The Federal Reserve instituted its ninth consecutive rate hike just a few days ago, roiling stocks and markets. The 25 basis point increase was in question, though, as banking turmoil led many to believe that the Fed would not increase. To be sure, Fed rate hikes are not yet expected to pause. However, Fed Chair Jerome Powell hinted that the 25-point hike might be the last.
With the potential for more Fed rate hikes ahead, investors have reason to be concerned. Higher interest rates affect valuations across the board. Additionally, volatility could remain high. More Fed rate hikes will likely expose further instability in our financial system.
Yyes, I also believe these Fed rate hikes were necessary, given the surging inflation we’ve been dealing with. That said, near-zero rates were the norm for much of the last decade. Our country faces fiscal reality now, and rates in the 4.75% to 5% range is necessary.
With that said, if Fed rate hikes are paused moving forward, here are seven companies I do think are best-positioned to benefit.
JPMorgan Chase (JPM)
JPMorgan Chase (NYSE: JPM) should be substantially better off after the Fed’s recent 25 basis point hike. The nation’s largest bank was already viewed as a bastion of security following recent banking collapses. The failure of Silicon Valley Bank (NASDAQ:SIVB) resulted in a flight of capital from regional banks into large banks. The result was a sort of consolidation of power among the most prominent banks, out of fear that their smaller counterparts were unstable.
The recent rate hikes, although possibly to be followed by a pause, should place JPMorgan Chase in a better position still.
The reason is straightforward – the Fed’s rate hikes continues to increase overall pressure across the financial system. That, in turn, increases the likelihood of further banking troubles that could emerge due to the increased pressure. These factors simply make JPM stock stronger in the short-to-mid term.
Even if the Fed pauses rates soon, JPMorgan will continue to be a bastion of stability as the largest bank in the country. It is, therefore, reasonable to anticipate JPM stock appreciating from here.
General Dynamics (GD)
Defense stocks like General Dynamics (NYSE:GD) have significant tailwinds in the current environment. For one, defense stocks tend to be defensive (no pun intended), providing stable earnings and income. That’s important, because the Fed’s rate hikes heighten volatility, despite their necessity. Additionally, demand for the equipment used to fight wars seems to be set to continue growing.
The war in Ukraine isn’t going to end soon. The country’s fight against Russia necessitates outside intervention in the form of military equipment from Ukraine’s allies. Chief among these allies is the United States. And General Dynamics is among the most prominent U.S. defense firms.
The company announced it would supply Ukraine with 31 M1A2 Abrams tanks in January. It has now decided to send M1A1 Abrams tanks instead to expedite their arrival to the fall from an earlier expected delivery at the beginning of 2024.
Further, the worse the economy gets, the greater the likelihood of other military conflicts breaking out. That potential reality only strengthens the outlook for companies like General Dynamics.
PepsiCo (NASDAQ:PEP) had a strong 2022, and there’s reason to believe that 2023 should be equally strong, if not more so. The beverage company, which derives a more significant share of revenues from food sales, is already on pace for that to occur. I’ll get to that in a minute. But first, let’s understand some of the company’s figures from its 2022 performance.
Regardless of a rate pause, PepsiCo is currently a strong company. The company tallied $86.39 billion in 2022 sales, a 9% increase on a year-over-year basis. Earnings per share increased by the same percentage over the identical period. And for income investors, dividends were increased by 6%. Overall, there were many positives for the company throughout the last year.
This year started similarly for Pepsi. PepsiCo snacks, including Doritos, Cheetos, and Lay’s chips are selling well, as cash-strapped consumers forgo large purchases and instead splurge on treats. In 2022, Frito-Lay accounted for 27% of sales and 44% of operating profits. It’s clear that more snacking bodes well for PEP stock shareholders over the long-term.
Certain investors may favor Altria (NYSE:MO) stock currently based on income alone. The tobacco/cigarette/vape company offers a high-yield dividend of 8.4% to investors right now. That is attractive, as inflation remains high and your dollar buys less. Simply put, Altria’s dividend acts as a counter to entrenched inflation.
Another group of investors may contend that Altria currently makes sense as a so-called sin stock. This class includes shares in alcohol, tobacco, gambling, and sex-industry companies. Sin stocks perform best in recessions, and all signs are pointing to a 2023 recession of some magnitude. That’s another broad tailwind favoring MO stock now.
The more significant question about Altria is how it will fare as smoking continues to decline. No one knows, but the quicker tobacco companies can pivot away, the better for Altria, which has meant a recent purchase of the NJOY ACE vape brand. Vaping isn’t without controversy, but it is a rapidly growing business that offers companies like Altria a path forward.
Kellogg (NYSE:K) will benefit from the Fed’s rate increases, as PepsiCo has. Both companies are profiting from strong snacking trends attributable to several factors, including the lowered inability to splurge on big-ticket items.
The resultant uptick in snacking led Kellogg to exceed Wall Street’s revenue expectations for the company by $130 million in the most recent quarter. Kellogg guided for 5-7% organic growth in 2023, following an impressive 12% growth rate in 2022.
Consumers could simply buy increasingly significant quantities of Cheez-its and Pop-Tarts than anticipated a few months ago. Indeed, there seems to be evidence of an uptick in snacking this year. Kellogg’s is a stock for investors who suspect the trend to continue.
Further, K stock comes with a dividend yielding 3.5%. So, the same general argument favoring income in these inflationary times holds for Kellogg, making it buy-worthy.
BP (NYSE:BP) stock represents a bit of each overarching trend in energy companies today – taking advantage of record profits from high oil prices, while transitioning toward greener energy production.
European energy firms, including London-based BP, have long been more vocal advocates of lower carbon energy production than their U.S.-based counterparts. That advocacy saw BP invest more heavily into carbon-reduction technology than U.S. firms.
And as with all decisions, there are prices to be paid. U.S. energy firms boomed in 2022, while BP watched as its green investments resulted in relatively lower, though still impressive, profits. The company still made $27.7 billion in profitin 2022. It’s just that Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) did better due to their fossil-fuel-heavy approach.
BP has scaled back its 2030 goals for fossil-fuel reductions, but it will still be ahead of U.S. firms. That suggests the company is likely to maintain its green lead with a resumption of pure energy profit-seeking. I believe that matters now, as investors are increasingly likely to seek profitable firms, rather than unprofitable growth, as rates rise.
Pfizer (NYSE:PFE) is a bit of a problem regarding stocks. On the one hand, the chances that the company strikes gold again, as it did with its Covid-19 vaccine, are slim. The one-time boon to sales led the company to $100.3 billion in 2022 sales, a record. That would suggest that investors who haven’t already exited their holding should soon expect declining revenues over time.
But I think that misses the bigger picture. Pfizer is anticipated to bring in revenue of roughly $69.1 billion in 2023. Sure, that’s a drastic decrease relative to those 2022 figures. But Pfizer raked in only $40.1 billion in sales in 2020. The company is on track to grow 75% over only three years. The Covid letdown is fundamental for the firm, but the aggregate win is more important.
Pfizer is a revitalized company with massive new opportunities in front of it that simply didn’t exist a few years ago before it produced a Covid vaccine.
On the date of publication, Alex Sirois 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.
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