3 stocks to consider buying before interest rates get slashed

With interest rate cuts very much on the cards for 2024, I’m tempted to buy these three stocks if they benefit from any reduction.

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A tiny detail escaped many when the Bank of England’s monetary policy committee met last month. This small move is worth paying attention to for anyone looking for stocks to buy.

The nine members of the committee voted on interest rates and not one voted for a rate rise. So every person voted to hold or lower rates. 

That’s the first time this has happened since September 2021, sending a very clear signal to the markets: rates are coming down. 

Here are three FTSE 100 stocks I think could be good buys before the first rates cut, which could arrive as early as June. 

Big banking

Big banks will have their fingers crossed that rates don’t drop too fast – because more expensive borrowing widens margins and fattens earnings. 

Lloyds (LSE: LLOY) has been printing money of late and has the cash on hand to boost its dividend to over 5%, rising to 6% in 2024 and nearly 7% in 2025.

But banks also suffer more defaults when rates are high. Costly loans and mortgages are harder to pay and the average person isn’t exactly flush with cash, given the cost-of-living crisis. 

Lloyds, which loans out more mortgages than any other lender and booked a £1.5bn impairment charge last year, might welcome a fall in rates for these reasons. 

The bank looks to me like a good stock to buy although I’m happy with size of my position at present.

Cheap homes

With financing costing 5% or more, fewer people are taking out mortgages and that’s resulted in housebuilders like Persimmon (LSE: PSN) building fewer homes. 

The Persimmon shares have also suffered, still down 61% from their pre-pandemic high. 

A buying opportunity? I think it could be. I’m tempted to buy more.

The housing market should recover as rates come down and Persimmon is poised to take advantage. 

The housebuilder makes the cheapest homes around. Its houses sold for an average £256k in 2023, around 20% cheaper than other builders. 

These cheap homes haven’t deterred homebuyers and Persimmon properties have sold well in the last decade. 

Consumer goods

The upcoming fall in interest rates will, we all hope, be twinned with a stronger UK and global economy. 

With a fair wind, consumer spending should rise and boost cash flows of consumer goods firms like Unilever (LSE: ULVR). 

Unilever looks like a cheap buy at present, trading at 17 times earnings. 

Compare that with American rivals Procter & Gamble, at 26 times earnings, or Johnson & Johnson, at 29 times earnings. 

Its well-loved brands like Persil, Hellmann’s, Cornetto, or Dove are well-entrenched as number one names too.

What are the risks? Well, new CEO Hein Schumacher is shifting gears after a wobbly few years for the share price.

He’s mulling a spin-off of the ice cream part of the business, for one. 

But the shares lagging 25% behind recent highs looks attractive. I’d buy the shares given spare cash.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

John Fieldsend has positions in Lloyds Banking Group Plc and Persimmon Plc. The Motley Fool UK has recommended Lloyds Banking Group Plc and Unilever Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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