In this article, we discuss 5 stocks to buy amid rising interest rates. If you want to read our detailed analysis of these stocks, go directly to 10 Stocks to Buy Amid Rising Interest Rates.
5. The Home Depot, Inc. (NYSE:HD)
Number of Hedge Fund Holders: 58
The Home Depot, Inc. (NYSE:HD) is a home improvement retailer. Rising interest rates usually lead to a boom in the housing market. This boom incentivises home improvement, leading to greater sales for businesses like The Home Depot, Inc. (NYSE:HD). Coupled with the supply chain capabilities and size benefits that The Home Depot, Inc. (NYSE:HD) enjoys, the coming months look set to bring new growth opportunities for the company.
Elite hedge funds hold large stakes in The Home Depot, Inc. (NYSE:HD) as a new fiscal year begins. Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in The Home Depot, Inc. (NYSE:HD), with 7.4 million shares worth more than $2.4 billion.
In its Q1 2021 investor letter, Ensemble Capital, an asset management firm, highlighted a few stocks and The Home Depot, Inc. (NYSE:HD) was one of them. Here is what the fund said:
“Notable contributors to the Fund’s returns this quarter (included) Home Depot. Home Depot (8.9% weight in the Fund) continued to benefit from a red-hot housing and home improvement market, delivering record financial performance in 2020. As a high return on invested capital business, any step-up in growth results in considerable shareholder value creation. While 2021 comparable sales may not yield impressive headline results, we believe there are several secular tailwinds supporting continued housing investment, including millennials entering prime household formation/peak earnings years, relatively low interest rates, and government policies.
Home Depot (8.9% weight in the Fund): The big orange sign of Home Depot is a familiar sight for homeowners across the country. Despite the rise of Amazon, Home Depot has generated outstanding results for shareholders during the rise of eCommerce, even as Home Depot’s end market in housing suffered the worst collapse in a century. Over the last fifteen years, a period which began at the peak of the housing bubble, Home Depot’s stock has generated annual returns of 17% a year, outperforming the S&P 500 by approximately 7% a year.
But while homeowners can attest to their continued shopping at Home Depot, they may not be aware that only about half the company is dedicated to serving Do It Yourself homeowners, with the other half acting as a key supplier to small contractors – which the company calls Pros – who depend on Home Depot as a mission critical business partner.
While the company does not report on their contractor business separately from their homeowner business, they have regularly offered comments indicating that contractors make up just 4% of their customer base, but about 45% of revenue. Basic math implies…”[read the entire letter here]
4. The Charles Schwab Corporation (NYSE:SCHW)
Number of Hedge Fund Holders: 59
The Charles Schwab Corporation (NYSE:SCHW) provides investment banking and brokerage services. It is one of the top brokerage stocks among hedge funds. At the end of the third quarter of 2021, 59 hedge funds in the database of Insider Monkey held stakes worth $4.5 billion in The Charles Schwab Corporation (NYSE:SCHW), compared to 72 in the previous quarter worth $4.8 billion.
On January 31, Deutsche Bank analyst Brian Bedell maintained a Buy rating on The Charles Schwab Corporation (NYSE:SCHW) with a price target of $121, reiterating the stock as one of the top picks for 2022 based on the growth profile of the business and the synergies developed as a result of recent purchases that would drive a 25% expected earnings growth for The Charles Schwab Corporation (NYSE:SCHW) in the coming two years.
In its Q3 2021 investor letter, Ariel Investments, an investment management firm, highlighted a few stocks and The Charles Schwab Corporation (NYSE:SCHW) was one of them. Here is what the fund said:
“Additionally, financial services provider Charles Schwab Corporation (SCHW) was another strong performer in the period. Management has made progress increasing new and existing customer engagement through its multichannel approach and low-cost, high value product offerings—bolstering the company’s competitive positioning. Elevated interest rate expectations have been another driver of performance as SCHW reinvests deposits in securities and earns a spread. In our view, SCHW has the ability to weather various macro-economic and competitive pressures by flexing its scale and customer centric focus in support of the company’s industry leading cost advantage. We also believe the TD Ameritrade acquisition will create incremental value and further enhance SCHW’s market place standing and long-term growth trajectory.”
3. Bank of America Corporation (NYSE:BAC)
Number of Hedge Fund Holders: 72
Bank of America Corporation (NYSE:BAC) provides banking and financial products. It is one of the stocks best positioned to benefit from a rise in interest rates as a nominal increase in rates would lead to hundreds of millions in extra earnings for the bank. Coupled with the strong fundamentals of Bank of America Corporation (NYSE:BAC), 2022 looks set to be a strong year for the company.
This is why top hedge funds remain bullish on Bank of America Corporation (NYSE:BAC). At the end of the third quarter of 2021, 72 hedge funds in the database of Insider Monkey held stakes worth $46.4 billion in Bank of America Corporation (NYSE:BAC), compared to 87 in the previous quarter worth $46.5 billion.
