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Both the Bank of England and the US Federal Reserve are expected to cut interest rates this year. And there are a few FTSE 100 stocks that could be set to benefit.
Lower rates are likely to be unwelcome for the likes of NatWest, which has been an outstanding stock while borrowing costs have been higher. But the situation could be very different elsewhere.
BP
In the UK, I think BP (LSE:BP) could be a beneficiary. Lower interest rates mean lower borrowing costs and this makes companies more willing to build and manufacture things.
All of this takes energy. And while the long-term outlook might involve wind and solar, increased industrial output in today’s world means higher demand for oil.
Shell could also benefit, but BP generates slightly more of its revenues in the UK. And there’s another reason it stands to benefit more from the Bank of England cutting rates.
In terms of balance sheet, BP has a lot more debt than Shell. And that means lower interest rates could result in a more dramatic reduction in borrowing costs – and a bigger boost to profits.
The biggest challenge for the firm comes from the supply side. With the US and Saudi Arabia looking to boost production, there’s a chance this could weigh on oil prices.
Ultimately, though, I think this is a good time to consider buying shares in oil companies. And the prospect of lower interest rates means BP might be worth a look.
Experian
By contrast, Experian (LSE:EXPN) stands to benefit much more from interest rates falling in the US. Despite being a FTSE 100 stock, it generates over two-thirds of its sales across the Atlantic.
Lower interest rates typically lead to higher demand for mortgages. And the firm provides reports to lenders that allows them to assess the creditworthiness of prospective borrowers.
Experian’s key asset is its database. Maintaining this involves collecting information from hundreds of sources every month, making it virtually impossible to replicate.
For companies with big – and valuable – databases, there’s always a danger of a data breach (whether malicious or accidental). This is possibly the biggest risk with the stock.
This happened with Equifax back in 2017 and it set the company back significantly. While data protection has improved since then, the threat of a cyber attack is still difficult to ignore.
Ultimately, though, Experian’s strong position in an industry that is likely to grow over time makes the stock one to consider. And if interest rates fall, there could be a boost on the way.
Thinking ahead
In the stock market, investors have to think ahead. Bank stocks have fared well over the last few years, but the prospect of lower interest rates means that could be set to change.
I think stocks like BP and Experian are where investors should consider directing their attention at the moment. Both look to me like potential beneficiaries of lower borrowing costs.
Long-term investing involves thinking about more than the next six months. But being aware of what’s going on can give investors an idea of where to look for opportunities.
