When the latest Nov. jobs report came in hotter than expected, that was essentially the clue for investors to consider stocks to buy ahead of another year of possibly rising rates. Ordinarily, a robust labor market represents cause for celebration. However, in this case, it symbolized a repudiation of the Federal Reserve’s hawkish monetary policy.
Stated differently, for all the central bank’s aggressive tightening, it failed to yield significant results. A strong labor market means more dollars chasing after fewer goods. Of course, the Fed wants the opposite circumstance: fewer dollars chasing after more goods. With other central banks adopting similar tightening policies to address inflation, stocks to buy for rising rates offer much relevance.
Stocks to Buy: Travelers Companies (TRV)
One of the go-to stocks to buy for rising rates, Travelers Companies (NYSE:TRV) is an American insurance company. Per its public profile, Travelers is the second-largest writer of U.S. commercial property casualty insurance, and the sixth-largest writer of U.S. personal insurance through independent agents. What this all translates to is that the enterprise enjoys inelastic demand.
Basically, no matter potential pricing fluctuations or shifting economic dynamics, Travelers will enjoy consistent and predictable demand. Further, the coronavirus pandemic imposed a sharp lesson on the American populace: anything and everything can happen as we realized the world’s a lot smaller than we thought it was. Therefore, people have an even greater incentive to protect themselves.
To be fair, some economic forces may be so severe that they may dissuade even the purchase of critical insurance policies. However, such a draconian scenario may be unlikely. Sure enough, bullish investors recognize the realistic thesis undergirding TRV. On a year-to-date basis, shares gained over 19%, almost the exact inverse of the benchmark equities index.
Stocks to Buy: Allstate (ALL)
Should the Fed continue to hit the accelerator on its hawkish monetary policy, your stocks to buy should concentrate on insurance plays such as Allstate (NYSE:ALL). As with Travelers Companies above, Wall Street recognizes the cynical opportunity in ALL stock. Since the start of the year, shares moved up 13%, a very respectable figure given the extraordinary circumstances.
Moving forward, investors should keep close tabs on the insurance provider. Essentially, stocks to buy in the insurance field share a direct, linear relationship with benchmark interest rates. As rates move higher, so too does the valuation of insurance-based securities. While it’s not a guaranteed outcome, the relationship is generally dependable.
Further, the smart money also recognizes the protective opportunity in ALL stock. While numbers fluctuate quarter to quarter, since the third quarter of 2021, hedge funds dramatically increased their exposure to Allstate. I don’t think that’s a coincidence given the aforementioned linear relationship with rising rates.
Stocks to Buy: Lowe’s (LOW)
Colloquially, Murphy’s Law states that anything that can go wrong will go wrong. Given that this dynamic may rear its ugly head during a recession – which is exactly where the economy might head if rates continue to skyrocket higher – investors ought to focus their stocks to buy on acquiring shares of Lowe’s (NYSE:LOW). A major home improvement retailer, Lowe’s offers impregnable relevance.
Basically, no matter what happens in the economy, people need to repair and renovate their living spaces. Further, your plumbing doesn’t care whether you’re suffering from a recession or not. If the system decides it’s going to fail, it’s going to fail. Therefore, an enterprise like Lowe’s provides some reassurances for embattled consumers.
To be fair, LOW stock made good on its ticker name this year, shedding more than 21% YTD. However, an unignorable development exists. Since Q3 2021, the smart money – the hedge funds – began building their position in Lowe’s Companies.
Stocks to Buy: Dominion Energy (D)
If you want one of the best stocks to buy for rising interest rates, it’s difficult to ignore Dominion Energy (NYSE:D). To be fair, Dominion won’t immediately attractive conservative investors. Since the beginning of this year, D stock gave up 24% of equity value. In addition, the back half of the year has been rough. During the trailing half-year period, Dominion shed 20%.
As if to pour salt on open wounds, TipRanks notes that the power and energy utility firm has a consensus hold rating. This breaks down to two buys, 11 holds and one sell. That’s not exactly an encouraging assessment. Worse yet, hedge funds remain unconvinced about Dominion. Presently, TipRanks states that sentiment among these institutional investors is negative.
However, the naysayers seem to be missing the point. Should rates rise, discretionary spending will likely decline because of higher borrowing costs. On the other hand, the essentials – such as utility bills – must be paid no matter what. Thus, D stock enjoys a cynical upside catalyst.
As I just mentioned, higher interest rates tend to pressure discretionary spending due to higher borrowing costs. In arguably most cases, this circumstance would impugn the upside mobility of retailers. However, Costco (NASDAQ:COST) represents a different breed. It’s not just because it offers consumer staples such as food and water (or other beverages). Rather, it enjoys a higher-income consumer demographic.
According to data cited by Business Insider, your typical Costco shopper is younger and generates an income over $100,000. Presumably, such a high average income indicates higher educational attainment and/or owning valuable skills. In other words, the average Costco shopper will be able to absorb higher rates. And she will be able to absorb the side effects of higher rates, such as a recession.
In this case, Wall Street analysts get why COST ranks as one of the stocks to buy. Presently, Costco features a moderate buy consensus view with 17 buys, seven holds and most importantly, no sells.
Prior to writing this list of stocks to buy, I had a choice to make. Do I saturate this list with insurance and utility providers or do I get a bit adventurous? Since I’ve already given you the meat and potatoes of rising-rate insulant names, I’ll dedicate the next two slots with speculative market ideas. First up is appliance manufacturer Whirlpool (NYSE:WHR).
At first glance, WHR does not appear to be a candidate for stocks to buy. Really, I can understand people think it’s one of the securities to sell. Since the start of the year, WHR dropped a staggering 41% of equity value. Moreover, Wall Street’s best and brightest do in fact peg Whirlpool as a consensus moderate sell.
However, if you think three dimensionally, WHR might be a surprising idea for stocks to buy for higher rates. As you know, appliances represent necessities in the modern age. When they break down, it may be more cost-effective to replace them (instead of repairing them).
Well, with millions of white-collar workers operating remotely, home appliances collectively received an unexpected workout. Eventually, that wear and tear will catch up, perhaps within 2023.
Truist Financial (TFC)
Generally speaking, I avoided mentioning banks and similar financial institutions for stocks to buy ahead of rising rates. On paper, higher interest rates bode well for banks. After all, they can charge more for their loan packages, improving profitability. However, fewer entities would be willing to borrow money precisely because said rates skyrocketed. Still, I’ll make an exception this case for Truist Financial (NYSE:TFC).
Unlike a major multinational banking giant – I won’t mention specific names – Truist concentrates as a regional player. Per its public profile, the company operates 2,781 branches in 15 states and Washington, D.C. Truist is headquartered in Charlotte, North Carolina. Coincidentally, the Tar Heel State features cities that attract plenty of interest from millennials. Stated differently, Truist operates in a region where the money will be spent, not where it was spent.
Currently, TipRanks notes that TFC enjoys a moderate buy consensus rating. Among 13 analysts, six of them rate shares a buy while the remaining seven rate it a hold.
On the date of publication, Josh Enomoto 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.