For years, rates were kept artificially low, and some reasons why are almost as absurd as the length of time they were kept low. First, it was the global financial crisis in 2008. Then the stock market crashed. Then there was the 2013 taper tantrum, and then COVID-19. The bottom line is that the people in power did everything humanly possible to keep rates low, and now with ridiculous and out-of-control spending, we have the highest inflation rates since the early 1980s.

Now the proverbial chickens are coming home to roost. The Federal Reserve, which tried to start raising rates in 2018, is now forced to. It has been widely speculated across Wall Street that the next two rate increases, in May and June, will be by 50 basis points, something the Fed has not done since 2000. So, what does this mean for investors? Trouble for some sectors like technology, but other sectors like financials and insurance can survive and exploit rising rates.

We screened our 24/7 Wall Street research database looking for companies with stocks rated Buy and that pay dependable dividends and look likely to take advantage of the rising rate environment. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

American Express

This stock has been strong, and any backup in price should be exploited. American Express Co. (NYSE: AXP) provides charge and credit payment card products and travel-related services worldwide. Its products and services include payment and financing products network services accounts payable expense management products and services, and travel and lifestyle services.

The company’s products and services also comprise merchant acquisition and processing, servicing and settlement, point-of-sale marketing and information products and services for merchants, and fraud prevention services, as well as the design and operation of customer loyalty programs. It sells its products and services to consumers, small businesses, midsized companies and large corporations through mobile and online applications, third-party vendors and business partners, direct mail, telephone, in-house sales teams and direct response advertising.

Shareholders receive a 1.13% yield. Morgan Stanley has a $223 price target on American Express stock. The posted consensus target is $201.41, and shares traded at $184.30 on Wednesday.

Bank of America

Warren Buffett owns a stunning 1.1 billion shares of Bank of America Corp. (NYSE: BAC), which posted very solid fourth-quarter results and, like other banks, it welcomes interest rate increases. The company 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.
Bank of America has expanded into several new U.S. markets, with scale across the country positioning it ideally to benefit from accelerating loan growth over the next two years. Moreover, unlike smaller peers, scale allows the bank to increase investment substantially over the next few years without notably jeopardizing returns, driving further market share gains.

Banks almost regardless of size, are a solid idea as the potential for higher net interest income (NII) on portfolio loans to homeowners, farmers and small business owners. NII is one of the strongest tailwinds provided to financial firms in a rising-rate environment, as they can achieve better returns on their cash balances while achieving higher rates of returns from customers who come in for loans.

Shareholders receive a 2.13% dividend. The Barclays target price is $58, and the consensus price target on Bank of America stock is $51. The shares traded at $39.60 on Wednesday.

Marsh & McLennan

Typically, insurance companies are not affected by increases in interest rates, and this is one of the strongest companies in the industry. Marsh & McLennan Companies Inc. (NYSE: MMC), a professional services company, provides advice and solutions to clients in the areas of risk, strategy and people worldwide.

Its Risk and Insurance Services segment offers risk management services, such as risk advice, risk transfer and risk control and mitigation solutions, as well as insurance and reinsurance broking, catastrophe and financial modeling, and related advisory services, and insurance program management services. This segment serves businesses, public entities, insurance companies, associations, professional services organizations and private clients.

The Consulting segment provides health, wealth, and career consulting services and products. It also offers specialized management, as well as economic and brand consulting services.

Shareholders receive a 1.26% dividend. The $175 Jefferies target price is higher than the $171.77 consensus target. Marsh & McLennan stock traded on Wednesday at $169.75.

Mastercard

This continues to be one of the top credit card players in the world. Mastercard Inc. (NYSE: MA) is a global payments provider that operates one of the largest payment processing networks, connecting billions of consumers, millions of merchants, and thousands of financial institutions in more than 210 countries. Its brands include Mastercard, Maestro and Cirrus.

The company also provides value-enhancing offerings such as loyalty and rewards programs, information services and consulting. According to Nilson estimates, Mastercard is the third-largest global credit and debit network, as measured by volume.
Small businesses and individuals having a hard time entering the digital economy are getting a boost from Mastercard as the need to receive funds electronically and make digital and contactless payments has been underscored by the COVID-19 pandemic.

The company has pledged to connect 1 billion people and 50 million small businesses to the digital economy by 2025. This commitment is an extension of its 2015 promise to bring 500 million people who have no ready digital access to financial products into the system. Rising interest rates allow the banks to charge more to those who keep credit card balances.

Mastercard stock investors receive a 0.55% dividend. Morgan Stanley has set a price target of $449, while the consensus target is $431.49. A share price of $354.60 was seen on Wednesday.

Wells Fargo

This large-cap bank is perhaps the best solid value play for 2022, and it is another big money center bank that can benefit from higher net interest income. Wells Fargo & Co. (NYSE: WFC) is a diversified financial services company that provides banking, investment, mortgage and consumer and commercial finance products and services in the United States and internationally.

Its Consumer Banking and Lending segment offers diversified financial products and services for consumers and small businesses. Financial products and services include checking and savings accounts, and credit and debit cards, as well as home, auto, personal and small business lending services.

The Commercial Banking segment provides financial solutions to private, family-owned and certain public companies. Its products and services include banking and credit products across various industry sectors and municipalities, secured lending and lease products and treasury management services.

The Corporate and Investment Banking segment offers a suite of capital markets, banking and financial products and services to corporate, commercial real estate, government and institutional clients. Products and services include corporate banking, investment banking, treasury management, commercial real estate lending and servicing, equity and fixed income solutions, as well as sales, trading and research capabilities services.

The Wealth and Investment Management segment provides personalized wealth management, brokerage, financial planning, lending, private banking and trust and fiduciary products and services to affluent, high-net worth and ultra-high-net worth clients.

Shareholders receive a 2.10% dividend. The price target for Wells Fargo stock at Raymond James is $65. That compares with a $62.39 consensus target and a recent share price of $47.80.

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Money center banks, credit card providers and insurance companies as a whole are helped by rising interest rates. Plus, all these outstanding companies are top ideas in their respective sectors and pay very solid and dependable dividends to shareholders. Investors should take advantage of the current dislocation in the markets to scale in positions.

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