The recent announcement by the Federal Open Market Committee to lower interest rates by 50 basis points sent positive ripples through the U.S. stock market. This move, larger than many analysts anticipated, is generally seen as a positive for stocks, as businesses can more easily secure loans for growth and consumers are more likely to spend.
The Federal Reserve isn’t alone in this trend. Central banks in Canada, the U.K., and other countries have also started to cut interest rates in recent months. Notably, the European Central Bank (ECB), the equivalent of the Federal Reserve for the European Union, reduced some interest rates by 25 basis points in June and both deposit facility and refinancing rates in September. This move could potentially benefit European stocks and, to some extent, U.S. stocks as well.
With this backdrop, let’s take a look at three companies that could see significant gains from lower interest rates in Europe:
Infineon Technologies AG (IFNNF): Technological Breakthrough and Value Prospect
Infineon Technologies AG, a German semiconductor manufacturer, is relatively small compared to giants like NVIDIA or Broadcom. Smaller companies often benefit greatly from lower interest rates as they are more likely to borrow money to finance expansion.
Infineon is in the midst of a major expansion, emphasizing its gallium nitride (GaN) chips. This technology offers several advantages over traditional silicon chips, including lighter weight, higher efficiency, and improved resilience to high temperatures. These chips are particularly relevant in the automotive industry, which is currently grappling with supply chain issues and high prices. Despite these challenges, Infineon is well-positioned to capitalize on the industry’s eventual recovery.
Adding to its appeal, Infineon’s P/E ratio of 16.3 is significantly lower than many other semiconductor companies, making it an attractive investment opportunity.
Novo Nordisk A/S (NVO): New Drugs in Progress
Novo Nordisk, a Danish healthcare firm, operates globally, making it sensitive to changes in interest rates worldwide. The company has garnered global attention for its Ozempic medication, used to treat type 2 diabetes and obesity. Now, Novo Nordisk has two more potential blockbuster drugs in various stages of development, and lower interest rates could play a crucial role in bringing these products to market.
Wegovy, a weight loss and cardiovascular drug already approved by the FDA in the U.S., recently received backing from the European Medicines Agency. While already highly successful, expanding into Europe could solidify its blockbuster status.
In addition, Novo Nordisk and Korro Bio Inc. are collaborating on developing two new genetic medicines to treat cardiometabolic disease. This ambitious project, with Korro Bio receiving up to $530 million for development and commercialization, is expected to yield significant rewards.
ASML Holdings N.V. (ASML): Large Semiconductor Firm Could Still Grow
ASML Holdings, another semiconductor firm headquartered in the Netherlands, is significantly larger than Infineon, with a market cap of $327 billion. Despite its size, ASML has substantial growth potential, with analysts assigning it an average price target of $1,147.80, representing a 38.6% upside.
The company is expected to post earnings growth exceeding 63% in the coming quarters. These factors make ASML an attractive investment prospect, even though its P/E ratio is high at 40.8.
Future Rate Cuts Planned
The Federal Reserve has hinted at further rate cuts, and the ECB might follow suit. Depending on the timing and magnitude of these cuts, they could either facilitate a smooth economic landing and continued growth or potentially push one or more economies into a recession.
Despite these uncertainties, investors might want to consider acquiring shares of companies that stand to benefit from the current trend of falling interest rates.
