Every time the Federal Reserve meets or even speaks the markets shutter. When will interest rates go up? How bad will that be for stocks and the whole economy? We are wondering, are there stocks that the Federal Reserve cannot hurt either by raising interest rates or holding at the current level? Jim Cramer of Mad Money suggests some financial stocks that an increase in interest rates by the Federal Reserve will not be hurt.
With the Federal Reserve meeting on the horizon, Jim Cramer wants investors to be searching for stocks that could be bought regardless of what happens with interest rates.
“We know that the banks have been hammered. However, the non-bank financials, especially the payment plays, have been holding up pretty nicely, “the “Mad Money” host said.
He suggests that investors look at VISA, MasterCard and PayPal. The point is that none of these companies needs higher interest rates to make money and none will be badly hurt if rates go up. So long as people use their services these companies prosper. What other stocks might be good choices?
Big banks have not done well of late but when interest rates go up banks usually prosper. Market Watch suggests 6 financial companies that would be good bets if interest rates rise.
[There are] six companies Goldman analysts believe “will benefit the most from a potential rate hike.” All six are financial companies: Bank of America Corp. BAC, +0.58% and Bank of New York Mellon Corp. BK, +0.83% -both of which are both on Goldman’s “conviction buy” list-along with Citizens Financial Group Inc. CFG, +1.37% , Regions Financial Corp. RF, +1.30% , Charles Schwab Corp. SCHW, +1.02% and Zions Bancorp ZION, +0.62% .
For these companies, “our analysts see on average 46% upside to normalized earnings if rates go back to 3%,” according to the report.
“Many investors are worried about the potential impact to equities in the event the Fed raises rates. However, a rate hike wouldn’t be a negative for all equities.”
There is likely another small increase due this year but it may be a while before the Fed raises rates to 3%. Nevertheless, these are stocks that may do OK with even small rate increase. And what other stocks would be Federal Reserve proof?
Health Care, Materials, Energy
Other stocks that have tended to do well when interest rates go up are those in the materials, energy and health care sectors. USA Today says investors can beat the Federal Reserve buy picking the right stocks.
Higher rates aren’t toxic to all stocks. Energy stocks like Helmerich & Payne (HP), materials stocks like Nucor (NUE) and health care stocks like Humana (HUM) have actually performed relatively well during periods when the Fed is raising rates going back to 1971, according to a USA TODAY analysis of data from S&P Global Market Intelligence that looks at current members of the Standard & Poor’s 500.
On the other hand they suggest avoiding consumer discretionary stocks, auto manufacturers and selected big banks and financials.