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Fed Rate Cuts Make This Beaten-Down Cathie Wood Stock a Buy Now
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Like Warren Buffett and Peter Lynch, Cathie Wood’s art of investing has garnered much attention lately. Wood’s Ark Innovation ETF (ARKK - Free Report) has gained more than 20% over the past year as it primarily focuses on stocks engaged in disruptive innovation.
One such stock is SoFi Technologies, Inc. (SOFI - Free Report) , which began as a student-loan provider and has now progressed into a versatile fintech company. However, despite raising its full-year revenue outlook in the second quarter and witnessing an expansion in its deposit base, SOFI stock has underperformed the Technology Services industry year to date (-20.4% vs +25.1%).
Image Source: Zacks Investment Research
This is because elevated interest rates have choked SOFI’s lending business, which is responsible for generating the bulk of its revenues. But the recent jumbo interest rate cuts, with more expected to come, have worked wonders for this beaten-down fintech stock, making it an enticing buy at the moment. Let’s have a closer look.
Why a Rate Cut Will Boost SOFI Stock
The Federal Reserve, in its recent policy meeting, trimmed interest rates by 50 basis points to boost the economy and stabilize the labor market. The Fed has kept the key interest rates at 4.75% to 5% and has eased its monetary policy for the first time in four years.
Fed officials are further expected to cut interest rates by another half-point this year followed by rate cuts in 2025 and 2026, added the Summary of Economic Projections. Notable investment banks such as The Goldman Sachs Group, Inc. (GS - Free Report) , JPMorgan Chase & Co. (JPM - Free Report) and Morgan Stanley (MS - Free Report) also expect the central bank to trim interest rates further.
Generally, a lower interest rate environment would lower SOFI’s borrowing costs and help the company invest more in technology, spurring a new wave of innovative activity. Most importantly, lower interest rates are a game-changer for SOFI’s lending business.
As borrowings become cheaper, consumers will be involved in more spending, and that should drive SOFI’s lending business spread across three segments – home equity, home lending and purchase loans. The lending business has slowed down considerably this year, but now a dovish Fed has boosted SOFI’s lending business prospects.
By the way, SOFI has improved its small and medium-scale business lending platform that smoothly allows customers to apply for loans and get offers from prospective lenders. It is also focusing more on providing secured lending products than unsecured ones to mitigate risks, and these encouraging moves should help the company grow in the future.
Key Tailwinds for SOFI
SOFI is taking various growth initiatives and not just relying on its lending business. The firm is diversifying its financial services business, with its investment platform offering various products ranging from shares, initial public offerings and exchange-traded funds. This diversification positions SOFI well for future expansion.
Moreover, the introduction of multiple products will help SOFI increase its operating income and improve profitability. Its initiatives to innovate credit card areas and expand its “Buy Now, Pay Later” product, along with growing demand for its SOFI Plus premium membership program, should help the company register steady growth.
SOFI Stock – A Solid Buy
Not only interest rate cuts will boost SOFI’s primary lending business but also its diversification initiatives will give the company an edge over its peers. As a result, the Zacks Consensus Estimate of 10 cents for SOFI’s earnings per share is up 233.3% from the prior year.
Image Source: Zacks Investment Research
Prominent brokers have also jacked up the average short-term price target of SOFI by 7.2% from the stock’s last closing price of $8.05. The highest price target is at $12, an upside of 49.1%.
Image: Shutterstock
Fed Rate Cuts Make This Beaten-Down Cathie Wood Stock a Buy Now
Like Warren Buffett and Peter Lynch, Cathie Wood’s art of investing has garnered much attention lately. Wood’s Ark Innovation ETF (ARKK - Free Report) has gained more than 20% over the past year as it primarily focuses on stocks engaged in disruptive innovation.
One such stock is SoFi Technologies, Inc. (SOFI - Free Report) , which began as a student-loan provider and has now progressed into a versatile fintech company. However, despite raising its full-year revenue outlook in the second quarter and witnessing an expansion in its deposit base, SOFI stock has underperformed the Technology Services industry year to date (-20.4% vs +25.1%).
Image Source: Zacks Investment Research
This is because elevated interest rates have choked SOFI’s lending business, which is responsible for generating the bulk of its revenues. But the recent jumbo interest rate cuts, with more expected to come, have worked wonders for this beaten-down fintech stock, making it an enticing buy at the moment. Let’s have a closer look.
Why a Rate Cut Will Boost SOFI Stock
The Federal Reserve, in its recent policy meeting, trimmed interest rates by 50 basis points to boost the economy and stabilize the labor market. The Fed has kept the key interest rates at 4.75% to 5% and has eased its monetary policy for the first time in four years.
Fed officials are further expected to cut interest rates by another half-point this year followed by rate cuts in 2025 and 2026, added the Summary of Economic Projections. Notable investment banks such as The Goldman Sachs Group, Inc. (GS - Free Report) , JPMorgan Chase & Co. (JPM - Free Report) and Morgan Stanley (MS - Free Report) also expect the central bank to trim interest rates further.
Generally, a lower interest rate environment would lower SOFI’s borrowing costs and help the company invest more in technology, spurring a new wave of innovative activity. Most importantly, lower interest rates are a game-changer for SOFI’s lending business.
As borrowings become cheaper, consumers will be involved in more spending, and that should drive SOFI’s lending business spread across three segments – home equity, home lending and purchase loans. The lending business has slowed down considerably this year, but now a dovish Fed has boosted SOFI’s lending business prospects.
By the way, SOFI has improved its small and medium-scale business lending platform that smoothly allows customers to apply for loans and get offers from prospective lenders. It is also focusing more on providing secured lending products than unsecured ones to mitigate risks, and these encouraging moves should help the company grow in the future.
Key Tailwinds for SOFI
SOFI is taking various growth initiatives and not just relying on its lending business. The firm is diversifying its financial services business, with its investment platform offering various products ranging from shares, initial public offerings and exchange-traded funds. This diversification positions SOFI well for future expansion.
Moreover, the introduction of multiple products will help SOFI increase its operating income and improve profitability. Its initiatives to innovate credit card areas and expand its “Buy Now, Pay Later” product, along with growing demand for its SOFI Plus premium membership program, should help the company register steady growth.
SOFI Stock – A Solid Buy
Not only interest rate cuts will boost SOFI’s primary lending business but also its diversification initiatives will give the company an edge over its peers. As a result, the Zacks Consensus Estimate of 10 cents for SOFI’s earnings per share is up 233.3% from the prior year.
Image Source: Zacks Investment Research
Prominent brokers have also jacked up the average short-term price target of SOFI by 7.2% from the stock’s last closing price of $8.05. The highest price target is at $12, an upside of 49.1%.
Image Source: Zacks Investment Research
Thus, SOFI has a Zacks Rank #2 (Buy). Anyhow, buying the promising stock, which is currently trading under $10, won’t burn a hole in your pocket! You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.