These FTSE 100 stocks could benefit from falling interest rates!

Could further interest rate cuts send FTSE 100 stocks upwards? Our writer thinks so, and details two picks she likes.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Bank of England (BoE) last week announced its first interest rate cut in this cycle. I believe plenty of FTSE 100 stocks could experience better fortunes ahead if this trend continues.

Two stocks on my radar are Barratt Developments (LSE: BDEV) and Unilever (LSE: ULVR).

Here’s why I’d love to buy some of their shares when I have the cash to do so.

Should you invest £1,000 in Barratt Developments right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Barratt Developments made the list?

See the 6 stocks

Barratt Developments

Higher interest rates, as well as inflation, had a negative impact on the housing sector and firms like Barratt. Building costs soared, eating into margins, and consumers were unable to obtain costlier mortgages. These consumers were too busy battling with other issues such as higher energy costs.

These issues are ongoing risks. Inflation may have come down, but could creep up once more. Furthermore, the first interest rate cut has occurred, but there’s no guarantee that further cuts are on the way. Barratt could find completions, sales, earnings, and returns are impacted moving forward.

From a bullish view, Barratt is in a prime position to benefit from continued rate cuts, in my view. Firstly, inflation coming down means building is cheaper, without having to compromise on quality. This could stimulate completions. In terms of selling, consumers may have more money in their pockets due to the factors mentioned, and the house buying market could rise once more with more affordable mortgages. This would be good news for Barratt’s shares, earnings, and shareholder returns.

Next, the shares look excellent value for money right now on a price-to-earnings ratio of just over seven. Plus, a dividend yield of 5.5% is attractive for passive income. However, I do understand dividends are never guaranteed.

Unilever

Like Barratt, economic volatility has hurt Unilever, which specialises in premium branded goods. The rise of essential ranges from leading supermarkets, as well as disruptors Aldi and Lidl, have hurt the business, and its shares. This is because consumers are looking to make their money stretch further. There is every chance some consumers stick with cheaper alternatives even with more money in their pockets, and this is a risk I’d keep an eye on as it could dent Unilever’s performance, shares, and returns.

Moving to the other side of the coin, it’s hard to ignore Unilever’s brand power, wide presence, and previous track record. However, it’s worth noting that past performance isn’t any form of guarantee of the future.

In addition to this, a recent strategy undertaken by the firm to dispose of lesser performing brands and invest in those propping up the business could catapult the firm and its performance levels to new heights.

As well as having defensive traits — consumers need to eat, clean, and carry out other essential day to day tasks — the fundamentals for Unilever look good too. The shares trade on a price-to-earnings ratio of 20. I’d consider this a premium, but still cheaper than historically. However, I personally have no issues paying a fair price for a wonderful company. Finally, a dividend yield of 3.1% sweetens the investment case.

Should you invest £1,000 in Barratt Developments right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Barratt Developments made the list?

See the 6 stocks

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.

Sumayya Mansoor has no position in any of the shares mentioned. The Motley Fool UK has recommended Unilever. 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.

We think earning passive income has never been easier

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing Articles

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Investing Articles

This S&P 500 giant just fell 16% after hitting an all-time high. Time for me to sell?

Mark Hartley considers whether to keep holding his Axon Enterprise shares after the S&P 500 stock plummeted from fresh highs…

Read more »

Young Black woman using a debit card at an ATM to withdraw money
Investing Articles

Is this a FTSE 100 stock to consider? Major US brokers think so!

Mark Hartley considers the investment potential of a leading FTSE 100 bank after two major US brokers put in positive…

Read more »

Investing Articles

As Lloyds launches a £1.7bn buyback, is the share price too cheap to ignore?

Car loan mis-selling and a full-year profit miss combine to push the Lloyds share price up after FY results. It…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

Here’s how investors could target £4,973 in passive income from a £10,000 holding in this FTSE 250 media gem

This FTSE 250 firm generates a very good yield that I think might deliver exceptional returns over time. And it…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

Down 21% from May despite excellent Q4 2024 results, is GSK’s share price an irresistible bargain to me now?

GSK’s share price has fallen a long way on a combination of factors, but do its recent strong results leave…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

Which would I buy today, the FTSE 100 or the S&P 500?

The UK's FTSE 100 and US S&P 500 indexes are both trading near record highs. But US stocks look expensive…

Read more »

Investing Articles

I’m in 2 minds about the Vodafone share price. What should I do?

With the Vodafone share price seemingly stuck in a never-ending loop of doom, our writer’s thinking about selling up. But…

Read more »

Investing Articles

£10,000 invested in Greggs shares 10 years ago is now worth…

Greggs shares have performed well over the long run, but recently performance isn’t impressive. Dr James Fox explores the waning…

Read more »