Rising rates are a headwind for most stocks. However, for a handful of people, they are driving up earnings. Here are 3 stocks that are benefiting from higher rates: Humana (HUM), Everest RE (RE), and Silvercrest Asset Management (SAMG).
2022 has been a brutal year for the stock market. YTD, the S&P 500 is down more than 22%. And, given that the economy is slowing, there doesn’t seem to be a catalyst to turn things around, and the Fed is embarking on its most aggressive hiking campaign in decades. If inflation were mild, rising credit spreads and falling asset prices could cause the Fed to take notice. However, this is not the case in this situation. In some cases, the Fed’s tightening is having its desired effect as financial assets are the main channel showing policy effectiveness.
Similarly, in 2020 it could be argued that if asset prices were not rising, the Fed was not doing enough to support the economy. It could be argued that if the markers of fiscal and economic stress are not rising, the Fed is not fully engaging in the fight against inflation. Regardless of the theory, it is clear that this policy trajectory will continue as long as inflation begins to ease.
As a cyclical stock due to low economic growth, growth stocks are likely to underperform with rising rates. A segment of the market that is performing well are those who are seeing their earnings increase due to the rise in short-term rates. Below are 3 such stocks:
Silvercrest Asset Management (samgo,
SAMG provides asset management advice for family office services in the United States. These services include providing financial advice and managing investment funds to high-net-worth individuals and families.
YTD, SAMG is up 4.5%, while the S&P 500 is down 23%. The main reason is that SAMG’s earnings and revenue are not affected as much by changes in economic or monetary conditions. In any case, these services become more valuable during these periods. In addition, the company’s customers are more protected from these factors than other segments of the population.
Another reason for SAMG’s outperformance is that short-term rate hikes are positive, as the company has ample liquidity and short-term investments for its clients. Thus, the company is earning a higher return on this cash that flows directly to the bottom line.
In addition, SAMG is attractive because of its 3.8% dividend yield and very low forward P/E of 8.8. Given these positives, it should come as no surprise that SAMG has an overall A rating, which translates to strong buying in our power rating Arrangement The A-rated stocks posted an average annual performance of 31.1% which is favorable to the S&P 500’s average annual gain of 8.0%. Click Here To view SAMG’s overall power rating.
HUM is a health insurance company based in Louisville, Kentucky. The company carved a niche by specializing in government-sponsored programs. Almost all of its Medicare membership stems from individual and group Medicare Advantage, Medicaid and the military’s TriCare program. The company is also a leader in stand-alone prescription drug plans for seniors enrolled in traditional fee-for-service Medicare. The firm also provides other health services, including primary care services and pharmacy benefits management.
The company’s Medicare business is well poised for growth for the foreseeable future. Acquisitions have been another growth driver. The purchase of Family Physicians Group, Your Home Advantage, Quro and a stake in Kindred At Home have helped HUM strengthen its reach in the home health and hospice market.
HUM has a P/E ratio of 18.0, P/S 0.63 and P/Cash 11. These are quite impressive as it is set to perform well in this tough environment. Moreover, its strong balance sheet and large cash holding will propel investors against slowdown in the economy or rate hike.
The company is rated A which equates to a strong buy by POWR Ratings. In terms of component grade, HUN holds a B for quality due to its strong financial position and stable revenues. It is in A-rated Medicare – Health Insurer Group that is ranked #16 out of 124 regions. Click Here To view HUM’s overall POWR rating.
Everest Re Group, Ltd. (again,
RE is an underwriter of reinsurance and insurance in the United States, Bermuda and international markets, with most operations in the US. The company is divided into 4 segments: US Reinsurance; international; Bermuda; and the insurance segment. Its products include property and casualty reinsurance and a range of insurance coverage.
Insurance stocks are also a good option during market volatility. For one, their businesses are much more stable because the demand for insurance doesn’t really change that much. Moreover, these companies have huge cash which they invest in short-term securities, thus they benefit from rising rates.
Thus, it should come as no surprise that RE is an outperformer with a 2% decline in YTD which is much better than the S&P 500’s YTD 23% decline. Additionally, Wall Street analysts are forecasting 21.1% earnings growth and 19.6% revenue growth.
This increase is particularly impressive, given its very low forward P/E of 6.5. The company also pays a 2.5% dividend and has a history of steady growth. Given these bullish fundamentals, it is not surprising that the stock has an overall B rating, which is the equivalent of Buy in our proprietary rating system. B-rated stocks posted an average annual performance of 21.1% which is favorable to the S&P 500’s average annual gain of 8.0%. Click Here To see more power ratings of RE.
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Shares of HUM were trading at $449.98 per share, up $1.00 (+0.22%) on Wednesday afternoon. Year-over-year, HUM is down -2.82%, while the benchmark S&P 500 index has gained -20.51% during the same period.
About the author: Jaimini Desai
Jaimini Desai has been a financial writer and reporter for almost a decade. Their goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist and Editor of StockNews.com power growth And $10. power stock under Newspaper. Learn more about Jaimini’s background, with links to her latest articles.