Several stocks soared in November on increasing signs that the Federal Reserve could be done raising interest rates as well as rising speculation that rates could even start coming down in the first half of 2024.
In December, investors will be closely watching the Federal Reserve's rate decision and the employment report for more signs as to where the economy and stock market are headed. Though Fed Chair Jerome Powell hasn't promised that rate hikes are over, the market is starting to bet on that, as evidenced by Treasury yields starting to fall from earlier peaks.
While no one knows for sure when interest rates will come down, they are likely to fall in the next few years, as even the Fed expects the federal funds rate to come down to 2.5% from its current level of 5.25%-5.5%.
Let's take a look at two stocks worth buying this month that are well-positioned to benefit from a rate drop.
Image source: Getty Images.
1. Carnival: Riding a travel rebound
Few stocks were hit as hard in the pandemic as Carnival (CCL -0.66%), the world's largest cruise line. Cruise ships were grounded for nearly a year, forcing the company to take on billions in debt and dilute shareholders to stay afloat.
With pandemic pressures now eased and the economy reopened, the demand for Carnival cruises has surged. Carnival reported record demand levels this year, an impressive result at a time of high inflation and when many consumer discretionary businesses struggled.
The company has already booked out much of its capacity for 2024, saying it's well above the high end of its historical range, and at higher prices.
Carnival's fourth-quarter earnings report is expected later in the month, and analysts see revenue jumping 38% to $5.3 billion, though they still expect a small loss on the bottom line.
Carnival is still trying to dig out of a deep hole, but lower interest rates should help the company better manage that debt, allowing it to refinance at a lower rate, and will boost profits by lowering its interest expense. If the economy gets the vaunted soft landing next year, Carnival could be a major beneficiary, as consumer demand should remain strong, and it will be able to pay down debt and lower its interest expense.
2. Roku: Ready for a connected TV boom
Roku (ROKU -10.29%) was a big winner during the pandemic, as investors couldn't get enough of streaming stocks and tech stocks.
However, the stock crashed in 2022 as the digital advertising market ground to a halt, but Roku has rebounded this year. Revenue growth started to accelerate again, and after three rounds of layoffs, Roku is back to reporting an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) profit.
Roku's stock price has already more than doubled this year, but the stock is still down close to 80% from its pandemic-era peak, showing it has more room to run.
One reason to buy the stock in December is the emerging growth in connected TV, or ad-driven streaming. Streamers like Disney, Amazon, and Netflix are all aiming to grow their ad-based streaming tiers, which should drive significant business toward Roku, as the streaming platform typically takes 30% of ad inventory from its streaming partners.
Additionally, the company should benefit from the end of the writers and actors strikes, as media and entertainment is one of its biggest advertising channels and Hollywood studios should be eager to reach audiences once again as production ramps up.
Finally, the holiday season tends to be the peak time of year in advertising. Roku offered modest fourth-quarter guidance in its earnings report in November, setting the stock up for another leg up if it can top that guidance in its next earnings report.
