After many years of inflation being above the target rate of 2%, it seems as though the Bank of England has steadied the price-rising ship. This is generally good news for investors, as it means that a brisk interest rate rise is less likely because the Bank of England is more fearful of deflation than inflation and, as such, is unlikely to risk pushing inflation too much lower via higher interest rates.So, with inflation low and the knock-on effect being an…
After many years of inflation being above the target rate of 2%, it seems as though the Bank of England has steadied the price-rising ship. This is generally good news for investors, as it means that a brisk interest rate rise is less likely because the Bank of England is more fearful of deflation than inflation and, as such, is unlikely to risk pushing inflation too much lower via higher interest rates.
So, with inflation low and the knock-on effect being an increased likelihood of lower interest rates for longer, here are 3 stocks that could stand to benefit.
Having experienced a disappointing first half of 2014, with its shares down 12% versus a gain of 1% for the FTSE 100, Barclays (LSE: BARC) (NYSE: BCS.US) screams value at current price levels. For instance, it currently trades on a price to earnings (P/E) ratio of just 10, which is very attractive when you consider that the FTSE 100 has a P/E of 14.2.
Furthermore, low inflation — and interest rates held lower for longer — could prove to be good news for Barclays since it may prompt more people to take out loans now, due to the continued availability of low interest rates. The fees and interest from such transactions could provide the bank with a short-term boost.
As ever, lower interest rates encourage people to spend. That’s why retailers such as Sports Direct (LSE: SPD) stand to benefit from interest rates being kept lower, with the company appearing to be well-positioned for future growth. Although it shares trade on a P/E of 19.4, Sports Direct is forecast to increase earnings per share (EPS) by 27% over the next year.
This puts the company’s shares on a price to earnings growth (PEG) ratio of 0.7, which is attractive and could become even more so if the company benefits from a short-term boost from World Cup merchandise sales.
With inflation being low and having the potential to keep interest rates lower for longer, high-yielding shares such as GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) could be the recipients of increased demand from investors. That’s because a yield of 5.1%, as currently offered by GlaxoSmithKline, is even more attractive when inflation and interest rates are low, since it provides an even greater real return and highlights the opportunity cost of not receiving attractive levels of income.
So, despite its shares being down 1% year-to-date, the second half of the year could be much stronger for GlaxoSmithKline.
Of course, Barclays, Sports Direct and GlaxoSmithKline aren't the only shares that could have a strong second half of 2014. That's why The Motley Fool has put together a free and without obligation guide that focuses on 5 Shares You Can Retire On.
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Peter owns shares in Barclays and GlaxoSmithKline. The Motley Fool has recommended GlaxoSmithKline.