In this article, we will be talking about the 10 stocks to buy before interest rates rise in March. You can skip our comprehensive analysis of these companies, and go directly to 5 Stocks to Buy Before Interest Rates Rise in March.
Federal Reserve Chair Jerome Powell said last week that the Fed would “carefully” begin to raise interest rates in March and could move to more aggressive hikes if inflation does not subside as quickly as expected. Previously, analysts were expecting the Fed to begin aggressive hikes, but Russia’s invasion of Ukraine caused a massive change in the dynamics. Powell also said that the Russian invasion is a “game changer” that could have unpredictable effects.
It’s very important to tread the financial markets with caution during interest rate hikes. Technology companies and growth stocks enjoyed a euphoric rise in valuations on the back of extremely low interest rates amid the pandemic. Investors were ready to pay more for these stocks based on future growth projections. However, when interest rates rise, investors usually flock to value stocks and pull their investments from growth stocks with high valuations.
‘A Serious Correction’
Back in May 2021, talking to the Wall Street Journal, Harvard University economist Jeremy Steinmade some prescient comments. He said that the equity markets were “priced to perfection” based on the “assumption” that rates will be low for a long time.
Steinmade, who has served as Fed governor alongside Jerome Powell Since, said at that the time stocks’ valuations are only justified if interest rates stay extremely low. But what if the Fed decides to tighten its monetary policy?
“You could get a serious correction in asset prices,” Steinmade said.
Some obvious sectors that benefit in the interest rate hike environment include banks, financial services and consumer defense and discretionary. Bank of America Corp (NYSE:BAC), Coca-Cola Co (NYSE:KO), Walmart Inc (NYSE:WMT) and Wells Fargo & Co (NYSE:WFC) are on the watch list of investors in the current environment based on the upcoming rate hikes. In this article we will mention some more stocks that analysts think would be a good choice as the Fed prepares to increase rates. We also mention some ETFs to invest in the current environment.
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Stocks to Buy Before Interest Rates Rise in March
10. Vanguard Total Stock Market Index Fund Admiral Shares (MUTF:VTSAX)
Number of Hedge Fund Holders: N/A
Analysts believe that Vanguard Total Stock Market Index Fund Admiral Shares (MUTF:VTSAX) provides exposure to the entire US stock market. Some of the top holdings of the fund include Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), Amazon.com, Inc. (NASDAQ:AMZN), Meta Platforms, Inc. (NASDAQ:FB), and Johnson & Johnson (NYSE:JNJ).
During times of volatility, investors who want to diversify their portfolio and hedge against risks should consider investing in Vanguard Total Stock Market Index Fund Admiral Shares (MUTF:VTSAX). The fund’s holdings include small-cap, large-cap, mid-cap, value, and growth stocks.
9. Schwab US Dividend Equity ETF (NYSE:SCHD)
Number of Hedge Fund Holders: N/A
With a yield of over 3%, Schwab US Dividend Equity ETF (NYSE:SCHD) is one of the best dividend ETFs to buy during times of financial volatility and to increase long-term income. The fund tracks the Dow Jones U.S. Dividend 100™ Index. This dividend ETF’s holdings include some of the top dividend-paying companies in the US, including Oracle Corporation, Verizon, Pfizer, Merck, IBM and Lockheed Martin.
In addition to stocks like Bank of America Corp (NYSE:BAC), Coca-Cola Co (NYSE:KO), Walmart Inc (NYSE:WMT) and Wells Fargo & Co (NYSE:WFC), investors are also investing in ETFs like SCHD in the current times of financial volatility.
8. Freeport-McMoRan Inc. (NYSE:FCX)
Number of Hedge Fund Holders: 66
With a PE ratio under 20 and a strong FCF position, Freeport-McMoRan Inc. (NYSE:FCX) is one of the best stocks to buy before the expected rate hike in March. Investing in commodity stocks is an excellent way to hedge against inflation and analysts also recommend buying these stocks when rates are going up.
Freeport-McMoRan Inc. (NYSE:FCX)’s adjusted EPS in the fourth quarter came in at $0.96, beating the estimates by $0.02. Revenue in the period came in at $6.16 billion, missing the estimates by $320 million. A total of 66 hedge funds tracked by Insider Monkey had stakes in Freeport-McMoRan Inc. (NYSE:FCX) at the end of the fourth quarter of 2021. Ken Fisher’s hedge fund is one of the leading stakeholders of the company with a $2 billion stake.
7. Tyson Foods, Inc. (NYSE:TSN)
Number of Hedge Fund Holders: 36
Consumer stocks always get the attention of investors during times of inflation and rate hikes. Tyson Foods, Inc. (NYSE:TSN), with an attractive PE ratio of under 10, and a dividend yield of about 2%, is one of the best stocks to buy to play interest rate hikes and inflation. Analysts believe that Tyson Foods, Inc. (NYSE:TSN) is also a good investment choice in the inflationary environment because of the company’s pricing power. Tyson Foods, Inc. (NYSE:TSN) reached all-time highs after beating fiscal first-quarter estimates. Tyson Foods, Inc. (NYSE:TSN)’s non-GAAP EPS came in at $2.87, beating estimates by $0.94. Revenue in the quarter jumped 23%.
Like Tyson Foods, Inc. (NYSE:TSN), Bank of America Corp (NYSE:BAC), Coca-Cola Co (NYSE:KO), Walmart Inc (NYSE:WMT) and Wells Fargo & Co (NYSE:WFC) are gaining ground amid the upcoming interest rate hike in March.
A total of 36 hedge funds tracked by Insider Monkey had long positions in Tyson Foods, Inc. (NYSE:TSN) at the end of the fourth quarter, up from 33 funds in the previous quarter.
6. Bank of America Corporation (NYSE:BAC)
Number of Hedge Fund Holders: 84
Bank of America Corporation (NYSE:BAC) is one of the best ways to play the upcoming rate hike. Bank of America Corporation (NYSE:BAC) has a PE ratio of 11, and a dividend yield of about 2%. The stock has raised its dividend consistently over the past eight years. Morgan Stanley in February counted Bank of America Corporation (NYSE:BAC) among its list of stocks set to benefit from the upcoming rate hikes. The firm said that a 10bp boost in the 10-year yield adds a median ~1% to 2022 EPS of Bank of America Corporation (NYSE:BAC), with a range of 0-6%. As a result, Morgan Stanley said that Bank of America Corporation (NYSE:BAC) is set to gain, in addition to some other major banks.
Hedge funds are also backing Bank of America Corporation (NYSE:BAC). The stock saw a huge rise in hedge fund sentiment, as 84 elite funds had stakes in the firm at the end of the fourth quarter, compared to 72 funds in the previous quarter.
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Disclosure: None. 10 Stocks to Buy Before Interest Rates Rise in March is originally published on Insider Monkey.
