Interest rates have been sitting high for a while, putting pressure on Canadians and the companies that serve them. But with inflation easing and the Bank of Canada hinting at possible cuts, some Canadian stocks could be set to pop. If a rate cut does arrive, certain beaten-down but fundamentally strong stocks might finally have their moment. Two that stand out are goeasy (TSX: GSY) and SmartCentres REIT (TSX: SRU.UN). Both could skyrocket once borrowing costs start falling.
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goeasy
Goeasy provides personal and home equity loans to Canadians who typically don’t qualify for financing at traditional banks. It also offers point-of-sale financing and leases household goods like furniture and appliances. This is a Canadian stock built on serving everyday Canadians, especially those with average or below-average credit. It thrives in an environment where people want access to credit and lower interest rates make borrowing more affordable. That can drive up demand for goeasy’s services and improve margins on new loans.
As of writing, goeasy trades around $169, down significantly from their all-time and even 52-week highs. The Canadian stock reported first-quarter revenue of $391.9 million, up 10.7% from the year before. Net income came in at $39.4 million. While earnings per share (EPS) dipped slightly to $2.35, loan originations hit a record high of $677 million. The company added 43,500 new customers and expanded its loan portfolio to nearly $4.8 billion. It also pays a solid dividend yield of 3.4% and has raised that dividend every year for nearly a decade.
What’s holding goeasy back now is the cost of capital. Higher interest rates make it more expensive for the company to borrow, which can eat into profits. But once the Bank of Canada starts cutting, goeasy’s borrowing costs could fall while demand rises. That’s a recipe for earnings growth and a potentially strong rebound in the stock price.
SmartCentres
SmartCentres REIT is a very different kind of Canadian stock, but it shares a similar sensitivity to interest rates. It owns a large portfolio of retail-focused properties, many anchored by big names like Walmart. It also has development projects in mixed-use residential and commercial spaces. While real estate investment trusts (REIT) have been under pressure due to rising interest rates, SmartCentres has held up better than many of its peers.
The stock trades around $25.75 and pays a monthly dividend that adds up to $1.85 per year, for a current yield of roughly 7.1%. That’s a high level of income in any market. The Canadian stocks occupancy rate remains strong at 98.4%, and its balance sheet is healthy. In the most recent quarter, SmartCentres reported revenue of $229.3 million and funds from operations of $112.7 million, or $0.56 per unit, up from $0.48 a year ago. It also posted positive same-property net operating income growth of 4.1%.
What really makes SmartCentres attractive in a falling-rate environment is its long-term lease structure. Many of its tenants have fixed leases, so lower interest rates reduce financing costs without hurting rental income. Lower rates could also encourage more development and refinancing opportunities, both of which support growth.
Bottom line
When rates fall, the market often rewards companies that benefit directly from lower financing costs and increased consumer activity. Goeasy can lend more money at better margins, and SmartCentres can take advantage of better borrowing conditions and increased retail traffic. Both are in strong positions to thrive if the rate environment shifts in their favour. And investing $5,000 in each could bring in $526.41 each year!
| COMPANY | PRICE | SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | INVESTED |
|---|---|---|---|---|---|---|
| SRU.UN | $25.78 | 193 | $1.85 | $357.05 | Monthly | $4,975.54 |
| GSY | $169.98 | 29 | $5.84 | $169.36 | Monthly | $4,929.42 |
These two Canadian stocks offer very different business models, but both could soar if rate cuts materialize. Goeasy gives you exposure to the lending side of the economy, while SmartCentres gives you access to retail real estate and monthly income. Together, these form a powerful combo for investors looking ahead to a more accommodative interest rate landscape. If you’re planning for the next move by the Bank of Canada, these are two Canadian stocks worth watching closely.
