Amid the unpredictability of US monetary policy, savvy investors are becoming familiar with terms like “Stocks for Climbing Interest Rates.” Why? The answer lies in the US Federal Reserve’s dance with potential rate hikes, all in a bid to temper mounting inflation. Just a month ago, the finance community speculated about the frequency of the Fed’s rate hikes for the year. To many’s surprise, the Federal Reserve paused, keeping the benchmark borrowing rate intact. Their rationale? An optimistic view that the US could sidestep a looming recession.
But the narrative took a turn when, shortly after, the Fed indicated two more hikes on the horizon. This roller-coaster ride reached its peak, with interest rates scaling to a remarkable 22-year high by July’s end. Such aggressive moves underscore the Fed’s dedication to price stability.
For the astute investor, this brings us to “Stocks for Higher Interest Rates.” With whispers of another rate hike this coming May, investors are scouting for stocks positioned to flourish. The financial landscape may be in flux, but for those with foresight, opportunities are plentiful.
Teladoc Health (TDOC)
Teladoc Health’s (NYSE:TDOC) financial journey lately has been noteworthy. While the stock has seen a 21% drop this year, the bigger picture offers more insights. Delve into the details, and you’ll find Q2 revenues climbed to $652.4 million, a commendable 10% rise from the previous year. But the net income presents a different narrative, reporting a loss of $65.2 million.
Amidst the waves of volatility, what stands out is the company’s resilience in the face of mounting competition. Recent headlines have spotlighted Amazon’s (NASDAQ:AMZN) foray into the healthcare sector, which many speculate to be a potential threat to Teladoc. Yet, the collaboration between Teladoc and Microsoft (NASDAQ:MSFT), aimed at leveraging AI in healthcare, suggests that Teladoc is not just playing defense but actively shaping the future. Morgan Stanley’s (NYSE:MS) forecast, which suggests that AI will comprise 10.5% of healthcare budgets in 2024, up from 5.7% in 2022, underscores the significance of this collaboration.
In the context of climbing interest rates, investors often seek resilient stocks with a vision. Teladoc, with its focus on virtual healthcare and the promise of AI integration, might offer a robust strategy. And while the current narrative around the stock is mixed, the partnership with tech giants and an unwavering commitment to innovation hint at a brighter horizon for Teladoc Health.
The Coca-Cola Company (KO)
In a year that would’ve left many brands flat, the sparkling giant Coca-Cola (NYSE:KO) refused to be bottled up. While the initial sip gave us a hint of a 14% downtrend, the subsequent swigs are nothing short of refreshing.
Cracking open the Q2 can, we’re treated to a rich effervescence of growth! Revenues didn’t just bubble up; they surged by 5.7%, splashing a cool $11.97 billion onto the ledger. Now, that’s a pop!
And if that didn’t quench your thirst for good news, let’s pour out some more. The iconic brand showcased its prowess with a robust net income growth of 33.7%, touching the sweet spot at $2.55 billion. Add a zesty 34.1% spike in diluted EPS, and we have a drink that’s hitting all the right notes at $0.59!
As a result, in an environment characterized by mounting interest rates, Coca-Cola emerges as a formidable contender, particularly given its strategic reduction in debt levels. Notably, when juxtaposed against PepsiCo (NASDAQ:PEP), Coca-Cola’s current valuations seem more favorable. Coca-Cola shares are trading at a reasonable 21.85 times price to earnings versus 22.32 times for Pepsi. This advantage, combined with its unwavering commitment to dividends, positions it as a potential stabilizer for discerning portfolios.
While the backdrop is fraught with concerns – from inflationary pressures in the food sector to prior episodes of stock underperformance – it’s essential to recognize the intrinsic strengths of Coca-Cola. Its remarkable brand value, now pegged at an impressive $106.1 billion, underscores the company’s enduring appeal. Partnerships, like its renewed alliance with Restaurant Brands for top U.S. entities, further augment its market prominence. Therefore, despite the undulating terrain, Coca-Cola’s resilience and prospects for growth remain in sharp focus for investors navigating the complexities of higher interest rates.
Bank of America (BAC)
Bank of America’s (NYSE:BAC) recent figures have certainly piqued interest. Despite a nearly 19% decline year-to-date, its Q2 2023 financials signal resilience. The bank reported revenue of $24.07 billion, an 8.6% rise from the previous year, and a net income increase of 18.6%, totaling $7.41 billion.
Such performance places Bank of America prominently among stocks poised well for climbing interest rates. The institution is not merely weathering the storm of higher interest rates but, in many respects, capitalizing on it. While concerns hover over its long-term securities’ influence on earnings, the CEO’s confidence in consumer spending provides reassurance. This, combined with its undervalued status, has piqued the interest of dividend growth investors.
Yet, challenges loom. The uptick in credit card net charge-offs amidst inflationary pressures cannot be overlooked. But Bank of America’s earnings beat and recent dividend declaration suggests it’s a force to reckon with in banking. With ongoing discussions about financial regulations, savvy investors would do well to keep this banking behemoth on their radar.
On the publication date, Faizan Farooque did not hold (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.
