3 Stocks to Buy to Battle Rapidly Rising Interest Rates


  • AllianceBernstein (AB): Mergers and acquisitions are set to further improve its offerings in this rising rate environment.
  • Ares Capital (ARCC): can churn higher returns from the loans offered to mid-sized firms.
  • Costco Wholesale (COST): could benefit as housing and employment booms.
Stocks to buy: smartphone with the words "buy" and "sell" displayed on the screen. The user's finger is about to press buy. Stock charts are in the background of the image.

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The Federal Reserve increased the benchmark interest rates in March to curb rising inflation. Additionally, it has been anticipated that even higher interest rates might be on the way soon. Thus, investors have become skeptical about choosing the best stocks to buy amid rising interest rates.

Amid such tailwinds, investors are already withdrawing their money from overvalued stocks. Accordingly, many have redirected their investments towards companies that offer near-term value to shareholders.

To be honest, rates are still relatively low even after this hike. For example, the federal funds’ rate currently sits at 0.5%. That’s substantially higher than the previously recorded 0.08% we’ve seen. But it’s microscopic by historical standards.

That said, rising rates should not be considered a dead end for the economy. The economy will likely change, perhaps negatively, as a result of this tightening monetary policy environment. However, instead of exiting the market completely, investors may do better by sticking it out with companies that have potential to grow in any environment.

With that in mind, here are three great stocks to buy I think are worth considering.

AB AllianceBernstein $46.15
ARCC Ares Capital $21.58
COST Costco Wholesale $589.70

AllianceBernstein (AB)

The AllianceBernstein (AB) logo inside a corporate office in New York City.

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AllianceBernstein is a publicly-owned investment manager. This isn’t your average small-time family office, however. The company currently holds approximately $780 billion in assets under management. With an excellent management team in place, investors may look at this firm as a great way to navigate this higher-yield environment.

This company happens to be among the best-in-class fixed income managers around. Accordingly, with rates rising, expectations are that investors may once again seek out less-risky fixed income investments. This rising demand could provide a tailwind for AB stock.

Additionally, a rising interest rate environment could cause more volatility in capital markets. This is typically a good thing for companies like AllianceBernstein. This is because it enables the firm’s shrewd managers to take advantage of the situation and cash in.

Over time, investors looking for ways to play this market may find that investing in companies that specialize in this business is the way to go. That’s a simplistic thesis, but an easy one to understand for those looking for a place to park some cash right now.

Ares Capital (ARCC)

Ares Capital (ARCC) logo on its webpage

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Ares Capital Corporation is a Business Development Company (BDC). Specifically, ARCC engages in recapitalizations, acquisitions and restructurings of mid-sized firms. Typically, such companies feature a market value of $20 million and $200 million. In simple words, these Goldilocks firms are neither too small nor too big.

Interestingly, ARCC stock is the first and only lender to offer “unitranche” constructed investments. These products are a powerful vehicle companies can use regarding loan repayments in the event of a default.

Amid a rising interest rate environment, Ares stands to earn higher returns on the credit it provides. Like other financials, ARCC stock should, on net, benefit from this environment. Accordingly, it’s no surprise to see this stock outperform the broader market in recent weeks.

Additionally, ARCC stock is unique in that it provides a meaningful dividend. Currently, the yield on ARCC stock sits just below 8%. Thus, for investors looking for passive income, this could be a great way to manage this current rising rate environment right now.

Costco Wholesale (COST)

A Costco Wholesale (COST) warehouse in Auburn Hills, Michigan.

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Last, but certainly not least, we have the legendary Costco. This operator of warehouse-style retail stores is truly a long-term buy-and-hold gem. The company’s business model is as simple as it is elegant. By sourcing products directly from manufacturers, Costco passes on the savings to consumers who often buy in bulk. Additionally, its distribution model is impressive, allowing for substantial savings on freight and handling costs.

Overall, Costco is a company worth owning in a retirement account. However, for those looking for a place to park some brokerage money in the near-term, COST stock fits the bill as well.

That’s because this retailer has impressive pricing power relative to its peers. Customers shop at Costco knowing they’re getting great prices, even if those prices are rising. Additionally, the company’s product mix centers on consumer necessities. This provides both customer loyalty and guaranteed volume, factors the company can use to leverage with its suppliers.

As far as a defensive option goes, there are few stocks better than Costco to own long-term.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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