If Fed cuts interest rates in 2024, these stocks could rebound

Inflation is slowing down, and a soft landing for the economy may really happen next year, even if a recession does end up taking place. That could be great news for the markets, and it may potentially even lead to interest-rate cuts.

Three stocks that could benefit in a big way from those developments are Realty Income(NYSE: O), Upstart Holdings(NASDAQ: UPST), and Ford Motor Co.(NYSE: F). Let's look at why.

1. Realty income

Real estate investment trusts, or REITs, haven't been doing particularly well this year. Rising interest rates have made investors wary of investing in these businesses since they often carry considerable debt on their books. However, as interest rates come down, that could lead to much more bullishness, particularly for stocks that provide good value, such as Realty Income.

Year to date, the REIT has generated revenue of just over $3 billion, which is 22% higher than this time last year. Its bottom line has looked even better, with Realty Income posting funds from operations of $3.09 per share over the first nine months of 2023, up from $2.99 a year ago.

Overall, the REIT hasn't been doing badly by any means. Yet, amid the challenging macroeconomic conditions, the stock is down 15% since January.

The REIT's broad portfolio, which has 1,300 clients in 85 industries, makes this a safer investment option than most other REITs. If interest rates come down next year, look for the stock's performance to significantly improve. Buying the stock today for its high dividend yield of 5.7% could be a great move for long-term investors.

2. Upstart holdings

Upstart Holdings was a top growth stock to own a few years ago when the markets were hot, but when things cooled, its shares went into free fall. Down a staggering 89% this year, investors have been bearish on Upstart for multiple reasons.

One reason is that the lending company isn't profitable, and with it being more difficult to raise money in a rising interest-rate environment, investors are less willing to take a chance on the business. And demand is also much lower.

Although Upstart helps lenders evaluate more data points and should theoretically allow them to take on smarter loans, there isn't an eagerness to take a chance on borrowers amid these challenging economic conditions.

Upstart's revenue through the first three quarters of the year was just $373.3 million – less than half of the $695.5 million that Upstart brought in this time last year.

If there's a sign that interest rates could be coming down, Upstart's stock could rally, as this beaten-down stock is very sensitive to interest rates. However, unless you have a high risk tolerance, you're better off avoiding the stock as there could still be significant volatility head.

3. Ford

Shares of automaker Ford haven't been great this year either, as they are down more than 10%. Although that's still better than the other stocks on this list, Ford is still trading at just under seven times its trailing profits.

Although the United Auto Workers strike is now resolved, the company's costs will rise as a result of the deal – perhaps by as much as $1 billion per year, according to analyst estimates. The company will be looking to cut costs to offset the impact of the agreement, but it may end up having to raise prices. And if interest rates remain high, that also means demand may be timid, as consumers may struggle to afford to buy new vehicles, putting Ford's stock in a tough position.

The company's revenue is up 14% this year to $130 billion, and operating income of $5.7 billion is also better than the $4.7 billion in earnings Ford posted a year ago. But with multiple headwinds (e.g., high interest rates and rising labor costs), the company faces a challenging road ahead.

If interest rates were to decline, that could at least help the company's growth prospects and lead to some more bullishness behind the stock. Ford could make for an appealing bad-news buy right now as this is still a top auto brand to invest in, but it may be a bumpy ride for investors.

David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Realty Income and Upstart. The Motley Fool has a disclosure policy.

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