A few months ago, I wasn’t sure the Federal Reserve (Fed) would raise interest rates. But they issued a 25 basis point increase to the federal funds rate in March. And as I write this, the markets are waiting to see how high the rates will go in May. The expectation is for a 50 basis point hike, but it could be even higher. And because the market is always forward looking, investors wonder what the Fed will do in June and for the rest of the year. They also wonder not if, but when there will be a recession.
But because the markets are forward thinking, you shouldn’t focus on how much the Fed raises interest rates, or when the economy will tip into a recession. Instead, you should focus on where to invest as monetary policy is tightening. That means looking for stocks that will benefit when interest rates rise. One way to do that is to apply a little bit of common sense. Because we’re not just investors, we’re consumers.
Here are seven stocks to buy if you are betting on an aggressive Fed in 2022:
| DG | Dollar General Corporation | $235.30 |
| AAP | Advance Auto Parts, Inc. | $200.62 |
| BKNG | Booking Holdings Inc. | $2,208.34 |
| CVX | Chevron Corporation | $166,58 |
| EFX | Equifax Inc. | $206.10 |
| JPM | JPMorgan Chase & Co. | $123.59 |
| EXR | Extra Space Storage Inc. | $192.02 |
Stocks to Buy: Dollar General (DG)
Dollar General (NYSE:DG) grew during the pandemic because of its business model. The company strategically builds its stores, which now total at over 16,000 nationwide, in less densely populated areas. And that’s only one reason why the company makes this list of stocks to buy.
This will also be a benefit to the company at a time of rising interest rates. Two of the biggest areas that consumers feel inflation is in the cost of gas and groceries. And the typical Dollar General customer makes less than $40,000 a year. Even as interest rates rise, inflation will continue to remain at elevated levels and consumers will be looking to stretch their dollars farther. Equally as important, they will be looking for local alternatives that will allow them to save on gas.
When the company last reported earnings, it announced its expectation for net sales growth of 10%, which will increase earnings between 12% and 14%. If the economy becomes worse, you can expect these forecasts to rise.
Advance Auto Parts (AAP)
I recently put Advance Auto Parts (NYSE:AAP) on my list of large-cap stocks to buy. The stock makes an encore performance this week for many of the same reasons. While supply chain disruptions continue to limit new car production, the rise in inflation is keeping used car prices high. And now with rising interest rates, it will make it more expensive for lower income individuals to get a loan for a used vehicle.
That means it will continue to be important to keep our current rides in working order. And that is a tailwind for AAP stock. Plus, as Josh Enomoto wrote, auto parts retailers are not immune from supply chain difficulties. I found that out when I had to wait for over a week to perform a relatively simple repair because of a lack of available parts.
Analysts currently give AAP stock an upside of approximately 30%. Additionally, investors can get an attractive dividend that currently pays 2.89%.
Stocks to Buy: Booking Holdings (BKNG)
Consumers are beginning to release some of their pent-up yearning for travel. And this means it may be an opportune time to buy Booking Holdings (NASDAQ:BKNG).
Booking Holdings is a parent company for several travel websites. Most notably, the company counts Priceline.com, Booking.com and Kayak.com as part of its family of brands. All of these websites help consumers and businesses find the best deals for their trips.
It is fair to wonder if rising interest rates will tip the economy into a recession. And that may make BKNG stock more of a short-term play. On the other hand, if business travel begins to pick up — and there is some evidence that is beginning to happen — then Booking Holdings may have a longer runway for growth. It currently is given an upside of 27% by analysts tracked by MarketBeat.
Chevron (CVX)
When you’re considering stocks to buy as interest rates climb, you can look at the sectors that are already benefiting. That means focusing on oil stocks, which brings me to Chevron (NYSE:CVX).
CVX stock was soaring toward its all-time high prior to the company’s earnings report in April. However, after the company delivered strong earnings and revenue, the stock pulled back sharply. This may have been profit taking. But if investors are looking for reasons to believe this was just a temporary setback, I would point to record free cash flow, a reduction of debt, and membership in the Dividend Aristocrat club with a solid dividend, which includes 34 consecutive years of dividend increases.
Like many companies in this sector, Chevron is also becoming a player in the renewable energy sector. Specifically, the company is investing in renewable natural gas, renewable diesel and sustainable aviation fuel.
Stocks to Buy: Equifax (EFX)
With interest rates on the rise, let’s talk about our credit scores. When it comes to stocks to buy, Equifax (NYSE:EFX) looks like a solid option. If you have a high credit score, you may not pay much attention to your score. Similarly, if your credit score is poor, some days, it’s better not to look. But if you’re somewhere in the middle, the next few years will make it critical to be on top of your credit score. A difference in just a few points can cost you or save you hundreds or even thousands of dollars.
Equifax is a credit data and analytics provider and it is one of the three national credit bureaus that act as gatekeepers in deciding whether or not consumers can be approved for a loan. But if the demand for its services argument doesn’t work for you, consider the fact that the company spent over $1.5 billion over the past few years to expand its services. The company projects that this will increase revenue by 10% in the next year.
JPMorgan Chase (JPM)
In thinking about stocks to buy in case of aggressive Fed rate hikes, I could have come up with a list of seven financial stocks. Ever since investors got a whiff of impending interest rate hikes, analysts have encouraged investors to jump on bank stocks. If you didn’t then, you’re getting a second chance now at a significantly lower price. And one of the top names to consider is JPMorgan Chase (NYSE:JPM).
Like many stocks, JPM stock has dropped significantly since the beginning of the year. However, that’s just putting the stock in the buy zone as it’s trading near its 52-week low and gives investors about a 30% upside. Plus, the bank pays a stable dividend that it has increased in each of the last 10 years.
On the company’s most recent earnings call, it tabled some questions until its Investor Day in late May. With JPM’s earnings report already in the books, that will be the next time for investors to get actionable information from the bank.
Stocks to Buy: Extra Space Storage (EXR)
Extra Space Storage (NYSE:EXR) is a real estate investment trust (REIT) that focuses on storage units. That gives investors a tactical reason to buy EXR stock. Simply put, as people relocate or downsize, they’re going to need a place to store their stuff.
Additionally, Extra Space Storage is a large company with a market cap of slightly over $27 billion. As Louis Navallier wrote, this makes it a more reliable company in the event that the economy slows down. Furthermore, the company has locked in interest rates on its portfolio of 1,900 storage sites. That means it has cost certainty no matter how high rates go. And it will likely be able to pass along price increases to its customers.
As an REIT, investors know they can count on an attractive dividend, which currently pays $5 annually with a dividend yield of 2.7%.
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