There are two FTSE 100 shares that I think investors should consider buying before potential interest rate cuts. They are Persimmon Homes (LSE: PSN) and Unilever (LSE: ULVR).
Here’s why!
Rate cuts pending?
Higher interest rates have put pressure on many businesses, in the form of financials, performance, and investor sentiment.
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For some stocks, lower rates could spell greener pastures for trading, consumer spending, and general investor sentiment, too.
Let me be clear, there are no guarantees rates will come down anytime soon. However, many economists reckon we may be close to the Bank of England (BoE) finally taking the plunge.
How could Persimmon and Unilever benefit? Furthermore, are they good investments? I think so!
Implications of rate cuts
The whole property sector, including house builders, commercial, and residential sectors, has been beaten down due to higher rates, as well as inflation.
If rates and costs come down, Persimmon could build more houses with potentially bigger margins. Plus, with mortgage rates potentially following interest rates downwards, more home sales could be on the horizon. This could spell good news for the firm’s coffers, and hopefully, boost shareholder value.
From Unilever’s perspective, weakened consumer spending, especially for more premium brands, has hurt the firm, and its share price. In fact, the business is currently trading at levels not seen for a while. Rate cuts could again promote consumer spending, some of that on the luxury brands we all love to enjoy. In turn, this could send the shares up, and boost performance and returns.
The investment case
Persimmon is one of the largest housebuilders in the UK, and over the longer term could capitalise on the housing imbalance in the UK. In simpler terms, demand is outstripping supply.
Looking at some fundamentals, the shares look decent value for money on a price-to-earnings ratio of just 15. Plus, a dividend yield of 4.7% looks well covered for now with a decent balance sheet. However, I’m conscious dividends are never guaranteed.
Naturally, there are risks to contend with. Interest rates may come down, but rising costs of materials due to inflation may not follow suit. A higher cost of building, without being able to push up prices, could result in tighter margins. This could impact investor sentiment and returns.
I’m buoyed by Unilever’s brand power, as well as wide reach. The firm’s long track record is also hard to ignore. This current dark economic cloud is not its first rodeo, and it knows how to emerge from the other side in good shape. Plus, a recent strategic decision to dispose of lesser performing brands and invest in better ones, could take the business to new heights.
From a fundamentals view, the shares also look decent value for money on a price-to-earnings ratio of 16. Plus, its dividend yield of 3.7% is attractive too.
Finally, from a bearish view, I’m a bit concerned about changing shopping habits. This is primarily related to supermarket disruptors eating up market share and replicating popular products, as well as the rise of discount retailers, such as fellow FTSE 100 incumbent B&M. I’ll keep an eye on performance updates to see if there’s any impact on performance.
