WAfter a period with near-zero interest rates, the Federal Reserve is now gradually increasing interest rates in 2022. Some investors are naturally considering how to purchase stocks in this changing market. This segment of the market is called Backstage PassRecorded on Jan. 10Fool contributors Rachel Warren, Jason Hall, and Fool Canada analyst Jim Gillies discuss great companies that are poised to thrive despite high interest rates.
10 stocks we prefer to Vertex Pharmaceuticals
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Jason Hall:Rachel, this is a very interesting take. This is great.
Rachel Warren: Yeah. Well, I’m a healthcare writer. So I had to choose a healthcare stock. I love the healthcare industry and the opportunity to invest in it. It is a great space regardless of market conditions or interest rates. People need their medicines and these products and services are essential.
The stock I chose was a lesser-known stock in the healthcare industry. It’s called Vertex Pharmaceuticals (NASDAQ: VRTX). This company is the market leader in cystic fibrosis therapeutics.
It currently has four products that have been approved. Trikafta, the company’s flagship product, has been approved to treat, I believe, more than 90%, of all patients with cystic fibrosis. Incredible 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 as well as experiencing significant revenue growth. In the most recent quarter, product revenues increased 29% year over year. Net income was 28% higher year-over-year. Great company to consider. Although it won’t blow up your portfolio overnight I believe it can help you with some consistent growth.
Jason Hall:That’s when the trends in the industry are more important than what’s happening with interest rates is amazing. Jim, what have you got 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), TDAmeritrade, 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 only half true because I said last summer that they have been prohibited from increasing their dividends. They are more inclined to raise their dividends only once or twice per year.
They have been out of work for almost two years, even though they were involved in the pandemic and bought back stock. They’ll all be raising their dividends when the gloves are removed or the shackles are released. This actually happened in the last quarter. According to me, the average increase was 14, 15
But it’s only a play on rising interest rates. Banks do well when there is a higher interest margin and a rising rate environment. All Canadian banks have better valuations than the big U.S. money centers banks.
You can choose one of the six. You can have some fun with an ETF called HCALTraded on the TSX, which includes all six except that it uses both reversion and the mean. They tend to trade together valuation-wise, based on the reversion-to-the-mean investing style.
It buys the less expensive three in a much larger amount, less than the more costly three.
They rebalance as things change. They also use 25% leverage because leverage on top is fun. Oh, and the 5.5% dividend yield. Toby is up for a fight.
Jason Hall:I’m going for toss Bank of America (NYSE: BAC)And that’s not all. Jim, that’s scary. I love the idea.
But I’ll toss as far as Bank of America, the American bank with the largest depositor base, because it doesn’t pay any yield to its depositors and it has a huge depositor base. [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.
Bank of America is an advertising partnership of The Ascent, which is a Motley Fool company.Jason HallBank of America.Jim GilliesOwns the Bank of Nova Scotia and National Bank of CanadaRachel WarrenNone of the stocks are held by The Motley Fool. Vertex Pharmaceuticals is recommended and owned by The Motley Fool. The Motley fool recommends Bank of Nova Scotia. The Motley Fool recommends Bank of Nova Scotia.Disclosure policy.
These views and opinions are solely the author’s and do not necessarily reflect the views of Nasdaq, Inc.
