In this article, we discuss the 13 biggest stocks that benefit from high interest rates.
The central bank in the United States has indicated that it will begin a massive change in monetary policy heading into the next year as inflation numbers cool and confidence grows about a soft landing for the economy. In the final meeting of the year, the Federal Reserve kept rates unchanged for the third straight month, with officials even signaling that rate cuts might be on the horizon in 2024. Fed chief Jerome Powell pointed to strong growth numbers, a comeback in the labor market, and progress on inflation as some of the reasons for optimism.
News platform Fox Business reports that Federal Open Market Committee officials expect rates to fall to 4.6% by the end of 2024. This forecast envisions at least three rate cuts next year, each a quarter point. This policy will continue into 2025 and 2026. Even though some experts predict that the Fed may start cutting rates as early as March next year, others have more moderate expectations. For example, Kathy Bostjancic, the chief economist at financial services firm Nationwide, expects rate cuts to begin by May.
Higher interest rates are good for companies like Berkshire Hathaway Inc. (NYSE:BRK-B), JPMorgan Chase & Co. (NYSE:JPM), and Citigroup Inc. (NYSE:C), who benefit from higher earnings on consumer and business loans, effectively increasing their revenues overnight. In a higher interest rates environment, rates rise across the board, from mortgages, to credit card debt, to auto loans. Over the past year-and-a-half, interest rates have climbed at a pace not seen in nearly fifty years.
However, investors should keep in mind that this is a gradual process. Even though inflation numbers are cooling, the prices of consumer items remain 3% above what they were last year. The prices of basic necessities like food, healthcare, and rent have all gone up in the past year and show no signs of slowing down. It will likely be a few months before the rate cuts promised by the Federal Reserve are announced. It will then take at least two years or more for the economy to fully stabilize following these cuts.
In this overall situation, even as rate cuts begin, investments in companies that benefit from rising interest rates are expected to return handsome profits. This is because these companies have diverse revenue streams and long-term plans in place for growth that shield them from macroeconomic volatility. One example of this is Citigroup Inc. (NYSE:C), whose CEO Jane Fraser, said during the third quarter earnings call that the firm was a bank for all seasons because of ample liquidity and a diversified earnings base for clients.
“In terms of our balance sheet, our discipline of growing operating deposits has enabled us to maintain a stable deposit base over the past 5 years. We grew loans during the quarter and our credit quality remains extremely strong, aided by our disciplined client selection. Our CET1 ratio grew to 13.5% and which is $14 billion above our regulatory minimum and still includes a 100 bps internal management buffer. During the quarter, we returned $1.5 billion to our shareholders through common dividends and stock buybacks. We continue to evaluate buyback quarter by quarter, and I expect we will continue to do a modest level in the fourth quarter, subject to approval by our Board.”
Our Methodology
The companies that benefit when interest rates are high and have received positive analyst coverage were selected for the list. Businesses operating in the finance and insurance sector were preferred. Data from around 900 elite hedge funds tracked by Insider Monkey in the third quarter of 2023 was used to identify the number of hedge funds that hold stakes in each firm. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator.
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Biggest Stocks That Benefit From High Interest Rates
13. Huntington Bancshares Incorporated (NASDAQ:HBAN)
Number of Hedge Fund Holders: 27
Huntington Bancshares Incorporated (NASDAQ:HBAN) operates as a bank holding firm. On December 8, investment advisory Piper Sandler maintained a Neutral rating on Huntington Bancshares Incorporated (NASDAQ:HBAN) stock and raised the price target to $12 from $11.
At the end of the first quarter of 2023, 27 hedge funds in the database of Insider Monkey held stakes worth $537 million in Huntington Bancshares Incorporated (NASDAQ:HBAN), compared to 30 in the preceding quarter worth $448 million.
Just like Berkshire Hathaway Inc. (NYSE:BRK-B), JPMorgan Chase & Co. (NYSE:JPM), and Citigroup Inc. (NYSE:C), Huntington Bancshares Incorporated (NASDAQ:HBAN) is one of the biggest stocks that benefit from high interest rates.
12. MetLife, Inc. (NYSE:MET)
Number of Hedge Fund Holders: 37
MetLife, Inc. (NYSE:MET) is a financial services firm with core interests in insurance. On November 16, investment advisory Barclays reinstated coverage of MetLife, Inc. (NYSE:MET) stock with an Overweight rating and a price target of $71.
At the end of the third quarter of 2023, 37 hedge funds in the database of Insider Monkey held stakes worth $1.5 billion in MetLife, Inc. (NYSE:MET), compared to 40 in the previous quarter worth $1.1 billion.
11. American International Group, Inc. (NYSE:AIG)
Number of Hedge Fund Holders: 42
American International Group, Inc. (NYSE:AIG) is a New York-based insurance firm. On November 30, Citi analyst Michael Ward maintained a Buy rating on American International Group, Inc. (NYSE:AIG) stock and raised the price target to $74 from $70.
Among the hedge funds being tracked by Insider Monkey, California-based investment firm First Pacific Advisors LLC is a leading shareholder in American International Group, Inc. (NYSE:AIG) with 6.3 million shares worth more than $381 million.
