Lower interest rates mean it costs less for companies to borrow. And that it’s easier for them to expand operations. That’s why the market has taken off as it’s clear that companies will look to leverage up as the cost to borrow goes down.
Combining that with sectors that are seeing increased spending could make for a winning investment strategy in the months ahead. With a construction, manufacturing, and infrastructure boom underway, a few possible winners look likely.
One contender for a winner is Caterpillar (CAT). The producer of heavy construction machinery is cyclical. But they’ve benefitted from the boom underway for infrastructure spending and manufacturing reshoring in recent years. Lower interest rates may fuel further growth.
Caterpillar is an industry leader, still trading at about 17 times earnings, a reasonable valuation here. And the company sports a 17% profit margin, on the higher end for a company that produces and manufactures physical products.
Action to take: Investors may like shares here, and to add to such a position on any drop lower. Shares pay a 1.5% dividend as well, and Caterpillar has a history of growing that payout over time.
For traders, the January 2025 $410 calls, last trading for about $8.35, could see mid-double-digit gains or better from a further rally into early next year.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.