Wall Street is searching for solid stocks to buy that could shield long-term portfolios from market volatility ahead of the anticipated interest rate hikes.
While inflation may have peaked in July, it remains well above the Federal Reserve’s (Fed) 2% target. So far in 2022, the central bank has already raised its overnight lending rate by 2.25%.
Investors will most likely see further interest rate hikes through the rest of the year in the Fed’s bid to bring down inflation.
Chairman Jerome Powell recently remarked that the Fed aims to utilize its policymaking “tools forcefully to bring demand and supply into better balance.” Thus, the Fed is committed to a more contractionary monetary policy in the months ahead.
Meanwhile, August ended on a down note, reversing some of the gains seen earlier in the summer. As a result, the benchmark S&P 500 index is currently down 17% year-to-date (YTD), compared with the nearly 25% decline in the Nasdaq 100 index.
Against this backdrop, it’s no surprise that investors are increasingly focused on stable stocks to buy in sectors that may outperform the broader market. Among them are the financial, communication services, healthcare and utilities sectors.
With that information, here are the seven stocks to buy that have significant potential to benefit from rising interest rates.
|BAC||Bank of America||$33.43|
52-week range: $169.93 – $298.17
Albemarle (NYSE:ALB) is the largest lithium producer worldwide, relying on its salt brine deposits in Chile and the U.S., as well as from its joint venture mines in Australia.
The company is also a global leader in bromine production, used widely in flame retardants.
The lithium giant released Q2 results on Aug. 3. Revenue soared 91% year over year (YOY) to $1.48 billion. Adjusted earnings per share skyrocketed to $3.45 per diluted share, up 288% from 89 cents in the prior-year quarter. Cash and equivalents ended the quarter at $930.6 million.
The lithium segment continues to benefit from growth in the electric vehicle (EV) space. This segment achieved 178% year-over-year revenue growth, driven by a significant increase in pricing from renegotiated lithium contracts.
Meanwhile, the Inflation Reduction Act that specifically addresses EV batteries and energy storage should also offer further tailwinds for long-term growth.
Meanwhile, management raised its 2022 guidance for the third time. It now projects revenue to grow by at least 110% to a range of $7.1 billion to $7.5 billion.
ALB stock is up almost 15% YTD. Shares are trading at 14.2 times forward earnings and 7.7 times sales.
Analysts’ 12-month median price forecast for Albemarle stock stands at $300. Investors could regard dips in ALB stock as an opportunity to enter the lithium leader.
Bank of America (BAC)
52-week range: $29.67 – $50.11
Bank of America (NYSE:BAC) is the second-largest bank in the U.S., with more than $2 trillion in assets. It offers consumer banking, wealth management, investment management and global banking services.
The bank announced Q2 financials on Jul. 18. Revenue increased 6% year over year to $22.7 billion. Diluted earnings came in at 73 cents per diluted share, down 29% from $1.03 in the prior-year quarter.
The financial giant is extremely sensitive to changes in interest rates. For instance, in Q2, net interest income soared 22% year over year to $12.4 billion.
The bank revealed that another 1% increase in interest rates would cause net interest income to jump by roughly $5 billion over the next 12 months.
Meanwhile, average loan and lease balances jumped 12% year over year to $1 trillion. The bank boasts a significant commercial loan base with floating-rate loans. Management anticipates an additional $1 billion net interest income in the third quarter.
So far in 2022, BAC stock is down 24.5%, making it a one of the best banking stocks to buy on the dip.
Charles Schwab (SCHW)
52-week range: $59.35 – $96.24
The brokerage name released Q2 results on Jul. 18. Revenue soared 13% year over year to $5.1 billion, driven primarily by a 31% increase in net interest income. Adjusted earnings per share came in at 97 cents, up 39% from 70 cents a year ago.
The company added 1 million new accounts during the quarter. It currently has roughly 34 million active accounts, representing 5% year-over-year growth.
Given its banking business with over $400 billion of deposits, Schwab is expected to deliver substantial earnings growth driven by rising interest rates. Interest rate-related revenue currently accounts for more than 50% of net revenue.
SCHW stock is down almost 16% year to date, making it among the better stocks to buy on the dip. It supports a 1.2% dividend yield at the current price level. Shares trade at 18.4 times forward earnings and 4 times book value. Wall Street’s 12-month median price forecast for Charles Schwab stock stands at $86.5.
CME Group (CME)
52-week range: $183.15 – $256.94
CME Group (NASDAQ:CME) is the largest derivatives exchange in the U.S. It operates the Chicago Board of Trade, the Chicago Mercantile Exchange and the New York Mercantile Exchange.
