7 Best Stocks to Buy for Rising Interest Rates

Inflation may finally be declining, but that doesn’t mean interest rates have peaked. U.S. inflation rates remain well above the Federal Reserve’s 2% target, and Fed Chair Jerome Powell has repeatedly said inflation is the central bank’s top priority in 2023.

The Federal Open Market Committee has already raised interest rates by 4.75 percentage points since March 2022, and the bond market is currently pricing in at least one more quarter-percentage-point hike before the Fed pauses, according to CME Group.

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Here are seven “buy”-rated stocks that have historically outperformed when interest rates rise, according to Bank of America analysts:

Stock Implied Upside From April 19 Close
Marathon Petroleum Corp. (ticker: MPC) 30.5%
ON Semiconductor Corp. (ON) 30%
Targa Resources Corp. (TRGP) 23.3%
United Rentals Inc. (URI) 18.9%
Phillips 66 (PSX) 32.9%
SBA Communications Corp. (SBAC) 22.5%
General Motors Co. (GM) 102.4%

Marathon Petroleum Corp. (MPC)

Marathon Petroleum is an independent petroleum products refiner and marketer focused on the U.S. Midwest, West Coast and Gulf Coast regions. Since 1972, no stock has a better relative performance sensitivity to 10-year U.S. Treasury yields than Marathon. Analyst Doug Leggate says refiners will continue to experience tailwinds in 2023 after strong performances in 2022, thanks in part to wide crack spreads — an industry measure of the price difference between a barrel of crude oil and the products made from it. He says investors should focus on reliability, cash returns and operating leverage, and Marathon is one of his top refiner stock picks. Bank of America has a “buy” rating and $165 price target for MPC stock, which closed at $126.39 on April 19.

ON Semiconductor Corp. (ON)

ON Semiconductor designs and manufactures power and data management semiconductors used in electronic products, automobiles and appliances. The semiconductor industry is in a cyclical downturn, but you wouldn’t know it by looking at ON’s shares. The stock is up 23.3% year to date through April 19, the best 2023 performance of any stock on this list. Analyst Vivek Arya says ON is a top stock pick among electric vehicle suppliers, and its recent deal with BMW is only the latest in a growing list of major auto partnerships. Bank of America has a “buy” rating and $100 price target for ON stock, which closed at $76.92 on April 19.

Targa Resources Corp. (TRGP)

Targa Resources is a U.S. midstream logistics company that specializes in onshore natural gas and natural gas liquids, or NGLs. Analyst Chase Mulvehill says Targa’s Permian Basin volumes remain impressive, and the company’s 2023 guidance recently came in about 5% above consensus expectations. Mulvehill says the guidance beat was a relief to investors concerned about lower gas and NGL prices. Targa’s 2023 capital expenditure guidance was also higher than expected, but Mulvehill says extra spending reflects strong volumes, free cash flow and returns. Bank of America has a “buy” rating and $94 price target for TRGP stock, which closed at $76.23 on April 19.

United Rentals Inc. (URI)

United Rentals is the largest equipment rental company in the world. Analyst Michael Feniger says the company’s fourth-quarter earnings beat, 2023 guidance beat and implementation of its first-ever dividend in January sends a clear message to investors that the company is firing on all cylinders and management is confident in the outlook for manufacturing, infrastructure and construction demand. Feniger says he is most encouraged by United’s guidance on capital expenditures, which is strong enough to generate growth but disciplined enough to manage risk. Bank of America has a “buy” rating and $450 price target for URI stock, which closed at $378.57 on April 19.

[READ: 10 Best Growth Stocks to Buy for 2023]

Phillips 66 (PSX)

Phillips 66 is one of the largest U.S. independent petroleum products refiners and marketers. The stock pays a 4% dividend yield, which is the highest on this list. Leggate recently met with Phillips 66 management and says he is bullish on the stock given the outlook for higher crack spreads in 2023 and 2024. The company anticipates about 500,000 barrels per day in net capacity additions this year. In addition, economic reopenings in China suggest margin risk could be to the upside in 2023. Bank of America has a “buy” rating and $137 price target for PSX stock, which closed at $103.06 on April 19.

SBA Communications Corp. (SBAC)

SBA Communications is a specialized real estate investment trust, or REIT, that owns and operates a global wireless communications tower network. For investors looking for an opportunity to buy the dip in an attractive value stock, SBA shares are down 5% year to date through April 19, the worst performance on this list. SBA reported 13% site-leasing revenue growth in the fourth quarter, including 46% growth in international site leasing. Adjusted funds from operations, or AFFO, was up 10%, and analyst David Barden projects AFFO per share of $12.57 in 2023. Bank of America has a “buy” rating and $325 price target for SBAC stock, which closed at $265.32 on April 19.

General Motors Co. (GM)

General Motors is the largest U.S. car and truck manufacturer. Analyst John Murphy says GM has put up better numbers than many investors had feared in recent quarters given difficult auto market conditions. GM has also guided for more than $50 billion in revenue from electric vehicles by 2025. Murphy says GM is an industry leader in transitioning its legacy business, which helped generate nearly $10 billion in profits in 2022. Murphy says GM is aggressively investing those profits in EV and autonomous vehicle technology. Bank of America has a “buy” rating and $70 price target for GM stock, which closed at $34.58 on April 19.

[SEE: Best Warren Buffett Stocks to Buy in 2023.]

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7 Best Stocks to Buy for Rising Interest Rates originally appeared on usnews.com

Update 04/20/23: This story was published at an earlier date and has been updated with new information.

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