In its Q3 2023 investor letter, Diamond Hill Capital, an asset management firm, highlighted a few stocks and American International Group, Inc. (NYSE:AIG) was one of them. Here is what the fund said:
“Insurance company American International Group, Inc. (NYSE:AIG) was also among our top contributors. The company’s most recent operating results outperformed expectations, as it reported robust earnings with improving underwriting margins in the property and casualty business. AIG’s strategic initiatives also added to the positive sentiment. The company made further progress in separating its Life & Retirement unit by selling additional shares via a secondary offering. Furthermore, AIG announced the sale of its reinsurance business to RenaissanceRe at an attractive valuation, a move that will further reduce volatility in AIG’s continuing operations.”
10. Chubb Limited (NYSE:CB)
Number of Hedge Fund Holders: 43
Chubb Limited (NYSE:CB) provides insurance and reinsurance products worldwide. On December 28, investment advisory HSBC initiated coverage of Chubb Limited (NYSE:CB) stock with a Buy rating and a price target of $263.
At the end of the third quarter of 2023, 43 hedge funds in the database of Insider Monkey held stakes worth $1.1 billion in Chubb Limited (NYSE:CB), compared to 50 in the preceding quarter worth $1.7 billion.
9. PNC Financial Services Group, Inc. (NYSE:PNC)
Number of Hedge Fund Holders: 45
PNC Financial Services Group, Inc. (NYSE:PNC) operates as a diversified financial services company in the United States. On December 14, investment advisory Wells Fargo maintained an Overweight rating on PNC Financial Services Group, Inc. (NYSE:PNC) stock and raised the price target to $180 from $176.
At the end of the third quarter of 2023, 45 hedge funds in the database of Insider Monkey held stakes worth $754 million in PNC Financial Services Group, Inc. (NYSE:PNC), compared to 52 the preceding quarter worth $630 million.
8. BlackRock, Inc (NYSE:BLK)
Number of Hedge Fund Holders: 54
BlackRock, Inc (NYSE:BLK) is a publicly owned investment management firm. On December 12, investment advisory Exane BNP Paribas upgraded BlackRock, Inc (NYSE:BLK) stock to Overweight from Neutral with a price target of $885.
Among the hedge funds being tracked by Insider Monkey, Texas-based investment firm Fisher Asset Management is a leading shareholder in BlackRock, Inc (NYSE:BLK) with 1.9 million shares worth more than $1.2 billion.
In its Q2 2023 investor letter, Baron Funds, an asset management firm, highlighted a few stocks and BlackRock, Inc (NYSE:BLK) was one of them. Here is what the fund said:
“Additionally, elevated yields and the prospect of the Fed nearing the end of its rate hiking cycle makes fixed income an attractive asset class for investors, which should also benefit traditional asset managers with fixed income exposure such as BlackRock, Inc. (NYSE:BLK).”
7. Morgan Stanley (NYSE:MS)
Number of Hedge Fund Holders: 59
Morgan Stanley (NYSE:MS) is a financial holding company that provides various financial products and services to corporations, governments, financial institutions, and individuals. On December 14, investment advisory Bank of America maintained a Buy rating on Morgan Stanley (NYSE:MS) stock and raised the price target to $95 from $90.
Among the hedge funds being tracked by Insider Monkey, Texas-based investment firm Fisher Asset Management is a leading shareholder in Morgan Stanley (NYSE:MS) with 19 million shares worth more than $1.6 billion.
6. The Charles Schwab Corporation (NYSE:SCHW)
Number of Hedge Fund Holders: 77
The Charles Schwab Corporation (NYSE:SCHW) provides wealth management and other financial services. On December 12, UBS analyst Brennan Hawken maintained a Buy rating on The Charles Schwab Corporation (NYSE:SCHW) stock and raised the price target to $82 from $72.
At the end of the third quarter of 2023, 77 hedge funds in the database of Insider Monkey held stakes worth $4.6 billion in The Charles Schwab Corporation (NYSE:SCHW), compared to 88 in the previous quarter worth $4 billion.
Along with Berkshire Hathaway Inc. (NYSE:BRK-B), JPMorgan Chase & Co. (NYSE:JPM), and Citigroup Inc. (NYSE:C), The Charles Schwab Corporation (NYSE:SCHW) is one of the biggest stocks that benefit from high interest rates.
In its Q3 2023 investor letter, Weitz Investment Management, an asset management firm, highlighted a few stocks and The Charles Schwab Corporation (NYSE:SCHW) was one of them. Here is what the fund said:
“Lastly, we decided to sell our shares of The Charles Schwab Corporation (NYSE:SCHW) during the first quarter as the regional banking crisis unfolded. The decision effectively locked in Schwab’s negative impact on Fund performance but has no bearing on forward-looking returns. Nevertheless, it is likely Schwab will remain on our detractors list for the balance of 2023.”
5. Wells Fargo & Company (NYSE:WFC)
Number of Hedge Fund Holders: 77
Wells Fargo & Company (NYSE:WFC) is a diversified financial services company that provides banking, investment, mortgage, and consumer and commercial finance products and services. On December 14, Odeon Capital analyst Dick Bove upgraded Wells Fargo & Company (NYSE:WFC) stock to Buy from Hold with a price target of $56.08.
