In this article, we discuss 10 stocks to buy before interest rate hikes. If you want to skip our detailed analysis of the stock market, go directly to 5 Stocks to Buy Before Interest Rate Hikes.
The Federal Reserve announced on January 26 that in an effort to contain the continuously rising inflation in the United States, which has reached a 39-year high of 7%, the stock market and investors need to brace for multiple interest rate hikes starting in March 2022. Analysts expect continuously rising rates after March, since history indicates that the last time the Fed decided to spike rates, it revised rates nine times in a three-year period.
With the increasing interest rates, the cost of borrowing will rise incrementally. However, individuals who save their income will not benefit much from the higher rates since the Fed has no direct influence on deposit rates. This market dynamic suggests that the financial sector is set to benefit immensely from the interest rate hikes, since the higher cost of borrowing will result in greater revenues.
Savers have little incentive to keep their money in the banks, in a rising interest rate and inflationary environment, where their funds lose value every day. Most individuals tend to invest in real assets that will not be devalued as quickly as paper money, and this gives the real estate, industrial, and consumer discretionary sectors a boost in demand during high interest rate periods.
The most notable stocks to invest in before interest rates hike include Costco Wholesale Corporation (NASDAQ:COST), Lowe’s Companies, Inc. (NYSE:LOW), and The Goldman Sachs Group, Inc. (NYSE:GS).
Photo by Austin Distel on Unsplash
Our Methodology
We selected stocks that are positioned to benefit from the rising interest rates, mentioning the hedge fund sentiment around each stock.
Stocks to Buy Before Interest Rate Hikes
10. Jabil Inc. (NYSE:JBL)
Number of Hedge Fund Holders: 27
Jabil Inc. (NYSE:JBL) is a Florida-based manufacturing services company that operates worldwide, with manufacturing facilities in 30 countries. Jabil Inc. (NYSE:JBL)’s expertise lies in design engineering, supply chain, and logistics for multiple industries including healthcare, life sciences, clean technology, instrumentation, defense, aerospace, automotive, consumer products, and telecommunications.
On January 20, Jabil Inc. (NYSE:JBL) declared a quarterly dividend of $0.08 per share, in line with previous. The dividend is payable on March 2, to shareholders of record on February 15.
Publishing its Q4 results on December 16, Jabil Inc. (NYSE:JBL) posted earnings per share of $1.92, beating estimates by $0.12. Revenue for the quarter jumped 9.38% year-over-year to $8.57 billion, outperforming estimates by $284.50 million.
Raymond James analyst Melissa Fairbanks on December 17 raised the price target on Jabil Inc. (NYSE:JBL) to $80 from $70 and kept a Strong Buy rating on the shares following the November quarter results. The analyst believes that Jabil Inc. (NYSE:JBL)’s recent diversification efforts have set the company up to benefit from significant long-term secular growth trends across multiple end markets with more consistent and predictable margins and returns through the cycle.
Among the hedge funds tracked by Insider Monkey in Q3 2021, Steve Cohen’s Point72 Asset Management is the biggest Jabil Inc. (NYSE:JBL) stakeholder, with 3.4 million shares worth over $200 million. Overall, 27 hedge funds were bullish on Jabil Inc. (NYSE:JBL) in the third quarter, with stakes totaling $517.3 million.
In addition to Costco Wholesale Corporation (NASDAQ:COST), Lowe’s Companies, Inc. (NYSE:LOW), and The Goldman Sachs Group, Inc. (NYSE:GS), Jabil Inc. (NYSE:JBL) is one of the notable stocks to buy before interest rates hike.
9. Ingersoll Rand Inc. (NYSE:IR)
Number of Hedge Fund Holders: 33
Headquartered in North Carolina, Ingersoll Rand Inc. (NYSE:IR) is a multinational corporation that manufactures industrial solutions including compressors, vacuum and blower solutions, specialized gas and fluid management systems, liquid and precision pumps, power tools, and lifting equipment. Ingersoll Rand Inc. (NYSE:IR) sells its products across global markets under multiple brands.
On October 26, Ingersoll Rand Inc. (NYSE:IR) declared a $0.02 per share quarterly dividend, in line with previous. The dividend was paid on December 17, to shareholders of record on November 10.
Baird analyst Michael Halloran lowered the price target on Ingersoll Rand Inc. (NYSE:IR) to $64 from $68 and kept an Outperform rating on the shares on January 20. The analyst observed that there is a significant internal transformation underway at Ingersoll Rand Inc. (NYSE:IR), an underappreciated growth profile, important margin levers, and capital deployment optionality including further portfolio reconstitution ahead.
