With the federal funds' interest rate expected to be cut by at least 0.25% in September, investors may want to consider several consumer loan stocks that may benefit.
This comes after Federal Reserve Chairman Jerome Powell stated that now is the time to cut rates at the Fed’s annual economic conference last week. The delightful news is centered around economic data that shows inflation is under control, prompting cuts that would reduce borrowing costs for consumers and companies.
Considering such, it’s plausible that loan volumes will increase as the federal funds benchmark rate drops from its 23-year high of 5.25-5.5%.
Image Source: Federal Reserve Economic Data
LendingTree TREE
Markets continue to anticipate that LendingTree will be a primary beneficiary of lower interest rates with its stock soaring over +90% year to date and skyrocketing more than +200% over the last year.
Trading at a 52-week high of $60 a share, LendingTree has proven to have massive earnings potential in the past, especially under a favorable operating environment. Offering personalized loan comparison shopping, LendingTree’s annual earnings are expected to dip -12% in fiscal 2024 but are projected to rebound and soar 87% in FY25 to $3.75 per share.
Image Source: Zacks Investment Research
Onity Group ONIT
As a non-bank mortgage servicer and originator, Onity Group is starting to stand out after rebranding its name from Ocwen Financial Corporation and began trading under the ticker symbol ONIT in June. Notably, Onity believes its new name reflects the capabilities of a hard-working team with a can-do attitude and problem-solving culture.
Trading under $30, Onity's stock appears to be vastly undervalued at just 2.9X forward earnings with EPS now expected to soar 59% to $10.21 versus $6.42 per share in 2023. Plus, FY25 EPS is projected to rise another 1%.
More reassuring, is that Onity recently blasted Q2 EPS expectations by 197% earlier in the month with earnings at $4.07 per share compared to estimates of $1.37 a share.
Image Source: Zacks Investment Research
Velocity Financial VEL
Providing property loans for real estate investors and small business owners, Velocity Financials’ increased probability should continue with interest rate cuts ahead. With Velocity’s stock trading under $20, VEL trades at 9.6X forward earnings with EPS slated to increase 24% this year and projected to rise another 2% in FY25 to $1.96 per share.
Furthermore, Velocity’s top line expansion also alludes to its future earnings potential with total sales forecasted to expand 26% in FY24 and expected to climb another 18% next year to $160 million.
Image Source: Zacks Investment Research
Other Stocks to Watch
Two other consumer loan stocks to consider are LendingClub LC and Finance of America FOA with both trading under $15 a share.
Both companies are expected to post a sharp increase on their top and bottom lines in FY25 with LendingClub providing financial services for loan approvals while Finance of America offers an integrated consumer lending platform that includes mortgages and loans to residential real estate investors.
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LendingTree, Inc. (TREE) : Free Stock Analysis Report
Velocity Financial, Inc. (VEL) : Free Stock Analysis Report
Onity Group Inc. (ONIT) : Free Stock Analysis Report
LendingClub Corporation (LC) : Free Stock Analysis Report
Finance of America Companies Inc. (FOA) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
