5 Biggest Stocks that Benefit from Rising Interest Rates

In this article, we will take a look at the 5 biggest stocks that benefit from rising interest rates. If you want to see more stocks in this selection, go to the 12 Biggest Stocks that Benefit from Rising Interest Rates.

5. The Charles Schwab Corporation (NYSE:SCHW)

Number of Hedge Fund Holders: 75

The Charles Schwab Corporation (NYSE:SCHW) is a Westlake, Texas-based financial services corporation renowned for its banking, brokerage, and financial advisory services.

Nearly half of The Charles Schwab Corporation’s (NYSE:SCHW) revenue comes from interest-bearing activities, and the current environment of rising benchmark interest rates will play favorably for the entity. The Charles Schwab Corporation (NYSE:SCHW) has over 33 million brokerage accounts along with 2.2 million corporate retirement plan participants and 1.6 million bank accounts as of 2022. The cash balances in the accounts of the clients generate the majority of the company’s interest-related revenue.

Here’s what Ariel Investments said about The Charles Schwab Corporation (NYSE:SCHW) in its Q3 2022 investor letter:

“Shares of financial services provider The Charles Schwab Corporation (NYSE:SCHW) also traded higher following the delivery of a top and bottom-line earnings beat, an increase in its quarterly dividend and the announcement of a significant stock repurchase program. We believe the company will continue to weather various macro and competitive pressures in a rising rate environment by flexing its scale and customer-centric focus in support of its industry leading cost advantage. We also think the TD Ameritrade acquisition will create incremental value and further enhance SCHW’s marketplace standing and long-term growth trajectory.”

4. Citigroup Inc. (NYSE:C)

Number of Hedge Fund Holders: 85

Citigroup Inc. (NYSE:C) is a New York-based investment bank and a diversified financial services company.

The company is in the middle of a transition following the appointment of Jane Fraser as CEO. In the past 18 months since her appointment, Citigroup Inc. (NYSE:C) has streamlined its operations by exiting 14 underperforming markets spread across Asia, Europe, and Mexico. Experts consider Citigroup Inc. (NYSE:C) stock as one of the best value plays at its current valuation in this macroeconomic environment. Due to the rising interest rate, Citigroup Inc. (NYSE:C) has seen its net interest income increase by 12% YoY in 2022. Experts also believe that the current stock price has factored in the element of a mild recession as well.

Diamond Hill Capital mentioned Citigroup Inc. (NYSE:C) in its Q1 2022 investor letter. Here’s what the firm said:

“Shares of Citigroup declined in the quarter as investors became increasingly negative on capital markets activity. The company is also continuing to divest certain consumer banking geographies which may be dilutive to earnings in the near term.”

Citigroup Inc. (NYSE:C) was held by 85 hedge funds as of Q3 2022.

3. The Home Depot, Inc. (NYSE:HD)

Number of Hedge Fund Holders: 89

The Home Depot, Inc. (NYSE:HD) is an Atlanta, Georgia-based retailer of home improvement products.

The Home Depot, Inc. (NYSE:HD) issues store cards backed by Citigroup Inc. The store card offers 0% interest for six months; however, if the customer is unable to pay their credit balance in full, they will be charged interest for the whole six-month period. Furthermore, rising interest rates favor The Home Depot, Inc. (NYSE:HD) as consumers do not opt for mortgaging new homes due to higher costs and thus remain restricted to making home improvements only. In an update issued to investors on December 13, Max Rakhlenko at Cowen increased the target price for The Home Depot, Inc. (NYSE:HD) stock from $350 to $379 and maintained an Outperform rating. The analyst appreciated the company’s growth momentum.

Matrix Asset Advisors shared its outlook on The Home Depot, Inc. (NYSE:HD) in its Q3 2022 investor letter. Here’s what the firm said:

“During the quarter, we re-established a position in The Home Depot, Inc. (NYSE:HD) sold earlier this year, after the shares declined sharply on big picture concerns about a softer housing market and lower consumer spending. We believe that HD is a very well-managed company, positioned to continue showing good profits even as the economy decelerates. The products it carries in inventory are in year-round demand from contractors and homeowners wanting to maintain and improve their homes. The company has historically been shareholder friendly, repurchasing shares and increasing the dividend, most recently by 15% earlier this year. On September 30, HD’s current dividend yield was 2.8%.”

