To achieve high returns from the subsequent changes in the market, sharp investors are closely monitoring which top stocks to buy before interest rate cuts as the Federal Reserve considers reducing interest rates. Companies with solid foundations stand to gain much from lower borrowing rates; therefore, finding the greatest investment possibilities in advance is critical. These three exceptional stocks may benefit from a reduction in interest rates.
It is vital to comprehend the significance of these investments. Given that these companies exhibit strong financial performance and strategic expansion goals. These businesses’ integration of fiber and 5G and aggressive cost-cutting and debt-reduction strategies improve their position in the market. Their great client retention and ongoing expansion of internet services highlight their development potential. In the meantime, they generate a healthy amount of free cash flow and emphasize debt reduction to demonstrate their financial robustness.
In short, the impending interest rate reductions and continuous debt reduction might result in lower interest payments and an improved bottom line, boosting the market value of these stocks.
AT&T (T)
AT&T (NYSE:T) is a telecommunications giant. By combining 5G and fiber technology, AT&T’s approach reduces churn and increases net promoter scores, which increases the lifetime value of convergence customers. Differentiating itself from competitors, AT&T is the only provider that can benefit from the owner’s economics and scale in both 5G and fiber. Building on the $6 billion in cost reductions realized earlier, AT&T set a new goal to save an additional $2 billion in run-rate costs by mid-2026.
Additionally, efficiency is the core of controlling expenses and increasing profitability, particularly with rising inflation. Compared to $1 billion in Q1 2023, the company’s first-quarter free cash flow produced $3.1 billion, a considerable boost. Due to its ability to derive free cash flow, AT&T has reduced its debt. As a result, its net debt-to-adjusted EBITDA ratio dropped to 2.9x. Hence, the business is on track to meet its goal of 2.5x by the first half of 2025.
AT&T’s strategic cost-saving measures, strong cash flow, and debt reduction position it well on the list of stocks to buy before interest rate cuts.
Verizon (VZ)
Verizon (NYSE:VZ) has a massive network infrastructure. The yearly improvement in the consumer postpaid phone churn rate was 0.01%, at 0.83%. This low turnover rate reflects happy and devoted customers. In Q1 2024, Verizon added 389,000 new broadband customers, of whom 53,000 were Fios Internet customers. The significant rise in growth can be attributed to the rising demand for high-speed internet services. Hence, 151,000 fixed wireless net additions were made in the business segment, the biggest quarterly performance ever.
Further, 203,000 fixed wireless net additions for customers demonstrate the service’s rising popularity. Revenue from fixed wireless access annually increased by approximately $200 million in Q1 to $452 million. This increase highlights the growing income contribution of fixed wireless access to Verizon. As of Q1, net unsecured debt was $126 billion, an increase of $3.7 billion yearly. With this cut, Verizon has more flexibility. Similar to the prior quarter, the net unsecured debt to consolidated adjusted EBITDA ratio was 2.6 times.
Finally, the company’s low churn rates and expanding fixed wireless access revenues support its high mark on the stocks to buy before interest rate cuts list.
3M (MMM)
3M (NYSE:MMM) is a diversified tech company. With an free cash flow conversion rate of 63%, the business produced an adjusted free cash flow of over $800 million in the first quarter. This is in line with previous patterns. A 20% decrease from the previous year to $355 million in adjusted capital expenditures in Q1 was reflected in the almost-finished investments in water filtering. 3M had $10.4 billion in net debt, down 13% from Q1 2023, thanks to solid free cash flow creation. During the quarter, the company paid down $2.9 billion in debt, further bolstering its balance sheet.
Moreover, the 19.9% equity position in Solventum (NYSE:SOLV) may offer more liquidity, enabling chances for growth and increased investment. A 13% decrease in net debt and the creation of $800 million in free cash flow demonstrate 3M’s strong financial standing and adept handling of obligations. The company’s focus on providing value reflects its return of $835 million to shareholders, with more plans for additional stock repurchases.
3M’s focus on returning capital, debt reduction, and strategic investments solidifies its status among the top stocks to buy before interest rate cuts.
As of this writing, Yiannis Zourmpanos held long positions in T, VZ and MMM. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.