With the Federal Reserve reducing interest rates by an unsurprising 25 bps on Wednesday, we’ve officially entered the next cycle of rate cuts. Indeed, lingering inflation has been a thorn in the side of consumers for many years now, but with Fed Chairman Powell sounding less concerned about price increases than at the start of the year, it seems like the path is set for a few more cuts before the year comes to a close.
With a quarter-point rate cut in the books and a signal for two more before 2025 concludes, the market seems mostly upbeat. Though, there was a very temporary intraday upset that dip-buyers were quick to take advantage of. Either way, I think the lack of surprises during the rate decision is a green light for stocks to continue marching higher. With the AI revolution playing out while rates go down, perhaps this healthy bull market is ready to go into overdrive despite somewhat frothier valuation metrics on some names that have led the way on the year-to-date winners list.
In any case, here are three stocks that still look like a great value after the latest kick off of the new rate-cut cycle:
Lennar
Lennar (NYSE:LEN) is a major homebuilder that could receive a boost as interest rates go on the descent. Undoubtedly, lower mortgage rates stand to jolt demand, while borrowing costs will allow the firm to build with fewer interest expenses eating into the bottom line. Of course, the tailwind of lower rates won’t kick Lennar into high gear overnight. Either way, if we do get two more quarter-rate cuts this year (or perhaps more), Lennar stock’s comeback seems more than worth getting behind.
At the time of this writing, shares are going for cheap, trading at 11.0 times trailing price-to-earnings (P/E) to go with a 1.5% dividend yield. With Warren Buffett’s Berkshire Hathaway (NYSE:BRK-B) recently unveiling its investment in Lennar and another homebuilder, I do think it’s time to punch a ticket, if not to play lower interest rates, to be in the company of the great Oracle of Omaha. With shares still down just over 27%, the name certainly looks cheap, and there’s a chance it could look cheaper on the way up!
Alphabet
Alphabet (NASDAQ:GOOG) has been on such an incredible run, gaining close to 44% in three short months. Indeed, a favorable judge ruling, momentum behind its Gemini model, and the recent integration of Veo 3 (Google’s video generator, which now includes synced audio) into YouTube Shorts all seem to be exciting drivers that warrant chasing shares after a sharp melt-up.
Despite the blistering surge, shares still look relatively cheap as far as AI plays go, with shares now trading at 26.6 times trailing P/E. When you consider that Google and Gemini could overtake OpenAI and ChatGPT, I think GOOG stock is quickly becoming the best AI play on earth. And given this, I’d say the stock could be rewarded with more multiple expansion in the coming months and quarters.
Add growth potential from Waymo as it teams up with ride-hailing service providers, and it should be no shocker as to why GOOG stock has been one of the market’s biggest summertime gainers. Lower interest rates are another tailwind that may very well mint Alphabet as the best Mag Seven performer in the next year.
AT&T
Finally, we have AT&T (NYSE:T), a telecom turnaround success that may still have room to run as rates fall. Indeed, the telecom business entails a lot of capital expenditures. As such, it should be no mystery as to why T stock could continue to gain on the back of rate-cut news. Shares of the telecom are up 36% in the past year, causing the dividend yield to come in significantly.
Indeed, the 3.8% yield is still bountiful and worth collecting for buyers on recent strength. Now that AT&T is gaining ground again, perhaps investors will be for bigger dividend hikes as rates come in. Looking ahead, look for AT&T to keep bolstering its already-impressive network. At 16.9 times trailing P/E, I don’t think T stock is a name to take profits in just yet, especially if the Fed takes on a more dovish stance.
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