The TSX Composite Index has been volatile as uncertainty around the U.S. Fed rate cuts and fears of a 2008-like recession keep investors on their toes. After a sharp dip of 2.42% in the first week of September, the index recovered as the Bank of Canada announced its third rate cut of 25 basis points, reducing the interest rate to 4.25%. Many real estate and telecom stocks rallied on all three rate cuts.
Best stocks to buy with $500 right now
You can take advantage of this reversal in trend and buy these stocks right now and enjoy the recovery rally.
BCE stock
The telco BCE (TSX: BCE) will benefit significantly from rate cuts as its stock price fell 41% throughout the high interest rate environment from April 2022 to June 2024. The stock fell to its 10-year low as the company initiated a major restructuring from telco to techno. The rising interest expense and competitive pricing of services to gain market share have been burdening its net profit and dividend-payout ratio, which surpassed 100%. The telco was paying dividends from its cash reserves.
The accelerated interest rate cut will significantly reduce BCE’s interest expense. Moreover, the end of the price war will help increase its revenue. Its streamlined operations after restructuring will bring operating efficiencies. The combination of the three could help the stock to fully recover to the April 2022 level of $73, representing a 50% upside from the current trading price.
SmartCentres REIT
SmartCentres REIT (TSX: SRU.UN) is another big beneficiary of the rate cuts. The high interest expense increased its distribution payout ratio to 100% in the first half of 2024. The real estate investment trust (REIT) continued to enjoy growing rental income, but a $176.5 million interest expense reduced its net income and funds from operations. The REIT will use the rate cuts to restructure its debt and reduce interest expense.
Its unit price fell 33% during the high-rate environment. It has recovered 23% and could return to its April 2022 level of $33, representing a 24% upside from the current trading price. Buying now can also help you lock in a 6.96% yield and a capital appreciation.
Dye & Durham
The recovery in the real estate sector will benefit Dye & Durham (TSX: DND), a legal practice management software with significant exposure to property transactions. It has deepened its presence in the real estate value chain by offering a nationwide property settlement offering to a Big Six Canadian bank National Bank. This deal opens up the banking sector as a potential client base for DND and increases its chances of rallying with the recovery in real estate.
The technology stock crashed 70% from its 2021 high and is trading near its initial public offering price. I do not expect the stock to return to its 2021 high of over $50. It is because that rally was driven by the tech and real estate bubble. However, the stock has the potential to reach the $20 level, representing a 43% upside from its current trading price.
