In this article, we discuss 5 stocks to buy for interest rate hikes. If you want to see more stocks in this selection, check out 10 Stocks to Buy for Interest Rate Hikes.
5. Arthur J. Gallagher & Co. (NYSE:AJG)
Number of Hedge Fund Holders: 31
Arthur J. Gallagher & Co. (NYSE:AJG) is an Illinois-based company that provides insurance brokerage, consulting, third-party claims settlement, and administration services globally. In August, Arthur J. Gallagher & Co. (NYSE:AJG) made multiple acquisitions of insurance firms, including Watkins Group, Hillsboro, Denver Agency, and Another Day. Arthur J. Gallagher & Co. (NYSE:AJG) is one of the best stocks to buy amid interest rate hikes.
On August 26, Argus analyst John Staszak initiated coverage of Arthur J. Gallagher & Co. (NYSE:AJG) with a Buy rating and a $215 price target. The analyst forecasts organic growth of 10% in Arthur J. Gallagher & Co. (NYSE:AJG)’s Brokerage segment in the second half of the year, which is higher than the management’s estimate of 9%. He also forecasts 10% growth in its Risk Management business. Prospects for higher interest rates, robust organic growth, and contributions from acquisitions led to his above-consensus EPS estimates of $8.00 for 2022 and $9.00 for 2023, the analyst told investors in a research note.
According to Insider Monkey’s Q2 data, 31 hedge funds were long Arthur J. Gallagher & Co. (NYSE:AJG), up from 24 funds in the prior quarter. Phill Gross and Robert Atchinson’s Adage Capital Management is the biggest stakeholder of the company, with 788,803 shares worth $128.60 million.
Here is what Cooper Investors Global Equities Fund has to say about Arthur J. Gallagher & Co. (NYSE:AJG) in its Q1 2022 investor letter:
“In terms of underlying businesses, the portfolio holdings are going well and largely reported solid numbers during earnings season with positive language around the outlook for 2022. Our insurance broker Arthur J Gallagher is a stand-out performer, delivering low-double-digit organic revenue growth at the same time as margin expansion – this is a business that benefit from higher interest rates, emerging risks and inflating premiums. While rising rates, supply chain constraints and war in Europe represent a myriad of challenges for many industries, our view is that our management teams are highly experienced focused operators. They are well equipped to deal with these challenges, having shown great resilience and flexibility during many crises, the most recent example (COVID) proving yet again the power of their business models.”
4. Radian Group Inc. (NYSE:RDN)
Number of Hedge Fund Holders: 31
Radian Group Inc. (NYSE:RDN) is a Pennsylvania-based company that provides mortgage and real estate services in the United States. The company offers private mortgage insurance, credit risk management, contract underwriting, and fulfillment solutions. Radian Group Inc. (NYSE:RDN) is one of the stocks to buy for interest rate hikes. The company paid a quarterly dividend of $0.20 per share to shareholders on September 1. The dividend yield on September 20 stood at 3.86%.
On August 18, BofA analyst Mihir Bhatia upgraded Radian Group Inc. (NYSE:RDN) to Neutral from Underperform with a price target of $24, up from $22.50. The company’s capital return in Q2 “was impressive” and while execution risk remains for the homogeneous segment, at present prices the stock offers 3% upside potential and 8% total return, the analyst told investors in a research note.
According to Insider Monkey’s data, 31 hedge funds were bullish on Radian Group Inc. (NYSE:RDN) at the end of June 2022, compared to 37 funds in the prior quarter. Peter Rathjens, Bruce Clarke, and John Campbell’s Arrowstreet Capital is the leading position holder in the company, with roughly 3 million shares worth $58.5 million.
3. Chubb Limited (NYSE:CB)
Number of Hedge Fund Holders: 35
Chubb Limited (NYSE:CB) is a Swiss company that provides insurance and reinsurance products worldwide. On August 11, Chubb Limited (NYSE:CB) declared a quarterly dividend of $0.83 per share, in line with previous. The dividend is payable on October 7, to shareholders of record as of September 16. The company has consistently increased its annual dividend payout for 29 years and is a member of the S&P 500 dividend aristocrats.
On July 12, Jefferies analyst Yaron Kinar reiterated a Buy recommendation on Chubb Limited (NYSE:CB) but lowered the price target on the shares to $244 from $247. His P&C insurance and insurtech estimates for the quarter “skew below Street” to factor in modest Russia-related losses and below average alternative investment returns. However, his primary underlying EPS forecast is ahead of the Street consensus for the group, the analyst told investors.
According to Insider Monkey’s second quarter data, 35 hedge funds were long Chubb Limited (NYSE:CB), up from 31 funds in the earlier quarter. Andreas Halvorsen’s Viking Global is the largest position holder in the company, with 3.7 million shares worth about $742 million.
