Potential Rate Cuts Could Benefit These Firms

Key Points

• The market anticipates modest interest rate cuts from the Fed in September, and investors are seeking ways to take advantage of this.
• Consider looking beyond the industries most directly impacted by a change in rate cuts to find overlooked companies.
• Homebuilder stocks like Builders FirstSource and PulteGroup, as well as logistics companies like GXO, could be good places to start.

The Federal Open Market Committee (FOMC) meeting on September 17 is likely to bring an interest rate cut. Although analysts expect a modest trimming amid concerns over unemployment figures, this would mark the first time in 2025 that the Fed opted to lower rates. As such, the market is anticipating some relief in this area, and investors are seeking ways to benefit in advance.

A host of industries are closely tied to the federal funds rate, with financial services firms and real estate companies being the first to come to mind for many investors. Digging a little deeper, it may also be worth considering some firms in the homebuilding or logistics spaces.

Investors may be less likely to seek out these companies as ones that could benefit from an interest rate reduction, perhaps making them less likely to price in an anticipated cut at a future FOMC meeting in advance.

A Potential Boost in the Housing Market Could Benefit Builders

Builders FirstSource NYSE: BLDR is among the United States' major suppliers of products used in homebuilding and construction projects, including lumber, roofing, siding, and engineered wood items. Shares of BLDR are essentially flat year-to-date but have been rising fairly steadily for the last several months.

They got a modest boost earlier in the summer when Federal Reserve Chair Jerome Powell signaled rate cuts may be coming; however, analysts still see additional upside potential on the horizon.

With commodity deflation and a soft housing market in recent months, Builders has had difficulty maintaining its revenue growth trajectory. Indeed, the firm saw its net sales fall by 5% year-over-year (YOY) in the second quarter, missing analyst estimates.

Lower interest rates could help jumpstart stagnating housing markets. Bringing mortgage rates down could motivate some homeowners with the "golden handcuffs" of low interest rates from several years back—and, in turn, could lead to a rise in renovation projects and increased demand for homebuilding goods.

The knock-on effect of lower interest rates may take some time to impact a firm like Builders directly, so investors buying shares now may be able to capture potential gains later on.

Another Homebuilder With a Significant Land Position

Another prominent homebuilder firm, PulteGroup Inc. NYSE: PHM may be emerging as a leading housing stock ahead of potential rate cuts. Investors should note, though, that while Builders has risen less than 1% YTD, PHM shares are up nearly 28% in that same time.

Despite this momentum, though, 10 out of 15 analysts still rate the company a Buy.

One advantage of PulteGroup over other homebuilders is its strong land position. The company maintains about 250,000 lots under its control and invested roughly $2.5 billion in new positions in the first half of the year.

Besides providing homebuilding materials and construction services, the fact that PulteGroup owns land and offers mortgage and similar services means that it can benefit in a wide variety of ways from increased activity in the housing market.

GXO Demonstrates Growth Potential as the Logistics Industry Could Strengthen Overall

GXO Logistics NYSE: GXO is a $6-billion logistics firm offering warehousing, distribution, and supply chain services. Shares have trended upward fairly steadily since April, rising by more than 19% YTD. The company performed well in the first half of the year, beating analysts' estimates for top and bottom lines in the second quarter as it achieved a record $3.3 billion in revenue thanks to several high-profile new business partnerships.

Organic revenue growth is also strengthening, climbing by about 6% YOY in the latest quarter—this is a sign that GXO's model is resilient despite external challenges in the supply chain and distribution spaces. GXO also recently received key final regulatory approval of its acquisition of British logistics firm Wincanton, a move that will quickly boost its position in the European market.

Logistics firms tend to be highly leveraged, as the cost of maintaining large fleets of vehicles, warehouse space, and so on is massive. Lowered interest rates would thus be a boon for GXO's finances. Further, logistics firms' customers are also susceptible to interest rate changes, and lower rates could stimulate additional demand in many corners of GXO's wide-ranging business.