Ingersoll Rand Inc. (NYSE:IR) on October 28 entered into an agreement to acquire Air Dimensions for an all cash purchase of $70.5 million. Air Dimensions manufactures vacuum diaphragm pumps primarily for environmental applications in high growth, sustainable end markets such as emission monitoring, biogas, utility, and chemical processes. The acquisition, which was closed on October 29, positioned Ingersoll Rand Inc. (NYSE:IR) for future growth as a highly profitable business serving sustainable end markets, owing to the meaningful synergy opportunities that were identified.
Billionaire Andreas Halvorsen’s Viking Global is the largest Ingersoll Rand Inc. (NYSE:IR) stakeholder as of Q3 2021, with 3.6 million shares worth $183.5 million. Overall, 33 hedge funds reported owning stakes in Ingersoll Rand Inc. (NYSE:IR) in the third quarter of 2021, totaling $732.8 million.
Here is what Artisan Global Discovery Fund has to say about Ingersoll Rand Inc. (NYSE:IR) in its Q3 2021 investor letter:
“We also added to Ingersoll Rand. Ingersoll Rand is a global market leader with a broad range of mission-critical flow creation technologies (pumps, compressors, etc.) for industrial and medical applications. Over the past several years, a new management team has repositioned the company toward less cyclical, more profitable businesses, which are supported by a stronger culture of employee engagement and continuous improvement. More recently, the company’s top-line growth has accelerated as the pandemic fades, and margins are benefiting from cost synergies achieved in its merger integration with Gardner Denver (with further runway ahead). This has boosted cash flows and enabled management to resume its successful bolt-on acquisition strategy, acquiring Seepex GmbH, a global leader in positive displacement pumps for end markets such as water, wastewater, food and beverage and chemicals, in Q2. With an increasingly visible organic and acquisition-driven growth capability, characteristics the market appears to be undervaluing, we added to our position at an attractive discount to our PMV estimate.”
8. PacWest Bancorp (NASDAQ:PACW)
Number of Hedge Fund Holders: 33
PacWest Bancorp (NASDAQ:PACW) is a California-based bank holding company that operates via its wholly owned subsidiary, Pacific Western Bank. Offering consumer banking, corporate banking, mortgage loans, and venture debt, PacWest Bancorp (NASDAQ:PACW) provides its services to small and medium-sized businesses.
In its fourth quarter earnings report, published on January 19, PacWest Bancorp (NASDAQ:PACW) posted an EPS of $1.18, exceeding estimates by $0.16. PacWest Bancorp (NASDAQ:PACW)’s revenue for the period came in at $361.92 million, up 21% from the prior-year quarter, outperforming estimates by $26.95 million.
On November 1, PacWest Bancorp (NASDAQ:PACW) declared a quarterly dividend of $0.25 per share, in line with previous. The dividend was distributed on November 30, to shareholders of record on November 15. PacWest Bancorp (NASDAQ:PACW)’s dividend yield on January 27 came in at 2.17%.
Truist analyst Brandon King raised the price target on PacWest Bancorp (NASDAQ:PACW) on January 21 to $60 from $55 and kept a Buy rating on the shares after its Q4 earnings beat. The analyst also raised his FY23 EPS view by 50c to $5.00 while noting that the revision primarily reflected higher spread income given the increased Fed hike assumptions, offset partially by higher expenses.
In the third quarter of 2021, Cardinal Capital was the biggest stakeholder of PacWest Bancorp (NASDAQ:PACW), owning more than 5 million shares worth $232.4 million. Overall, 33 hedge funds in Q3 2021 were long PacWest Bancorp (NASDAQ:PACW), up from 29 funds in the preceding quarter.
7. Costco Wholesale Corporation (NASDAQ:COST)
Number of Hedge Fund Holders: 55
Costco Wholesale Corporation (NASDAQ:COST) is a California-based multinational retail company that operates big box stores worldwide. Costco Wholesale Corporation (NASDAQ:COST) specializes in merchandise, cash and carry, warehouse club, and filling stations.
On January 12, Truist analyst Scot Ciccarelli initiated coverage of Costco Wholesale Corporation (NASDAQ:COST) with a Buy rating and a $606 price target. The analyst observed that its size and purchasing concentration has afforded Costco Wholesale Corporation (NASDAQ:COST) “nearly unrivaled” buying power. He believes the extreme value that Costco Wholesale Corporation (NASDAQ:COST) offers to its members likely provides it with the highest barriers to entry in retail.
