Secret Stocks Benefit from Low Mortgage Rates

Interest rates are dropping.

Last week, the Federal Reserve Bank (Fed) lowered short-term interest rates by 25 bps.

And Jerome Powell, the Chairman of the Fed, projects two additional rate cuts by the end of the year.

The stock market jumped when the rate cut was announced.

And the Russell 2000, an index focused on small-cap stocks, hit a new high not seen since last year.

But the big news is about mortgage rates.

The average 30-year fixed mortgage rate fell to 6.13%, the lowest level in 3 years.

It’s great news for homebuilders and home improvement retailers.

But people already expected a rate cut, so stocks in those industries have risen over the last month.

However, other companies are going to benefit from lower mortgage rates.

And the market hasn’t figured it out yet.

Lower mortgage rates encourage people to buy homes since their mortgage payments are lower.

When buying a home, first impressions matter.

And Scotts Miracle-Gro Co (ticker: SMG) is all about improving a home’s curb appeal.

Scotts is one of the largest lawn care companies in the United States.

It sells grass seed, fertilizers, and pest control to make a home’s yard really shine.

Scotts is currently trading at a price-to-sales ratio of 0.99x, much lower than its historical 1.7x.

There’s more to a home than having a beautiful lawn.

Home sellers will upgrade appliances to entice buyers.

And if they don’t, new homeowners will make upgrades before settling in.

Whirlpool (ticker: WHR) is the largest appliance manufacturer in the U.S.

It makes dishwashers, refrigerators, ovens, and garbage disposals for the kitchen as well as washing machines and dryers for the laundry room.

And Whirlpool manufacturers 80% of its products in the U.S., so tariffs won’t hurt Whirlpool as much as its competitors.

If you think Scotts has a great price-to-sales ratio, then you’ll love Whirlpool.

Whirlpool’s price-to-sales is only 0.4x, which is one of the lowest in the entire appliance industry.

There’s more to appliances than just the kitchen and laundry room.

A home’s water heater ensures no cold showers, and A.O. Smith Corp (ticker: AOS) is the industry leader.

A.O. Smith controls about 40% of the residential market share for water heaters.

And its profitability is through the roof.

A.O. Smith’s net margin of 13.7% and ROE of 27.5% are among the highest in the entire Industrials sector.

As mortgage rates continue to fall, companies like Scotts, Whirlpool, and A.O. Smith are going to fly, even if others don’t see it yet.

How big of a cut will the Fed do next?