5 Companies That May Suffer From A Potential Rate Hike

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The Federal Reserve will release its rate decision at the end of this week’s two-day policy meeting. Some people suggest that financial markets would feel at ease if a September rate hike occurs, accompanied by assurances that the pace of subsequent rate hikes will be slow. Fed policymakers could make these assurances through its economic projections, which will shed some light on the expected pace of interest rate increases and other economic issues. JPMorgan Chase & Co. (NYSE:JPM) has warned that companies with large quantities of floating-rate debt in their balance sheets will most likely be negatively impacted by a potential rate hike. Conversely, the companies with a lot of fixed-rate debt are not expected to be impacted over the short-term until they refinance or issue new debt. JPMorgan has made a list of 25 companies that have the highest variable-rate debt as a percentage of market capitalization, and this article will look at five intriguing stocks from that list and what the smart money thinks about them heading into the crucial policy meeting.

JP Morgan Chase JPM Office

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Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research have shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return 118% over the last 36 months and outperformed the S&P 500 Index by over 60 percentage points (see the details here).

5. Ford Motor Company (NYSE:F)

Investors with Long Positions (as of June 30): 36

Aggregate Value of Investors’ Holdings (as of June 30): $754.96 Million

The number of hedge funds monitored by Insider Monkey that owned Ford Motor Company (NYSE:F) at the end of the first quarter stood at 33, when the overall investments in the stock added up to $832.07 million. Although the shares of Ford have closed the loss gap caused by the recent broader market selloff, the stock is still over 5% in thered this year. Just recently, the company reported strong European sales in August, with a year-over-year increase of 11.7% to 69,000 vehicles in that region. Additionally, Ford’s sales growth exceeded the industry sales growth of 10.9% in the region, which indicates that the company has been able to make the most of the seemingly reviving Europe. Israel Englander’s Millennium Management acquired a 644,408 share-stake in Ford Motor Company (NYSE:F) during the latest quarter.

4. AutoNation Inc. (NYSE:AN)

Investors with Long Positions (as of June 30): 37

Aggregate Value of Investors’ Holdings (as of June 30): $1.51 Billion

A total number of 37 hedge funds observed by our team had positions in AutoNation Inc. (NYSE:AN) at the end of the recent quarter, up from 32 reported in the prior quarter. Nevertheless, the value of these positions shrank from $1.53 billion during the period. It’s also worth mentioning that the 37 investors owned 21% of the company’s outstanding stock as of June 30. On Wednesday, AutoNation announced the pricing of $300 million in senior unsecured notes due 2021 at 3.35% and $450 million of notes due 2025 at 4.5%. The proceeds will be used to refinance its current debt, which suggests that the company fears a potential rate hike. However, it appears that the company’s management is taking the necessary steps towards minimizing the impact of rate increases. Edward Lampert’s ESL Investments is the most bullish investor on AutoNation Inc. (NYSE:AN) within our database, holding 7.22 million shares.

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