The exchange reported Q2 results in late July. The company reported revenue of $1.24 billion, compared to $1.18 billion a year ago. Adjusted net income increased to $1.97 per diluted share, up from $1.64 in the prior-year quarter. Cash and equivalents ended the quarter at $1.9 billion.
The derivatives exchange is well-known for its interest rate products. These instruments allow investors to lock in borrowing costs to hedge the interest rates on assets and liabilities.
Rising interest rates imply that more and more investors will be interested in hedging various risks and looking for stock to buy that accomplish that.
Meanwhile, CME pays a quarterly dividend plus a variable dividend at the end of the year based on the company’s earnings. The current dividend yield stands at 2%.
CME stock is down more than 14% year to date. Shares are trading at 24.9 times forward earnings and 2.5 times book value.
The 12-month median price forecast for CME stock stands at $216.
52-week range: $606.12 – $885.26
It specializes in digital infrastructure and global interconnection services and serves a diversified base of global enterprises in 31 countries.
The data center giant issued Q2 metrics on Jul. 27. Revenue increased 10% year over year to $1.8 billion, marking the REIT’s 78th consecutive quarter of revenue growth.
Adjusted funds from operations (“AFFO”) stood at $7.58 per share, a 6% increase over the previous quarter. Cash and equivalents ended the period at $1.9 billion.
Equinix enjoyed record bookings, driven by robust capacity demand. Strong bookings are expected to add an incremental $62 million to full-year revenue numbers.
Meanwhile, Equinix continues to expand its global platform, with close to 50 major ongoing projects in 21 countries. In 2022, management anticipates roughly 9% – 10% revenue growth along with 8% – 9% AFFO growth, making it one of the fast-growing stocks to buy for the future.
The market selloff in growth stocks has pulled EQIX stock down 22% year to date, and the dividend yield currently stands at 1.9%. The 12-month median price forecast for Equinix stock is $805. Such a move would mean an upside of over 23%.
Marathon Petroleum (MPC)
52-week range: $56.08 – $114.35
Marathon Petroleum (NYSE:MPC) refines, produces, transports, and sells petroleum products. The company ranks as the third-largest crude oil refining company stateside, boasting total throughput of 3.1 million barrels per day.
The oil refiner announced Q2 financials on Aug. 2. Revenue jumped 82% year over year to $54.2 billion. Adjusted net income skyrocketed to $10.61 per diluted share, up from 67 cents a year ago. Cash, equivalents, and short-term investments ended the quarter at $13.3 billion.
The refiner continues to benefit from increased fuel prices, making it one of the more intriguing energy stocks to buy now.
The Refining & Marketing segment delivered an operating income of $7.1 billion, up from $224 million in the prior-year quarter. The impressive increase reflects higher margins and throughput.
The company repurchased shares worth $4.1 billion through the quarter. Meanwhile, management recently announced a new $5 billion repurchase program with no expiration date.
T-Mobile US (TMUS)
52-week range: $101.51 – $148.04
T-Mobile (NASDAQ:TMUS), the leading B2C wireless communications service provider, offers services via its flagship brands, T-Mobile, Metro by T-Mobile, and Sprint. In terms of wireless subscriptions, it holds third place in the U.S.
The wireless service provider announced Q2 results in late July. Revenue grew 6% year over year to $15.3 billion.
T-Mobile reported a $108 million net loss due to merger-related costs and other special expense items amounting to $1.9 billion.
Net loss per diluted share stood at 9 cents, compared to diluted earnings per share of 78 cents a year ago. Free cash flow grew 5% year over year to $1.8 billion.
In recent years, T-Mobile has achieved industry-leading growth in postpaid and broadband customers, becoming a clear leader in 5G coverage.
T-Mobile added 1.7 million postpaid customers during the quarter, including 723,000 postpaid phone customers. Postpaid subscriber additions surpassed Verizon (NYSE:VZ) and AT&T‘s (NYSE:T) additions combined.
Meanwhile, T-Mobile’s 5G wireless broadband offering added 560,000 net new customers, ending the quarter with over 1.5 million home internet subscribers.
Management anticipates adding between 6 million and 6.3 million postpaid net customers in 2022, up from a previous forecast for 5.3 million to 5.8 million subscriber additions.
TMUS stock is up 24% year to date, making it one of the telecom stocks to buy now. Shares are changing hands at 59 forward earnings and 2.3 times sales. Finally, the 12-month median price forecast for T-Mobile stock stands at $169.
On the date of publication, Tezcan Gecgil 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.