17 U.S. stocks that may benefit from eventual easing in interest rates (2024)

What are we looking for?

U.S. rate-sensitive stocks that may benefit from a ceiling on and subsequent decrease in the target interest rate established by the U.S. Federal Reserve.

During a period of stable interest rates, certain stock sectors tend to perform well or demonstrate resilience. Financials, particularly banks and financial institutions, can benefit from stable interest rates by experiencing improved net interest margins. Defensive sectors such as utilities and real estate are likely to improve in a more stable and declining rate environment, which helps reduce financing costs. Consumer staples and health care, known for their defensive characteristics and steady demand, often deliver strong performance. Additionally, technology stocks may see positive effects from stable interest rates, supporting their growth initiatives and expansion strategies.

The screen

We used Trading Central Strategy Builder to search for U.S. stocks that may benefit from a pause and potential decline in interest rates.

We begin by setting a minimum market capitalization threshold of US$10-billion, concentrating on larger and established companies within rate-sensitive sectors such as financials, consumer defensive, utilities, health care and technology. These sectors typically reap benefits from the absence of further increases in interest rates.

Next we screened for companies with a P/E ratio capped at 24, below the recent 25 average P/E of the S&P 500 index.

Finally, we filtered for the top-rated stocks using Trading Central’s Quantamental rating method with a focus on value and quality factors with a minimum rating of 50 out of 100. The quality factor evaluates a company’s comprehensive financial health, taking into account factors such as profitability, the robustness of its balance sheet and the overall quality of its earnings. The value factor screens stocks based on an appealing earnings yield and a low price-to-book ratio, identifying undervalued companies characterized by strong financials and stability.

We have also included year-to-date, dividend yield and one-year price performance for your reference.

More about Trading Central

Trading Central is a global leader in financial market research and investment analytics for retail online brokers and institutions. Its product suite provides actionable trading ideas based on technical and fundamental research covering stocks, exchange-traded funds, indexes, forex, options and commodities. Strategy Builder, our stock screener, is available through leading retail brokers in Canada and worldwide.

What we found

Stocks that may perform well as monetary conditions ease

RANK	COMPANY	TICKER	MKT.CAP. ($Bil)	RECENT PRICE ($)	P/E	TC VAL.FCTR.RTNG	TC QLT.FCTR.RTNG	DIV.YLD (%)	1Y PERF. (%)	YTD PERF. (%)	INDUSTRY
1	Viatris Inc	VTRS-Q	14.08	11.56	7.77	91	69	4.09	-1.5	8.4	Drug Manufacturers
2	First Citizens BancShares Inc	FCNCA-Q	21.37	1484.03	1.89	70	65	0.44	89.6	4.6	Banks
3	Manulife Financial Corp	MFC-N	40.7	22.44	4.36	70	66	4.83	16.4	2.2	Insurance
4	Ares Capital Corp	ARCC-Q	11.76	19.89	7.53	66	52	9.51	1.2	0.7	Asset Management
5	Vistra Corp	VST-N	15.65	43.28	12.87	69	60	1.95	91.4	13.6	Utilities - Independent Power Producers
6	Synchrony Financial	SYF-N	15.68	38.34	7.42	66	68	2.54	5.8	0.9	Credit Services
7	CNA Financial Corp	CNA-N	12.58	45.75	10.49	60	62	3.79	5.2	9.8	Insurance
8	Capital One Financial Corp	COF-N	50.96	133.69	11.21	64	58	1.79	14.3	2.2	Credit Services
9	Loews Corp	L-N	16.15	71.9	11.55	62	68	0.34	17.1	4.4	Insurance
10	Renaissancere Holdings Ltd	RNR-N	12.36	226.08	4.49	63	52	0.67	8.1	19.7	Insurance
11	Interactive Brokers Group Inc	IBKR-Q	10.11	94.67	16.66	69	66	0.42	9.3	13.9	Capital Markets
12	The Cigna Group	CI-N	96.69	331.6	18.64	68	52	1.69	13.9	10.4	Healthcare Plans
13	Cognizant Technology Solutions Corp	CTSH-Q	38.84	77.76	18.53	65	65	1.54	17.6	3.3	Software
14	Universal Health Services Inc	UHS-N	11.09	162.32	17.06	66	63	0.49	11.9	6.6	Healthcare Providers & Services
15	The Goldman Sachs Group Inc	GS-N	126.09	384.42	16.91	67	54	2.84	3.1	0.2	Capital Markets
16	Raymond James Financial Inc	RJF-N	23.17	110.48	13.9	60	63	1.62	-2	-0.4	Capital Markets
17	Laboratory Corp of America Holdings	LH-N	18.99	220.94	23.04	64	58	1.29	5.9	-1.6	Medical Diagnostics & Research

Source: Trading Central

Topping our list is Viatris Inc. VTRS-Q, a global health care company involved in the development, manufacturing and marketing of a broad range of pharmaceutical products, including generic drugs, biosimilars and over-the-counter medicines. The stock has the highest TC value and quality factor ratings on our list at 91 and 69, respectively, out of 100, topping all peers in the health-care sector.

RenaissanceRe Holdings Ltd. RNR-N, a global provider of reinsurance and insurance, has the best year-to-date performance on our list at 19.7 per cent after posting a record high on Wednesday.

Manulife Financial Corp. MFC-N, a Canadian-based international financial services company, has the second-highest TC value factor rating on our list, tied with U.S.-based First-Citizens BancShares Inc. at 70 out of 100, which is above average for the financial services sector. The stock also posted a record high on Wednesday amid a strong uptrend.

Trading Central Strategy Builder provides a back-testing capability to evaluate how well an investing strategy would have worked in the past. Using a five-year historical period with quarterly rebalancing, the screen described had a 15 per cent annualized return compared with 13 per cent for the S&P 500 Index.

The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.

Gary Christie is head of North American research at Trading Central in Ottawa.