Automatic Data Processing (ADP), Federated Investors Inc (FII), And A Look At 2 Plays For Higher Interest Rates

Supposing that Federated Investors Inc (NYSE:FII) could add 5 basis points in fees to its funds on rising rates, the company would add a respectable $150 million to its bottom line profit. Ten basis points would add $300 million. Federated Investors Inc (NYSE:FII) reported $188 million in net income in 2012. Thus, rising rates and rising fees could lead net income to double.

Federated Investors Inc (NYSE:FII) trades at a relative discount to the market at 12.8 times 2012 earnings. While asset management is no spectacular business, especially in fixed-income lines, the business isn’t poor enough to warrant a discount to the market as a whole. Higher rates bring a catalyst, which should bring rising stock prices on the back of increasing fee revenue and multiple expansion. A dividend of 4.2% per year seals the case for buying and waiting.

Are higher rates on the horizon?

Leave interest rate policy forecasting up to the dartboard. Investors have suggested that rates would go higher every year since the Fed began quantitative easing, but rates have only gone lower. Positioning your portfolio in companies that see an earnings bump during periods of higher interest rates is a better play than a concentrated bet on falling U.S. Treasuries.

The article Two Plays for Higher Interest Rates originally appeared on Fool.com and is written by Jordan Wathen.

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