In its Q1 2022 investor letter, Aristotle Capital Management, an asset management firm, highlighted a few stocks and Chubb Limited (NYSE:CB) was one of them. Here is what the fund said:
“Our investment in Chubb began in the fourth quarter of 2015, shortly after ACE Limited announced it would acquire the Chubb Corporation, creating the largest global property and casualty insurance company by underwriting income. During our nearly seven-year holding period, the company’s combination progressed leading to the realization of main catalysts we had identified. These included cost savings, broadened product offerings and an expanded customer base, as well as enhanced distribution capabilities and improved pricing due to scale. In addition, Chubb successfully grew its profitable high-net-worth personal lines. While we still consider Chubb to be a high-quality business, few catalysts remain after what was, in our opinion, a remarkable run of successful business execution. As such, we decided to step aside in favor of what we believe to be a more optimal investment in Blackstone.”
2. Ally Financial Inc. (NYSE:ALLY)
Number of Hedge Fund Holders: 42
Ally Financial Inc. (NYSE:ALLY) is a Michigan-based digital financial services company, serving consumer, commercial, and corporate customers primarily in the United States and Canada. The bank is diversifying its credit portfolio, controlling funding costs, and introducing favorable lending products, which will support robust book value growth into the future. The financials group is positioned to benefit from rising rates, which makes Ally Financial Inc. (NYSE:ALLY) one of the best stocks to buy amid interest rate hikes.
On September 15, Barclays analyst Jason Goldberg maintained an Overweight rating on Ally Financial Inc. (NYSE:ALLY) but lowered the price target on Ally Financial Inc. (NYSE:ALLY) to $49 from $56.
According to Insider Monkey’s data, 42 hedge funds held stakes worth $2.3 billion in Ally Financial Inc. (NYSE:ALLY) at the end of Q2 2022, compared to 49 funds in the last quarter worth $2.4 billion. Warren Buffett’s Berkshire Hathaway is the biggest stakeholder of the company, with 30 million shares valued at more than $1 billion.
Here is what Oakmark Fund has to say about Ally Financial Inc. (NYSE:ALLY) in its Q2 2022 investor letter:
“As for Ally Financial, fears of a recession drove the stock price down more than 20% for the period, but business fundamentals have remained strong and the shares now trade for just a mid-single-digit multiple of current earnings. We believe today’s price ignores the funding cost improvements and well-capitalized nature of Ally’s balance sheet. We continue to own both investments given their significant discounts to our estimates of business value.”
1. Bank of America Corporation (NYSE:BAC)
Number of Hedge Fund Holders: 99
Bank of America Corporation (NYSE:BAC) is an American multinational investment bank and financial services holding company. For Q3 2022, BofA guided for net interest income to be at least $900 million-$1 billion higher as compared to Q2. It remains one of the best stocks to buy for interest rate hikes.
On September 12, Deutsche Bank analyst Matt O’Connor assigned a Buy rating to Bank of America Corporation (NYSE:BAC) stock but lowered the price target on the shares to $45 from $51. Although banks have underperformed this year due to recession fears, the analyst said there is upside in the longer-term for the group if the US avoids a significant economic downturn.
According to the second quarter database of Insider Monkey, Bank of America Corporation (NYSE:BAC) was part of 99 hedge fund portfolios, with combined stakes worth approximately $36 billion. Harris Associates is a notable stakeholder of the company, with 49.4 million shares valued at $1.5 billion.
Miller Value Partners mentioned Bank of America Corporation (NYSE:BAC) in its Q1 2022 investor letter. Here is what the firm had to say:
“There are many times when volatility and beta give false signals. Banks outperformed in the post-tech bubble bear market of the early 2000s. At the market peak prior to the financial crisis (when risk was the highest in those names!), Bank of America (NYSE:BAC) had a 0.9x beta (based on the trailing 5 years) suggesting its “risk” was below the market’s. Wrong! It massively underperformed in the financial crisis. Realized beta over the 5 years from the pre-crisis’ 2006 peak measured 2.3x.
A much better indicator of actual risk, both before and after the financial crisis, was the quality of the balance sheet and risk-taking appetite. Beta is backwards looking and non-stationary. Relying on it underestimated risk going into the financial crisis and overestimated coming out of it (its beta has continued to fall over the past decade).
We care greatly about risk. We spend a significant amount of time thinking about the risks to our investments. We measure risk as permanent impairment of capital, which means the prices and values don’t bounce back. Business fundamentals determine risk.”
You can also take a look at 10 Monthly Dividend Stocks with Highest Yields and 10 Penny Stocks with High Growth Potential.
