3 Stocks to Own if Interest Rate Cuts Are on the Horizon

Stocks to buy

Many experts suggest the Federal Reserve will initiate rate cuts soon, making the stocks of rate-sensitive firms attractive. While terminal rate uncertainty remains, we are likely encroaching on the end of the rate hiking road.

The recent U.S. inflation report indicated lower-than-expected inflation, with core inflation and employment aligning with expectations. While a 25 basis-point hike remains possible, some officials were contemplating a pause earlier.

And so, it may be too late to buy stocks once the Federal Reserve reverts toward its playbook of cutting rates. For those looking to buy when the buying is good, consider these three stocks right now.

Shopify (SHOP)

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Shopify (NYSE:SHOP) shares surged as MoffettNathanson analyst Michael Morton upgraded the stock from “market perform” to “outperform”. With a $76 price target, it signaled a potential 15.9% increase. The analyst consensus is a “hold” with a lower average price prediction of $59.42 per share.

Shopify shares plummeted 86.6% in the 2022 bear market, a rarity for a stock still holding potential. With stock rebounding around 200% from its low, investor optimism is growing. Recent earnings beat with nearly 26% year over year (YoY) sales growth. Yet, managing costs for growth is crucial for pleasing shareholders.

Similar to Amazon, Shopify shares have risen for four consecutive months, experiencing a significant surge of almost three times from its low point. Analysts project approximately 20% revenue growth for this and next year. The latest earnings report emphasized sales growth and cost management. This indicates that Shopify’s growth may continue with the ongoing expansion of e-commerce.

PayPal (PYPL)

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PayPal (NASDAQ:PYPL) posted strong Q2 financial results with an 8% YoY revenue increase and a 24% rise in earnings per share (excluding certain items). The company’s extensive payment network comprises approximately 400 million active consumer accounts and around 35 million active merchant accounts. Leveraging the network effects and the growing adoption of digital payments, PayPal is poised for sustained, remarkable growth.

PYPL has stirred discussions in the crypto trading realm with the launch of its stablecoin, PayPal USD (PYUSD), in collaboration with Paxos Trust Company. The stablecoin is pegged to the U.S. dollar and enables easy exchange on a one-to-one basis. According to PayPal’s CEO, Dan Schulman, this move is aligned with the shift towards digital currencies, providing a stable and digitally native instrument that can connect seamlessly with fiat currency.

As inflation moderates, potential is increased for discretionary spending, boosting e-commerce. PayPal, a digital payment leader, stands to gain from this as a result. PayPal has shown robust revenue growth, effective expense control, and a focus on margin expansion. With ongoing investments in AI, innovation, and platform enhancements, the company is positioning itself for long-term success.

Unity Software (U)

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Unity Software (NYSE:U) plays a vital role in the metaverse puzzle, capturing roughly half of the global game engine market. Its widespread usage allows the creation of diverse 3D experiences across platforms.

Also, Unity’s strong earnings, surpassing sales forecasts and raising revenue projections, underscore its growth momentum. Additionally, its partnership with Apple (NASDAQ:AAPL) for 3D apps adds to its achievements.

Unity’s strong ties to the gaming industry position it as a pioneer in the web3 realm. Its software has been instrumental in crafting over 60% of the world’s 3D content. This appeals not only to game creators but also to metaverse developers like BORN. 

Moreover, Unity’s collaborations with platforms like Insomniac Events underscore its role in forging new virtual landscapes. As metaverses are closely aligned with gaming, Unity is poised to play a central role, aligning with Microsoft CEO Satya Nadella’s view that metaverses essentially form the basis of games.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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