In its Q1 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Bank of America Corporation (NYSE:BAC) was one of them. Here is what the fund said:
“Higher long-term interest rates supported financials such as Bank of America, which has shown both defensive and offensive characteristics in the past year. We believe it continues to be the least risky large bank from a credit standpoint, with conservative underwriting and controlled risk taking, a leading consumer deposit franchise, scale and technology. It is also a leader in its commitments to sustainability, or as it terms it, responsible growth. Disclosure and reporting at all levels form a large part of this commitment, including gender diversity and equality, environmental commitments and support of communities in which it operates. In the first quarter Bank of America announced it is setting a goal of net-zero greenhouse gas (GHG) emissions in its supply chain and operations, and notably also in its financing activities, before 2050.”
2. Citigroup Inc. (NYSE:C)
Number of Hedge Fund Holders: 79
Citigroup Inc. (NYSE:C) is a diversified financial services holding firm. It is based in New York and has featured among the top hedge fund stocks for years. At the end of the third quarter of 2021, 79 hedge funds in the database of Insider Monkey held stakes worth $5.5 billion in Citigroup Inc. (NYSE:C), compared to 87 the preceding quarter worth $6.1 billion.
Just as an interest rate hike signals a boom for the finance sector, Citigroup Inc. (NYSE:C) has been selling overseas assets in Mexico and Taiwan as part of a larger plan to prioritize positive investor returns. The market has reacted positively to the shedding of global operations, which is driving a recalibration in corporate structure at the firm as well.
In its Q1 2021 investor letter, Artisan Partners Limited Partnership, an asset management firm, highlighted a few stocks and Citigroup Inc. (NYSE:C) was one of them. Here is what the fund said:
“We fully exited position in Citigroup. Global financial services company Citigroup made a $900 million clerical error and received a public reprimand from federal regulators. This, after a decade focused on process control, information technology and risk systems, makes the error substantially more costly than just the $900 million mistake. Regulators believe the company’s risk management improvements have fallen short of expectations. To rectify the situation, a process and technology spending surge could negatively affect 2021-2022 profits by 10% to 20%. Trust and confidence are important in large financial institutions, and this incident combined with the CEO’s sudden retirement shook ours.”
1. JPMorgan Chase & Co. (NYSE:JPM)
Number of Hedge Fund Holders: 101
JPMorgan Chase & Co. (NYSE:JPM) is a financial services company. On January 18, Barclays analyst Jason Goldberg kept an Overweight rating on JPMorgan Chase & Co. (NYSE:JPM) stock with a price target of $200, noting that an earnings beat in the fourth quarter of 2021 and higher than expected net interest income had offset some of the negatives for the company that included higher tax rates and less share buybacks. The analyst noted that investments would help JPMorgan Chase & Co. (NYSE:JPM) maintain higher returns in the coming months.
JPMorgan Chase & Co. (NYSE:JPM) is a leading bank stock on Wall Street, evidenced by the bullish hedge fund sentiment around the firm. Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in JPMorgan Chase & Co. (NYSE:JPM), with 7 million shares worth more than $1.1 billion.
In its Q4 2020 investor letter, Bretton Fund, an asset management firm, highlighted a few stocks and JPMorgan Chase & Co. (NYSE:JPM) was one of them. Here is what the fund said:
“After a strong performance in 2019, we wrote this about our bank stocks in last year’s report: “There will be another recession sooner than later, and our banks will see larger loans losses, but we think this is more than priced into the stock, and our banks are well reserved for that eventuality.” Little did we know “sooner” really meant “a few weeks from now.” Despite the economic shock, the banks still have huge capital cushions that can absorb large loan losses. Our remaining bank investments, JPMorgan and Bank of America, increased their reserves significantly at the beginning of the Covid-19 crisis in anticipation of imminent loan defaults, but with the government stimulus and perhaps a more resilient economy than many would have guessed, actual loan losses are up only slightly. They might happen later in 2021, but with an additional stimulus package and the vaccine rolling out, the large-scale losses may not be as bad as most people predicted. The bigger drag on the banks’ earnings power is lower rates, which in our opinion will persist for a long time. Despite this drag, we estimate both JPMorgan and Bank of America will continue to grow revenue and earnings over the next few years, while we believe their stocks remain bargains in a somewhat expensive market. JPMorgan’s earnings per share declined 17% last year, and its stock returned -5.5%. Bank of America’s earnings, which are more sensitive to interest rates, were down 32%, and its stock returned -11.6%.”
You can also take a peek at Billionaire Stan Druckenmiller’s Top 10 Stock Picks and Billionaire Julian Robertson On Interest Rates and His Top Stock Picks For 2021.
