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With the second half of the year underway, there is growing anticipation for the upcoming economic landscape, particularly with declining interest rates in Canada and anticipated reductions in the U.S. Higher interest rates have pressured stocks across various sectors in recent years, so the easing of rates presents a significant opportunity for Canadian stocks to experience a notable rally as 2024 progresses.
However, the decline in interest rates is a response to cooling economic conditions and inflation. While lower rates are beneficial for many businesses, the slower economic environment introduces additional risks.
Here are three top Canadian stocks that fit this profile for the latter half of 2024.
Top Utility Stock for the Second Half of 2024
For those seeking stocks that can leverage lower interest rates while remaining stable in a challenging economic environment, Fortis (TSX:FTS) stands out. As a prominent utility company, Fortis is well-positioned to benefit from decreasing interest rates.
Fortis’ dividend yield is likely to be a positive factor, as lower yields generally drive up stock prices. Additionally, reduced interest rates mean lower costs for servicing debt, which could enhance profitability. As a utility provider, Fortis is considered one of the most stable businesses, with minimal impact during economic downturns due to the essential nature of its services. Despite trading below its all-time high, Fortis remains a strong choice for the latter part of 2024 and beyond.
Two Top Infrastructure Stocks
Brookfield Infrastructure Partners (TSX:BIP) and Enbridge (TSX:ENB) also emerge as strong options for the current market conditions. Both companies offer essential services and possess diversified operations that reduce risk, making them suitable for uncertain economic times.
Brookfield’s global asset portfolio, which includes telecom towers, ports, railroads, and utilities, provides consistent cash flow. Enbridge’s operations are integral to the North American economy. Both companies leverage substantial amounts of debt, and as interest rates decline, their interest expenses are expected to decrease, potentially leading to improved profitability.
For example, Enbridge saw its interest expense rise significantly from 2021 to 2023, and Brookfield experienced a similar increase. With declining rates, these companies’ interest expenses should decrease, likely boosting their profitability. Additionally, as rates fall and yields decline, the share prices of Enbridge and Brookfield Infrastructure could see notable increases.
With Enbridge offering a yield above 6.8% and Brookfield Infrastructure providing a yield over 5.4%, these stocks not only present valuable opportunities for the remainder of 2024 but also hold promise for long-term holding.
