Rate Cuts in 2024 Could Be a Goldmine for These 2 Stocks

NASDAQ: ALRM | Alarm.com Holdings, Inc. News, Ratings, and Charts

ALRM – Indications are growing that the interest rate cycle has topped, and that we could see Fed Chairman Powell begin moving in the opposite direction next year. If the growing evidence is correct and inflation has been “defeated”, this should allow the Fed to relax the fastest rate increase in history. That shift in policy will have outsized benefits to stocks like Alarm.com Holdings and Armstrong World Industries as the rate sensitive housing market reignites from its current smoldering state.

Very rarely does a bell sound at the bottom, or top, of an economic cycle. One of the most important of the economic cycles is the interest rate cycle. And, the market thinks it is hearing a bell in the distance with the release of the latest inflation numbers. 

If inflation is falling fast enough to allow the Federal Reserve to lower rates in the first half of 2024, one of the biggest beneficiaries of that rate cut will be housing and housing related stocks. Thus the huge jump in those stocks the past few days. Two companies that will benefit from that rate move, but that aren’t trading at all time highs like some of the homebuilder stocks, are Alarm.com Holdings (ALRM) and Armstrong World Industries (AWI).

Alarm.com Holdings (ALRM) operates as both a technology provider and licensing company, partnering with security system installers and other home and commercial security systems. The company provides video surveillance backed by AI technology that can identify and differentiate between a number of characteristics of the subject captured on video. The Alarm.com system not only knows if the “movement” at your door is a neighbor’s dog or a person, but can tell exactly who that person is, and not set off an alert if it’s just your spouse coming home with the groceries. 

And if your first thought is that Alarm.com is a glorified Ring doorbell, not exactly. Alarm.com recently purchased an AI video analytics company, integrating both the technology, as well as the engineering and development team, into the ALRM company.

A perfect example of the ALRM technology in action is how it’s been used recently by hospitals. To avoid direct contact between hospital staff and patients during the pandemic, the Alarm.com system was used for two way communication. The system has robust security measures built into its software which meets very restrictive health care standards…as well as the needs of less stringent commercial businesses.

Alarm.com has an overall A rating in our POWR Ratings, where it ranks above 92% of the stocks we track in the Sentiment category, its strongest rating. 

In its latest quarterly earnings report, ALRM revenue increased 2.6% YoY, but Saas revenue, which makes up around 75% of total revenue, grew at a brisk 8.9%. The company currently has gross margins of over 55%, and currently has over $680 million in cash and cash equivalents, something I very much like in the current high rate environment. 

The stock is trading close to the bottom of a wide range it has occupied since late 2020. Assuming rates fall in 2024, and homeowners begin to unlock value stored up during this rate cycle, Alarm.com should benefit from home improvement funds, and could trade back toward the $90 level.

Another company which should be a huge beneficiary of falling interest rates in the new year, is Armstrong World Industries (AWI). AWI is a little more straightforward play on lower rates and continued new home building and remodeling. 

The company designs and manufactures ceilings, suspension, and wall systems. As the housing shortage continues, even with mortgage rates hitting highs not seen in years, Armstrong products have continued to be in demand. The company just posted sales growth of 7% YoY, and an operating income up 36% from the prior year’s quarter. 

As CEO Vic Grizzle said in the earnings release, “With record-setting total company net sales and adjusted EBITDA this quarter, we continue to demonstrate the resilience of our business in the face of challenging market conditions.” If the company can perform this well with mortgage rates topping out, it should knock the cover off the ball if rates begin to fall.

And, as I mentioned above, unlike many of the housing stocks which are at or near all time highs, Armstrong’s stock has some ground to make up after pulling back to just over $80 now, having traded close to $120 in late 2021. 

The stock currently trades at a PE of just 16, and even has a dividend yield of 1.4%. Operating margins are an impressive 17% and the company trades at only 2.5 times sales. 

AWI carries a B rating in our POWR Ratings system, and ranks most highly on the Momentum and Quality components, where it has a score topping 98% and 93% respectively. 

If the market is correct, and the rate top “bell” has been rung, we should see declining interest rates in 2024. Both Alarm.com and Armstrong have shown they can continue to perform in a high rate environment, and both stocks should move substantially higher if 2024 rings in a falling rate environment. 

What To Do Next?

Get your hands on this special report with 3 low priced companies with tremendous upside potential even in today’s volatile markets:

3 Stocks to DOUBLE This Year >

ALRM shares were trading at $57.94 per share on Thursday afternoon, down $0.67 (-1.14%). Year-to-date, ALRM has gained 17.10%, versus a 18.76% rise in the benchmark S&P 500 index during the same period.

About the Author: Steven Adams

After earning a law degree cum laude with a focus on securities law, Steven worked as a Nasdaq market maker for a large broker dealer, and then as a trader for an arbitrage focused proprietary hedge fund. He subsequently worked as a consultant for a Fortune 500 consulting firm serving both government and commercial clients, including the NYSE, Prudential, FDIC, and NASA. More...

More Resources for the Stocks in this Article

TickerPOWR RatingIndustry RankRank in Industry
ALRMGet RatingGet RatingGet Rating
AWIGet RatingGet RatingGet Rating

Most Popular Stories on StockNews.com

2024 Stock Market Outlook

The time to think about the 2024 stock market is now. Will it be a bull or bear? And where does the S&P 500 (SPY) end the year? And what are the top picks to outperform? Investment veteran Steve Reitmeister does his level best to answer all these questions. Just read on below...

3 Financial Stocks to Boost Your Portfolio's Bottomline

The consumer financial sector is experiencing a transformative wave of technological advancements fueled by the rise of fintech companies and digital banking. Amid this swiftly evolving landscape, three consumer finance stocks, Mastercard (MA), Noah Holdings (NOAH), and EZCORP, Inc. (EZPW) could be ideal buys this month. Read more…

POWR Income Stock of the Week: Ternium SA (TX)

The Federal Trade Commission has been on a crusade this year to stop mergers in their tracks with little regard to the size of the merger or the industry it was taking place in. But, with major setbacks being delivered by the courts the mergers and acquisitions markets are thawing, and one industry set to consolidate is the steel industry. This may be a boon for all the steel players involved, and one under the radar income play steel producer is Ternium.

3 Travel Stocks to Watch With Holiday Gains Potentially in the Pipeline

The travel industry is witnessing a surge in cruise market interest, driven by evolving consumer preferences and sustainability considerations. Hence, travel stocks Carnival Corporation (CCL), Royal Caribbean (RCL), and Lindblad Expeditions (LIND) might be sound watchlist additions before the holidays. Read more…

Why is December 13th Important to Stock Investors?

The S&P 500 (SPY) has been on quite a run since the Fed meeting on 11/1. Thus, it is important to note that the next meeting on December 13th will also be a catalyst for stocks. The main question is...will that be good or bad for stocks? To help out, 43 year investment pro Steve Reitmeister shares his latest insights on the market and what investors can expect from the Fed on 12/13 and beyond. This also includes a preview of Steve’s top 13 picks for today’s market. Read on below for more...

Read More Stories

More Alarm.com Holdings, Inc. (ALRM) News View All

Event/Date Symbol News Detail Start Price End Price Change POWR Rating
Loading, please wait...
View All ALRM News