2. Bank of America Corporation (NYSE:BAC)

Number of Hedge Fund Holders: 97

Bank of America Corporation (NYSE:BAC) is a North Carolina-based diversified financial services firm.

Bank of America Corporation (NYSE:BAC) has been shortlisted as one of the favorite stocks by the leading publication Barron’s for 2023. Bank of America Corporation (NYSE:BAC) is seeing its interest income rise from issuing new loans at higher interest rates. This is also countering the decline in revenue from a reduction in investment banking activities. The company holds a significant portion of consumer deposits compared to its industry peers and is more sensitive toward changes in interest rates. Bank of America Corporation (NYSE:BAC) has one of the most extensive consumer banking networks in the US.

Here’s what Ariel Investments said about Bank of America Corporation (NYSE:BAC) in its Q3 2022 investor letter:

“We initiated three new positions in the quarter. We added leading financial institution Bank of America Corporation (NYSE:BAC) which serves individual consumers, small and middle-market businesses, and large corporations with a full range of banking, investing, asset management, and other financial and risk management products and services. The current company was formed through various mergers including NationsBank, FleetBoston, US Trust, Countrywide Financial, and Merrill Lynch with the legacy commercial bank to form a national banking powerhouse and bulge bracket investment firm. As one of the ‘Big Four’ U.S. banks it enjoys scale driven cost advantages and economies of scale which provide meaningful competitive advantages and potential for strong returns in the largely commoditized banking industry. A survivor of the financial crisis, BAC has emerged with a solid capital base and stands to benefit from a rising interest rate environment.”

1. JPMorgan Chase & Co. (NYSE:JPM)

Number of Hedge Fund Holders: 110

JPMorgan Chase & Co. (NYSE:JPM) is a New York-based investment and diversified financial services company.

Like other leading financial institutions, JPMorgan Chase & Co. (NYSE:JPM) benefits from rising interest rates as it can charge higher markups on its loans. On December 8, R. Scott Siefers at Piper Sandler started coverage on JPMorgan Chase & Co. (NYSE:JPM) with an Overweight rating and a target price of $150. The analyst believes the company is the gold standard in the field of banking and should trade at a well-deserved premium. Siefers added that JPMorgan Chase & Co. (NYSE:JPM) operates the most complete and strongest banking franchise in the US. Experts believe that the company’s operating leverage is also moving in a positive direction heading into 2023.

Here’s what Vltava Fund said about JPMorgan Chase & Co. (NYSE:JPM) in its Q3 2022 investor letter:

“We regard JPM to be the strongest and best- managed bank in the world. It is a leader in investment banking, commercial banking, credit cards, and asset management. Its size (the largest bank in the USA, with nearly USD 4,000 billion in assets) and diversification give it a strong competitive advantage that is compounded by its cost advantages and the high costs to clients associated with switching banks. JPM’s management prides itself on running the only large bank to avoid major instability over the long term.

JP Morgan’s quality and strength first became fully evident in 2008 under the leadership of its CEO Jamie Dimon. Not only did JP Morgan help to stabilize the market by taking over the failing Bear Stearns in the spring of that year, but throughout the Great Financial Crisis it was the only big US bank that did not require government assistance and it was highly profitable even in the difficult year of 2008.

A well-functioning and efficient bank can be a very good long-term investment, because the interest compounding effect works well here. JPM’s return on equity (ROE) is well into the double digits and this puts it in a good position to continue producing better long-term returns than does the market. JPM has been very profitable even during years when interest rates were close to zero. The current – and perhaps not temporary – return to somewhat more normal, higher interest rates should have a significantly positive impact on the bank’s interest income and overall profitability.”

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