In this article, we will be talking about the 10 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.
5. Raymond James Financial, Inc. (NYSE:RJF)
Number of Hedge Fund Holders: 32
Raymond James Financial, Inc. (NYSE:RJF) is one of the best stock picks for a rising interest rate environment. The Florida-based company has a PE ratio of 13.7 and has a dividend yield of 1.36%. Financial services firm Seaport upgraded Raymond James Financial, Inc. (NYSE:RJF) to Buy from Neutral on the back of the company’s organic growth amid the expected rising interest rates. Similarly, Morgan Stanley also recommends Raymond James Financial, Inc. (NYSE:RJF) to those who want to “avoid credit risk.”
4. Wells Fargo & Company (NYSE:WFC)
Number of Hedge Fund Holders: 94
Wells Fargo & Company (NYSE:WFC) has been increasing its dividend for several years now. This makes this financial stock extremely attractive in the current environment. Morgan Stanley (NYSE:MS) analysts Betsy Graseck and Michael Cyprys named Wells Fargo & Company (NYSE:WFC) in their list of stocks that will gain amid the upcoming rate hikes.
Legendary investor Warren Buffet has a $32 million stake in Wells Fargo & Company (NYSE:WFC) as of the end of the fourth quarter. The Oracle of Omaha has been holding a stake in the bank since 2010.
L1 Capital, an investment management firm, published its ‘L1 Long Short Fund Limited’ fourth quarter 2021 investor letter and mentioned Wells Fargo & Company (NYSE:WFC). Here‘s what the fund said:
“Detailed, bottom-up stock research remains the investment team’s primary focus and the core driver of portfolio performance. 2021 once again demonstrated the team’s ability to identify ‘winners’ through extensive company and industry research across a diverse range of sectors. Key contributors included Wells Fargo, (due to its) improving compliance and operational performance, falling bad debts and progress towards removal of ‘asset cap’. Exited our holding in June at a >50% gain.”
3. The Charles Schwab Corporation (NYSE:SCHW)
Number of Hedge Fund Holders: 72
The Charles Schwab Corporation (NYSE:SCHW) in February received a bullish call from Deutsche Bank analyst Brian Bedell who thinks that the stock will gain because of the interest rate hike. The analyst said he prefers to see a 50 basis point hike for the stock, but 25bps will also be positive. The Charles Schwab Corporation (NYSE:SCHW) has been paying dividends consistently for the last 32 years.
At the end of the fourth quarter of 2021, 72 hedge funds had stakes in The Charles Schwab Corporation (NYSE:SCHW), as compared to 59 funds a quarter earlier. John Armitage’s Egerton Capital Limited has a $1.2 billion stake in the company.
Weitz Investment Management, an investment management firm, published its “Partners III Opportunity Fund” fourth quarter 2021 investor letter and mentioned The Charles Schwab Corporation (NYSE:SCHW). Here‘s what the fund said:
“Financial services firm Charles Schwab took bronze medals for the fourth quarter and calendar year. Brokerage account balances are higher, and investors are anticipating better profit margins for the bank’s lending business in the quarters ahead.”
2. Walmart Inc. (NYSE:WMT)
Number of Hedge Fund Holders: 63
Walmart Inc. (NYSE:WMT) is yet another consumer defensive play investors are flocking to amid market volatility. Walmart Inc. (NYSE:WMT)’s fourth-quarter report shows the company’s resilience and strength that helped it offset the supply chain challenges. Comparable sales in the quarter jumped 5.6% in the U.S. Adjusted income in the period was $6.0 billion, versus $5.7 billion posted in the same quarter last year.
Walmart Inc. (NYSE:WMT) declared a quarterly dividend of $0.56 per share recently, a 1.8% increase from the prior dividend of $0.55. Forward dividend yield comes in at 1.68%.
As of the end of the fourth quarter of 2021, 63 hedge funds had stakes in Walmart Inc. (NYSE:WMT). The total value of these stakes is $71.4 billion.
1. M&T Bank Corporation (NYSE:MTB)
Number of Hedge Fund Holders: 65
Morgan Stanley (NYSE:MS) in a report said that if investors want to avoid equity market risk in the upcoming rate hike environment, they should consider M&T Bank Corporation (NYSE:MTB), among some other financial stocks. With a PE ratio of 12.7, the stock is up about 11.36% year to date. M&T Bank Corporation (NYSE:MTB) saw a significant uptick in hedge fund sentiment in the fourth quarter. 37 hedge funds out of the 924 tracked by Insider Monkey had stakes in M&T Bank Corporation (NYSE:MTB) at the end of the fourth quarter, compared to 27 funds a quarter earlier.
You can also take a peek at the 10 Cryptocurrencies to Watch Amid Russia’s Attack on Ukraine and 10 Stocks to Buy Now According to Hari Hariharan’s NWI Management.
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Disclosure: None. 10 Stocks to Buy Before Interest Rates Rise in March is originally published on Insider Monkey.
