistic that we’ll begin to see interest rate cuts towards the tail end of 2024. I think Scottish Mortgage Investment Trust (LSE: SMT) could be a huge beneficiary of this.
With the trust’s focus being on owning exciting growth stocks, it has taken a beating in recent times. In high rate environments, these businesses, which are leveraged on debt, are less favourable to investors. However, as interest rates drop, I’d expect sentiment around the trust to pick up.
There are other reasons why I’m keen on the stock. I like the diversification it provides me with. It’s home to 99 companies, some of which are unlisted.
That said, there are risks. Any signal that central banks will delay cutting rates could see it suffer further. What’s more, investing in growth companies can be a risky endeavour.
However, as I write, it’s trading at a 12.8% discount to its net asset value. That means I’m buying the companies it owns for cheaper than their market rate. I like the sound of that.
Charlie Keough does not own shares in Scottish Mortgage.