Costco Wholesale Corporation (NASDAQ:COST) declared on January 20 a $0.79 per share quarterly dividend, in line with previous. The dividend will be distributed on February 18, to shareholders of record on February 4.
Costco Wholesale Corporation (NASDAQ:COST) announced its Q4 results on December 9, posting GAAP earnings per share of $2.98, beating estimates by $0.33. The company’s revenue came in at $50.36 billion, up 16.56% from the prior-year quarter, outperforming estimates by $608.85 million.
Among the hedge funds monitored by Insider Monkey, Fisher Asset Management is the biggest stakeholder of Costco Wholesale Corporation (NASDAQ:COST) as of Q3 2021, with 3.8 million shares worth $1.74 billion. Overall, 55 hedge funds reported owning stakes in Costco Wholesale Corporation (NASDAQ:COST) in the third quarter, totaling $4.39 billion.
Here is what Ensemble Capital Management has to say about Costco Wholesale Corporation (NASDAQ:COST) in its Q4 2021 investor letter:
“There are a handful of events that drive major changes in people’s shopping routines. Two of these are moving and having children. Naturally, when you buy a new house or have kids, retailers pepper you with emails and mailers containing valuable coupons and offers because they want to become a part of your new shopping routine.
It turns out that a global pandemic is another one of those routine-altering events. In early 2020, as stay-at home and quarantine orders rolled out around the country, shoppers flocked to Costco to load up on essentials like paper products and food and non-essentials like TVs and alcoholic beverages (or maybe these are “essentials” during a pandemic?).
During this abnormal period, Costco proved and reinforced its membership value proposition. If you want your pantry to be well stocked and limit your shopping trips – all the while getting great value for your money – Costco showed it is the place to go.
Membership loyalty, already strong before the pandemic, continued to increase well after quarantines and stay-at-home orders were lifted. A recent survey by Evercore ISI showed that between 2020 and 2021 Costco gained loyalty across every tested demographic by age and income except for incomes below $45,000. Notably, its biggest loyalty gains came from the 18 to 34 and 35 to 54 year old age groups and incomes between $45,000 and $74,999.
The beauty of Costco’s business model is its simplicity…” (Click here to see the full text)
6. Capital One Financial Corporation (NYSE:COF)
Number of Hedge Fund Holders: 55
Capital One Financial Corporation (NYSE:COF) is a Virginia-based bank holding company that offers retail banking, auto loans, credit cards, and savings accounts to its customers.
On January 25, Capital One Financial Corporation (NYSE:COF) posted its Q4 results. Capital One Financial Corporation (NYSE:COF) announced earnings per share of $5.41, exceeding estimates by $0.22. Revenue for the company totaled $8.12 billion, up 10.64% year-over-year, outperforming estimates by $186.64 million.
Capital One Financial Corporation (NYSE:COF) on November 4 declared a $0.60 per share quarterly dividend, in line with previous. The dividend was paid on November 26, to shareholders of record on November 15.
Credit Suisse analyst Moshe Orenbuch on January 26 lowered the price target on Capital One Financial Corporation (NYSE:COF) to $185 from $190 and kept an Outperform rating on the shares after the company reported Q4 earnings per share of $5.41. The analyst pointed out that revenue was higher than expected, due to stronger net interest income and non-interest income. Overall, the analyst is neutral on the quarter, and his estimates are pressured since he is “cautious” on the conservative expense commentary, without a timeframe on when efficiency improvement should be achieved.
Among the hedge funds tracked by Insider Monkey, 55 funds reported owning stakes worth $4.70 billion in Capital One Financial Corporation (NYSE:COF) in the third quarter of 2021. Harris Associates, the largest Capital One Financial Corporation (NYSE:COF) stakeholder, owns a $946.1 million position in the company.
In addition to Costco Wholesale Corporation (NASDAQ:COST), Lowe’s Companies, Inc. (NYSE:LOW), and The Goldman Sachs Group, Inc. (NYSE:GS), hedge funds are piling into Capital One Financial Corporation (NYSE:COF) as a hedge against high interest rates.
Here is what ClearBridge Investments has to say about Capital One Financial Corporation (NYSE:COF) in its Q2 2021 investor letter:
“Portfolio holdings in the communication services and financial sectors also made strong contributions… In financials, Capital One has also benefited, at least indirectly, from government stimulus that has strengthened customer balance sheets and driven credit losses to record lows. Capital One should also benefit from a reopening of the economy and increased discretionary spending.”
Click to continue reading and see 5 Stocks to Buy Before Interest Rate Hikes.
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Disclosure: None. 10 Stocks to Buy Before Interest Rate Hikes is originally published on Insider Monkey.
