Bank of America: Buy these 21 stocks that will profit if the Federal Reserve decides to keep hiking interest rates next month
- The Fed kept its pause in place, leaving interest rates steady — for now.
- Higher rates hurt stocks, making money more expensive and bonds more appealing.
- But some stocks have proven that they benefit from higher rates, according to Bank of America.
Investors breathed a sigh of relief late Wednesday after Federal Reserve Chair Jerome Powell announced that interest rate hikes would be postponed for the time being.
Since September, interest rates have been stuck between 5.25% and 5.5%. The market welcomed the pause after 11 interest rate hikes since March 2022 pushed rates to their highest level in 22 years.
But just because Powell decided to pause rate hikes for the time being doesn’t mean they can’t go higher from here. Powell emphasized in his remarks following the release of the FOMC meeting minutes that 2% inflation remains the goal, and that there is still a long way to go to get there.
“The truth is that the committee is not thinking about rate cuts right now.” “We’re not discussing rate cuts,” Powell said. “We’re still very focused on the first question, which is ‘have we achieved a monetary policy stance that is sufficiently restrictive to sustainably bring inflation down to 2% over time?'” That is the question we are concentrating on.”
He later added that the FOMC “will always do what it thinks is appropriate at the time,” implying that a rate hike in December is still possible.
Higher interest rates are generally negative for stocks. Higher interest rates not only make it more expensive for businesses to borrow money, but they also make safer assets like bonds more appealing.
High interest rates, however, do not harm all stocks equally. In fact, a recent note by Savita Subramanian, Bank of America’s head of US equity & quantitative strategy, highlights the small group of stocks that benefit.
Subramanian screened for excess returns among S&P 500 companies in late October and compared them to monthly changes in the nominal 10-year Treasury yield. She concentrated on stocks with betas that were “statistically significant at the 5% level and had at least ten years of monthly returns.”
The 21 stocks she discovered are rated “buy” by Bank of America analysts. Each company is represented by its ticker, last closing price, sector, industry, and nominal interest rate beta.
1. ON Semiconductor Corporation
Ticker: ON
Last Closing Price: $64.84
Sector: Information Technology
Industry: Semiconductors & Semiconductor Equipment
Nominal Interest Rate Beta: 12.8
Source: Bank of America
2. Targa Resources Corp.
Ticker: TRGP
Last Closing Price: $84.17
Sector: Energy
Industry: Oil Gas & Consumable Fuels
Nominal Interest Rate Beta: 11.6
Source: Bank of America
3. United Rentals, Inc.
Ticker: URI
Last Closing Price: $409.31
Sector: Industrials
Industry: Trading Companies & Distributors
Nominal Interest Rate Beta: 10.6
Source: Bank of America
4. Akamai Technology
Markets Insider
Ticker: AKAM
Last Closing Price: $17.60
Sector: Information Technology
Industry: IT Services
Nominal Interest Rate Beta: 9.6
Source: Bank of America
5. General Motors
Ticker: GM
Last Closing Price: $28.01
Sector: Consumer Discretionary
Industry: Automobiles
Nominal Interest Rate Beta: 7.6
Source: Bank of America
6. NXP Semiconductors NV
Ticker: NXPI
Last Closing Price: $172.52
Sector: Information Technology
Industry: Semiconductors & Semiconductor Equipment
Nominal Interest Rate Beta: 7.1
Source: Bank of America
7. Morgan Stanley
Ticker: MS
Last Closing Price: $70.95
Sector: Financials
Industry: Capital Markets
Nominal Interest Rate Beta: 7.0
Source: Bank of America
8. The Mosaic Company
Ticker: MOS
Last Closing Price: $32.30
Sector: Materials
Industry: Chemicals
Nominal Interest Rate Beta: 6.9
Source: Bank of America
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9. CF Industries Holdings, Inc.
Ticker: CF
Last Closing Price: $79.28
Sector: Materials
Industry: Chemicals
Nominal Interest Rate Beta: 6.5
Source: Bank of America
10. Lam Research Corporation
Ticker: LRCX
Last Closing Price: $606.66
Sector: Information Technology
Industry: Semiconductors & Semiconductor Equipment
Nominal Interest Rate Beta: 6.0
Source: Bank of America
11. Agilent Technologies, Inc.
Ticker: A
Last Closing Price: $102.88
Sector: Health Care
Industry: Life Sciences Tools & Services
Nominal Interest Rate Beta: 5.8
Source: Bank of America
12. Goldman Sachs
Ticker: GS
Last Closing Price: $307.21
Sector: Financials
Industry: Capital Markets
Nominal Interest Rate Beta: 5.7
Source: Bank of America
13. Western Digital Corporation
Ticker: WDC
Last Closing Price: $41.74
Sector: Information Technology
Industry: Technology Hardware Storage & Peripherals
Nominal Interest Rate Beta: 5.0
Source: Bank of America
14. Adobe
Ticker: ADBE
Last Closing Price: $544.50
Sector: Information Technology
Industry: Software
Nominal Interest Rate Beta: 4.8
Source: Bank of America
15. MetLife
Ticker: MET
Last Closing Price: $59.98
Sector: Financials
Industry: Insurance
Nominal Interest Rate Beta: 4.7
Source: Bank of America
16. Ameriprise Financial
Ticker: AMP
Last Closing Price: $317.44
Sector: Financials
Industry: Capital Markets
Nominal Interest Rate Beta: 4.6
Source: Bank of America
17. Marriott International
Ticker: MAR
Last Closing Price: $188.80
Sector: Consumer Discretionary
Industry: Hotels Restaurants & Leisure
Nominal Interest Rate Beta: 4.6
Source: Bank of America
18. Old Dominion Freight Line
Ticker: ODFL
Last Closing Price: $390.65
Sector: Industrials
Industry: Ground Transportation
Nominal Interest Rate Beta: 4.5
Source: Bank of America
19. PTC Inc.
Ticker: PTC
Last Closing Price: $138.89
Sector: Information Technology
Industry: Software
Nominal Interest Rate Beta: 4.3
Source: Bank of America
20. Eastman Chemical Company
Ticker: EMN
Last Closing Price: $74.47
Sector: Materials
Industry: Chemicals
Nominal Interest Rate Beta: 4.2
Source: Bank of America
21. Schlumberger N.V.
Ticker: SLB
Last Closing Price: $55.86
Sector: Energy
Industry: Energy Equipment & Services
Nominal Interest Rate Beta: 4.1
Source: Bank of America
