Rising interest rates benefit a few sectors.
A growing number of analysts and investors are concerned that the cycle of rising interest rates is just getting started. U.S. inflation rates are at more than 40-year highs, and Federal Reserve Chair Jerome Powell recently said an aggressive 0.5% interest rate hike is “on the table” for the Fed’s upcoming two-day meeting starting May 3. The bond market is pricing in at least a 2.5% cumulative interest rate hike from the Fed by the end of 2022, according to CME Group. Here are seven buy-rated S&P 500 stocks that have some of the strongest outperformance over the past 50 years when interest rates rise, according to Bank of America analysts.
Marathon Petroleum Corp. (ticker: MPC)
Since 1972, no stock has a better relative performance sensitivity to 10-year U.S. Treasury yields than oil refiner Marathon Petroleum. Analyst Doug Leggate says U.S. refiners are on the brink of entering another “golden age,” since they have potentially significantly higher margins than international peers and benefit from relatively low U.S. natural gas prices compared to the rest of the world. Leggate says Marathon could also potentially buy back more than 20% of its outstanding shares based on its updated capital return plan. Bank of America has a “buy” rating and a $113 price target for MPC stock, which closed at $87.08 on April 22.
NXP Semiconductors NV (NXPI)
NXP Semiconductors produces high-performance, mixed-signal chips used by the automotive, mobile payment and other industries. Analyst Vivek Arya says NXP’s next-generation auto industry exposure and its combined 2021 and 2022 stock buybacks of around $7 billion are two reasons to love the stock. At the same time, shutdowns in China and limited gross margin upside are risks for investors in the near term. Nevertheless, Arya says NXP’s strong balance sheet, 20% annual free cash flow growth potential and capital return flexibility are all great reasons to own the stock. Bank of America has a “buy” rating and a $230 price target for NXPI stock, which closed at $170.75 on April 22.
United Rentals Inc. (URI)
United Rentals is the largest equipment rental company in the world. Analyst Ross Gilardi says United’s specialty rental growth lagged behind peers throughout most of 2021, but it began to accelerate heading into 2022. Gilardi says United has at least two more years of strong growth ahead, including projected 12.7% revenue growth in 2022 and 6.3% growth in 2023. He says United should outperform in 2022 as capital spending recovers from the pandemic, the U.S. macroeconomic background rebounds and rental rates improve. Bank of America has a “buy” rating and a $450 price target for URI stock, which closed at $314.67 on April 22.
Equinix Inc. (EQIX)
Equinix is a specialized real estate investment trust, or REIT, that is the world’s largest data center operator. Analyst David Barden says fears surrounding Equinix’s exposure to rising energy prices are overdone. Equinix shares are down more than 10% so far in 2022, but Barden says the stock is undervalued based on the impressive demand trends in network neutral colocation, a market in which Equinix is uniquely positioned. In addition, Equinix finished 2021 with tremendous momentum in bookings and digital services. Bank of America has a “buy” rating and an $865 price target for EQIX stock, which closed at $745.41 on April 22.
General Motors Co. (GM)
General Motors and other leading automakers navigated a difficult situation in recent quarters, battling an automotive chip shortage and other supply chain issues. However, GM has historically been a top-performing stock when interest rates are rising. Analyst John Murphy says GM has executed well in a difficult environment, and its core business has been well managed and focused on its most profitable franchises. Murphy says GM already has many of the pieces in place for its next-generation business, including electric, autonomous and connected vehicle technology. Bank of America has a “buy” rating and a $100 price target for GM stock, which closed at $39.84 on April 22.
F5 Inc. (FFIV)
F5 specializes in application delivery networking products that help manage internet traffic to servers and network devices. F5 shares are down more than 18% so far this year as the company manages supply chain disruptions, but analyst Tal Liani says F5’s underlying order momentum is solid and the company’s ongoing migration to software revenues is progressing nicely. Management has guided for roughly 40% software revenue growth in 2022, but Liani says multiyear subscription renewals in the second half of 2022 could push it even higher. Bank of America has a “buy” rating and a $265 price target for FFIV stock, which closed at $200.46 on April 22.
SBA Communications Corp. (SBAC)
SBA Communications is a specialized REIT that owns and operates a global wireless communications tower network. SBA is Barden’s top tower stock pick for 2022. He says the company’s pure-play tower assets, defensive revenue stream and U.S.-focused business make it a more attractive investment than peers. Barden says SBA will benefit more from 5G and C-band satellite transmission spectrum deployment than other tower stocks. He says elevated spending by wireless providers will help support a valuation premium for tower stocks relative to historical levels. Bank of America has a “buy” rating and a $425 price target for SBAC stock, which closed at $366.36 on April 22.
7 best stocks to buy for rising interest rates:
— Marathon Petroleum Corp. (MPC)
— NXP Semiconductors NV (NXPI)
— United Rentals Inc. (URI)
— Equinix Inc. (EQIX)
— General Motors Co. (GM)
— F5 Inc. (FFIV)
— SBA Communications Corp. (SBAC)
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