Stock market

Consider buying 3 stocks before interest rates drop.

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When the Bank of England’s Monetary Policy Committee met last month, one small detail escaped many. This small move is worth paying attention to for anyone looking to buy stocks.

Nine members of the committee voted on interest rates and none voted in favor of a rate hike. So everyone voted to keep or lower the rate.

This is the first time since September 2021, sending a clear signal to markets: rates are coming down.

Here are three FTSE 100 stocks that I think could be good buys ahead of the first price drop, which could arrive as early as June.

Big banking

The big banks will be crossing their fingers that rates don’t fall more quickly – because more expensive loans push up margins and fatten earnings.

Lloyd’s (LSE: LLOY) has been printing money of late and has the cash to raise its dividend to more than 5%, rising to 6% in 2024 and around 7% in 2025.

But when rates are high, banks also face more defaults. Expensive loans and mortgages are difficult to pay off and the average person does not have enough cash, given the cost of living crisis.

Lloyds, which lends on more mortgages than any other lender and booked a £1.5bn impairment charge last year, may welcome a rate cut for these reasons.

The bank looks to me like a good stock to buy even though I’m happy with the size of my position right now.

cheap houses

With financing costs at 5% or more, fewer people are taking out mortgages and as a result homebuilders e.g. persimmon (LSE: PSN) building less homes.

Persimmon shares have also suffered, still down 61 percent from pre-pandemic highs.

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

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

The home builder builds the cheapest homes around. Its homes sold for an average of £256k in 2023, around 20% cheaper than other builders.

These affordable homes have not deterred homebuyers and Persimmon properties have sold well over the past decade.

Consumer goods

The coming cut in interest rates, we all hope, will be coupled with a stronger UK and global economy.

With fair winds, consumer spending should increase and boost cash flow for consumer goods firms such as Unilever (LSE: ULVR).

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

Compare that to American competitors. Procter & GambleAt 26 times earnings, or Johnson & JohnsonAt 29 times earnings.

Its well-liked brands Purcell, Hellman’s, Cornettoor Pigeon Numbers also connect well as a name.

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

He’s considering a spinoff of the ice cream part of the business, for one.

But the shares, which are 25 percent off recent highs, look attractive. I will buy the shares given in spare cash.


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