Investors are naturally interested in how to purchase stocks in this changing market environment, with the Federal Reserve set for a gradual increase in interest rates in 2022. This follows a period of near-zero rates. This segment of the market is called Backstage PassRecorded on Jan. 10Fool contributors Rachel Warren & Jason Hall discuss with Fool Canada analyst Jim Gillies some amazing companies that are set to prosper even as interest rates rise.
Jason HallRachel, this is a very interesting take. This is a great idea.
Rachel Warren: Yeah. Yes, I’m a healthcare writer. I had to choose a stock in healthcare. The best thing about the healthcare industry and investing here is that it is positioned to succeed regardless of what happens with the market or interest rates. People need their medicines and these products and services are needed no matter what happens in other areas.
I chose a less-known stock in healthcare. It’s called Vertex Pharmaceuticals (NASDAQ:VRTX). This company is a leader, if it is not the market leader, within the cystic-fibrosis therapeutics industry.
It currently has four products that have been approved. Trikafta is its flagship product and it has been approved to treat cystic fibrosis in more than 90% of patients. It is a market leader. All four of its approved drugs are the only CFTR modators currently on the marketplace.
Non-medical people, such as myself, understand that these drugs target the proteins that cause cystic fibrosis.
The company is profitable and seeing significant revenue growth. The most recent quarter saw product revenues rise 29% year-over-year. Net income increased 28% year-over year. A great company to look at. This company is not going to blow your portfolio up overnight, but it can provide some consistent growth.
Jason HallThat’s when the industry’s trends are more important than interest rates. Jim, what do you have for us? Real quick.
Jim Gillies:I’m going straight to the banks, specifically Canadian banks. Six of the largest banks in Canada are dual-listed in New York City and Toronto.
Bank of Nova Scotia (NYSE:BNS), Royal Bank (NYSE:RY), TDor aforementioned Ameritrade, former parent, CIBC [Canadian Imperial Bank of Commerce (NYSE:CM)], Scotiabank [the name under which Bank of Nova Scotia operates]BMO [Bank of Montreal (NYSE:BMO)], National Bank (TSX:NA).
The thesis is half done because I was saying last year that they were prohibited from raising their dividends. They like to increase their dividends at least once a year.
They have been exiled for two years now, almost through the pandemics and buying back stock. They’ll all be raising their dividends when the gloves are removed or the shackles come off, I said. In fact, that was the case in the most recent quarter. The average increase was 14, 15%, according to me.
It’s just a play to higher interest rates. Banks do well when there is a higher interest margin and a rising rate environment. The Canadian banks have better valuations that the big U.S. Money Center banks.
Choose one of these six. An ETF called “The Fun Fund” is available if you want to have a little more fun. HCALThe TSX is all six of them. However, it employs both reversion-to-the mean. They tend to trade together valuation-wise, based on the reversion-to-the-mean investing style.
It purchases the three most affordable in a larger amount, which is less than the three more expensive.
They rebalance as things change. They also use 25% leverage, which is more fun than leverage banks. It’s leverage on top. Oh, and the 5.5% dividend yield. Toby is up for a fight.
Jason HallI’m going for toss Bank of America (NYSE:BAC)Added to that. Jim, that’s scary. I love the idea.
I will toss the coin with Bank of America because it has a large depositor base and doesn’t pay a yield for its depositors. It’s infinitesimal. [laughs]
If they raise it it will be small and they’ll get a better net margin on the backside when they lend it back out.
This article is the author’s opinion. He or she may disagree with the official recommendation of a Motley Fool premium advisory services. Were we motley! Were all motley!
