For those with long-term plans, here are three stocks to consider now.
For investors looking for long-term holdings, it can certainly be difficult to find companies at attractive valuations in sectors with growth prospects worth considering. With a wide range of AI stocks trading at high prices, the most underperforming areas of the market are areas that many investors are avoiding for one reason or another. Thus, there is a real paradox between overperforming and underperforming stocks right now.
That said, many of the companies in underperforming sectors of the market are companies with high interest rate risk. Rising interest rates are affecting companies to varying degrees. Below are three long-term stocks that I believe could benefit from lower interest rates in the near future.
For those who expect the Fed to cut interest rates and think they might do so more aggressively than the market thinks, here are three stocks to consider now.
Bank of America (BAC)
Source: Tero Vesalainen / Shutterstock.com
Bank of America (NYSE:BAC) has surprised many investors in this era of rising interest rates. The company's net interest margins have been adversely affected by an inverted yield curve for some time. This fact, combined with slowing capital market activity, undoubtedly had a significant negative impact on the company.
The problem is that Bank of America's size and dominance in the U.S. financial system was remarkable: when other smaller banks collapsed due to loan maturities or asset mismatches, Bank of America was one of the banks ready to buy their assets at a discount.
Now, these rapid rate increases are causing Bank of America to incur increased unrealized loan losses. These losses are primarily in its held-to-maturity portfolio and are expected to be fully recovered by maturity. Despite initial concerns, the market has clearly reacted favorably to the bank's adjusted outlook.
As interest rates fall and pressure on banks in general eases, I think BAC stock could be one of the better performing names in the space worth chasing, and for those with an investment horizon of 10 years or more, it could be a stock to chase right now.
Apple (AAPL)
Image source: Shutterstock
As one of the top long-term investment choices in the market, Apple (NASDAQ:AAPL) has historically delivered incredible stock price performance. This growth has led to Apple becoming the first company to reach a market cap of $3.5 trillion and now once again being the most valuable company in the world by market cap.
The company's strong cash reserves of $67 billion give it flexibility in its strategic focus. Recently, Apple has been dedicating significant resources to its AI-enabled product lineup and advancements in generative AI. This is providing positive momentum to the stock as investors reconsider the company's future growth trajectory.
Of particular note is Apple's strong financials, with a profit margin of 26.31% and an operating margin of 30.74%, suggesting efficient management. AAPL stock has consistently beaten analysts' target price estimates due to strong revenue growth and the strategic launch of an AI product exclusive to the iPhone 15 Pro, which will be a key offering that makes the company attractive as one of the market's top AI long-term stocks.
DR Houghton (DHI)
Source: Casimiro PT / Shutterstock.com
DR Horton (NYSE:DHI), the largest homebuilder in the United States by volume, has demonstrated strong revenue growth and potential over the past decade. Based in Texas, the company has a broad national presence to serve regional housing demand. Despite challenges such as rising material costs and labor shortages, DR Horton has remained relatively resilient.
For 45 years, the company has built and sold over 1 million homes in 33 states. To meet the growing investment real estate market, the company has focused on high-quality housing for moderate-income buyers, including single-family and multifamily rental properties. In addition, the company provides mortgage financing, title services, and insurance agency services to homebuyers.
Revenues increased 14% to $9.11 billion and net income increased 24% to $1.1 billion, or $3.52 per share, in the second quarter of fiscal 2024. Home closings increased 15% to 22,548, and net sales orders increased 14% year over year. Strong housing demand in 2024 underscores DHI as a top pick in the homebuilding sector. Lower interest rates could significantly increase this demand, further strengthening the company's outlook going forward.
On the date of publication, Chris McDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author in accordance with InvestorPlace.com's Publishing Guidelines.
As of the publication date, the responsible editor (directly or
We do not indirectly hold any positions in the securities described in this section.
His passion for investing led Chris McDonald to earn an MBA in Finance and hold a number of management positions in Corporate Finance and Venture Capital over the past 15 years. His previous experience working as a financial analyst and passion for finding undervalued growth opportunities has led to his conservative, long-term investment view.