At the end of the third quarter of 2023, 77 hedge funds in the database of Insider Monkey held stakes worth $4.3 billion in Wells Fargo & Company (NYSE:WFC), compared to 75 in the previous quarter worth $4 billion.
4. Citigroup Inc. (NYSE:C)
Number of Hedge Fund Holders: 79
Citigroup Inc. (NYSE:C) is a financial services holding company that provides various financial products and services to consumers, corporations, governments, and institutions. On December 14, Wells Fargo analyst Mike Mayo maintained an Overweight rating on Citigroup Inc. (NYSE:C) stock and raised the price target to $60 from $55.
At the end of the third quarter of 2023, 79 hedge funds in the database of Insider Monkey held stakes worth $6.9 billion in Citigroup Inc. (NYSE:C), compared to 75 in the previous quarter worth $6.5 billion.
In its Q3 2023 investor letter, Silver Beech Capital, an asset management firm, highlighted a few stocks and Citigroup Inc. (NYSE:C) was one of them. Here is what the fund said:
“Citigroup (“Citi”) is a large-capitalization global diversified financial services holding company that primarily serves multinational institutional and high net worth consumer clients. Citi is one of three large American banks to be designated in “bucket 3 or 4” of the “global systemically important bank” (“G-SIB”) framework by The Basel Committee on Banking Supervision. The other banks in this group are J.P. Morgan and Bank of America.
As a G-SIB, Citi is subjected to increased regulatory supervision by global bank regulators and central banks. Enhanced regulatory supervision was an important post-crisis reform to strengthen the global financial system by increasing bank capital ratios, transparency, and decreasing risk-taking. These reforms resulted in the largest G-SIBs moving away from risk-oriented banking activities such as advisory, high-yield lending, and trading, towards lower-risk activities. Indeed, Citi’s most valuable, high-growth segment, Treasury and Trade Solutions, is in lower-risk and entrenched activities such as liquidity and cash management, payments, trade solutions, and automated receivables processing. In our view, somewhat unintuitively, Citi’s increased regulatory supervision contributes to the company’s less risky banking business model, and thus its attractiveness as a downside-oriented investment opportunity.
Citi’s market perception suffers from the bank’s negative historical reputation. In 2008 during the Great Financial Crisis, Citi received the most TARP funding (the largest “bailout”) of the U.S. banks. TARP funding was provided by the U.S. government to forestall a liquidity problem that threatened to become a solvency problem. More recently, Citi mistakenly used its own capital to pay lenders when acting as Revlon’s loan agent, resulting in a $400M fine by the Federal Reserve and orders to resolve internal controls (which Citi fulfilled). Citi’s large global consumer bank was assembled by prior management in the early 2000s to attract and service high-end global consumers. Unfortunately, this pivot was costly and ill-timed in the context of increasingly complex multi-jurisdictional regulation to prevent money laundering and tax evasion. The global consumer bank has been a drag on Citi’s overall performance…” (Click here to see the full text)
3. Bank of America Corporation (NYSE:BAC)
Number of Hedge Fund Holders: 88
Bank of America Corporation (NYSE:BAC) provides banking and financial products and services for individual consumers, small and middle-market businesses, institutional investors, large corporations, and governments. On December 14, investment advisory Odeon Capital upgraded Bank of America Corporation (NYSE:BAC) stock to Buy from Hold with a price target of $37.94.
Among the hedge funds being tracked by Insider Monkey, Omaha, Nebraska-based investment firm Berkshire Hathaway is a leading shareholder in Bank of America Corporation (NYSE:BAC) with 1 billion shares worth more than $28 billion.
2. JPMorgan Chase & Co. (NYSE:JPM)
Number of Hedge Fund Holders: 109
JPMorgan Chase & Co. (NYSE:JPM) operates as a financial services company worldwide. It is one of the top financial stocks to invest in. On December 14, investment advisory Wells Fargo maintained an Overweight rating on JPMorgan Chase & Co. (NYSE:JPM) stock and raised the price target to $200 from $185.
At the end of the third quarter of 2023, 109 hedge funds in the database of Insider Monkey held stakes worth $6.6 billion in JPMorgan Chase & Co. (NYSE:JPM), compared to 106 in the preceding quarter worth $4.3 billion.
1. Berkshire Hathaway Inc. (NYSE:BRK-B)
Number of Hedge Fund Holders: 116
Berkshire Hathaway Inc. (NYSE:BRK-B) is a diversified conglomerate with interest in insurance, finance, and other sectors. The firm is worth more than $777 billion and is expected to cross $1 trillion in market capitalization in the coming years. Among the hedge funds being tracked by Insider Monkey, Washington-based Bill & Melinda Gates Foundation Trust is a leading shareholder in Berkshire Hathaway Inc. (NYSE:BRK-B) with 22 million shares worth more than $7 billion.
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Disclosure. None. 13 Biggest Stocks That Benefit From High Interest Rates is originally published on Insider Monkey.
