What are the best ‘Magnificent Seven’ stocks to buy with the Fed cutting rates?

Interest rates are finally coming down as the Federal Reserve announced a significant 0.5% rate cut in September. More interest rate cuts are likely on the way.

Lower rates are usually seen as good news for smaller businesses. However, it also benefits huge corporations, including the market-leading group known as the “Magnificent Seven” stocks. What are the best Magnificent Seven stocks to buy with low Fed rates?

How lowering rates could benefit the Magnificent Seven

Let’s first look at how lower interest rates could help the members of the Magnificent Seven. Three ways are the most important, from my point of view.

First (and most obviously), lower interest rates lower Magnificent Seven companies’ borrowing costs. This makes it cheaper to refinance maturing debt. They also allow companies to fund new projects that could lead to future growth.

Second, lower rates can increase customer spending. This can happen regardless of whether the customers are individual consumers or organizations.

Third, lower interest rates may lead to a weakening of the US dollar. This benefits Magnificent Seven companies that export to other countries, making their products more competitive in international markets.

Rating the Magnificent Seven

Rate cuts should help all Magnificent Seven stocks. However, some will benefit more than others.

Amazon (AMZN -1.51%) has the most debt on its books of the group — $157.8 billion. Apple (AAPL -0.49%) and Microsoft (MSFT -0.14%) followed with debts of 101.3 billion dollars and 97.8 billion dollars respectively. Lower rates could help these companies the most when it comes to reducing interest expenses when their debt comes down (assuming rates are still lower at that time).

Meta platforms (META 1.74%) and Alphabet (GOOG -0.06%) (GOOGL) are in the middle of the pack, with debts totaling nearly $38 billion and $28.7 billion, respectively. adzehis (TSLA -3.36%) the debt is only 12.5 billion dollars, while Nvidiahis (NVDA 3.37%) the $10 billion debt is the smallest of the magnificent seven.

I suspect that increases in customer spending fueled by lower interest rates would likely be most pronounced for companies with the most expensive products. Tesla electric vehicles can cost as little as $40,000, with expensive models costing over $113,000.

Companies are spending significant amounts to buy Nvidia’s graphics processing units (GPUs) as well. Lower rates could help start-ups and smaller businesses in particular afford to scale up their artificial intelligence (AI) development efforts.

Amazon, Alphabet and Microsoft operate cloud service platforms that could benefit from increased customer spending driven by lower tariffs. All three companies market consumer products that could also boost sales. It’s the same story for Apple and, to a lesser extent, Meta.

Apple and Tesla would probably be helped the most by a weaker US dollar. Sales outside the US are higher for both companies than their US sales. However, all other Magnificent Seven also have significant international sales.

The best Magnificent Seven stocks to buy on falling rates

I think Amazon and Tesla will probably be helped the most by the Fed’s interest rate cuts. What is the best stock to buy? I would go with Amazon.

Tesla is much more expensive than Amazon based on forward earnings multiples and faces increasing competition. Even worse, consumer interest in electric vehicles appears to be waning.

Meanwhile, Amazon’s AWS cloud platform has a massive AI tailwind. Advertising on Prime Video has become a major new growth engine for the company. Amazon’s technology investments should continue to pay off in increasing the profitability of its e-commerce business. Project Kuiper, a new satellite Internet service, is poised to be another new source of growth.

All of this would be positive for Amazon without lower interest rates. Still, lower rates should put a pep in the company’s step — and send its stock higher.