At 24/7 Wall St., we have followed this story all summer, and now with fall right around the corner, if the inevitable raise doesn’t come right away, it surely will be next month or in December. We screened our data and research for stocks that top analysts from around Wall Street feel will do well in a rising-rate environment, and some may be a surprise.
Banks
Those in the financial sector, especially some money center banks, are very anxious for rates to go higher. Here are two companies that may benefit as net interest margins could improve.
Bank of America Corp. (NYSE: BAC) is a ubiquitous presence in the United States providing various banking and financial products and services for individual consumers, small and middle market businesses, institutional investors, corporations and governments in the United States and internationally. It operates 5,100 banking centers, 16,300 ATMs, call centers, and online and mobile banking platforms.
Shares have traded in a 52-week range of $14.40 to $18.58. The Thomson/First Call consensus price target for the stock is $19.19. Shares were trading Thursday at $16.38.
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Citigroup Inc. (NYSE: C) is very cheap, trading at just 9.3 times estimated 2015 earnings, and is the nation’s fourth-largest bank by assets. Numerous Wall Street analysts cite the fact that Citigroup will be a leader in buyback payouts to shareholders. Combined with the bank’s strong domestic and international business, and a better overall economy, plus the headline risk over bank stress tests being removed, share purchases look wise here.
The 52-week range is $40.60 to $60.95. The consensus price target is $65.14 and shares were trading at $52.56.
Technology
Technology companies typically have very low or no debt on the balance sheet, and the sector often does very well in a rising-rate scenario. These two companies have been pinpointed by Wall Street analysts to benefit.
Ciena Corp. (NASDAQ: CIEN) is a leading maker of fiber optic networking equipment sold to telecom carriers. The company is expected to get a large chunk of Verizon 100 G network build-out, with some analysts thinking the company could see as much as 30% of the total. Most analysts feel that Verizon could end up being as much as a 10% customer next year.
The 52-week range is $13.76 to $26.50. The consensus price objective is $27.96, and shares were last seen at $22.84.
Microsoft Inc. (NASDAQ: MSFT) is another top technology stock that could do just fine in a rising-rate environment. The software giant’s stock has gapped up and down this year on earnings, and the release of the new Windows 10 has put some focus back on the software giant. Unfortunately some bugs in the software have cause update issues, and those are reportedly being dealt with.
The 52-week range is $39.72 to $50.04. The consensus price target is $50.17. The stock trades at $44.48.
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Energy
Surprisingly, the sector that does the best during the first 12 months after rates start to be lifted higher is energy, and we found two top stocks highlighted by analysts that could benefit.
Anadarko Petroleum Corp. (NYSE: APC) is one of the world’s largest independent exploration and production companies, with activities in all major domestic drilling areas, as well as in South America, Africa, Asia and New Zealand. It reported very solid second-quarter earnings numbers on stronger production and lower exploration costs.
The 52-week range is $58.10 to $107.78. The consensus price target is a whopping $90.70, and shares were changing hands at $69.07.
ConocoPhillips (NYSE: COP) is a large integrated that has spent the past five years divesting assets. Although it is cash rich, the company has somewhat dampened earnings and growth expectations all year long. Yet it may offer investors some of the best total return possibilities, with a dividend near 6% and the stock trading close to 52-week lows.
The oil giant has traded in a 52-week range of $41.10 to$81.09. The consensus price target is $63.81. The stock was trading at $52.12.
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When it comes to the Federal Reserve raising interest rates, the bark has been much worse than the bite will be. With unemployment dropping and wages finally starting to rise, the reality is they should start raising rates right away. Most analysts on Wall Street expect a very slow and moderate pace of increases that will only have fed funds rising to the 2% level by 2017. That is still way below the historical levels for the benchmark, and it should have very little impact on consumer purchasing.
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