Over the past two years the Federal Reserve has added more than $4 trillion to its balance sheet through quantitative easing, while the U.S. government has unleashed over $5 trillion in fiscal stimulus in an effort to rescue the U.S. economy from the pandemic. No one knows how high the consequential inflation will rise or how long it will last, but consumers are feeling the effects in all areas of life.
Billionaire hedge fund manager Paul Tudor Jones said today in an interview with CNBC, “I think to me the No. 1 issue facing Main Street investors is inflation, and it’s pretty clear to me that inflation is not transitory.” He continued, “It’s probably the single biggest threat to certainly financial markets and I think to society just in general.”
Inflation is the highest it’s been in three decades and rate hikes are inevitable, but some investors are discovering that there are areas of the market that are set to benefit from rising interest rates. In today’s article we’ll explore these industries and discuss a few notable stocks within them.
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Bank of America Corporation (BAC) provides banking and financial products and services for individual consumers, institutional investors, large corporations, and governments worldwide. It operates through the following segments: consumer banking; global wealth & investment management; global banking; and global market segments.
Thanks to its global investment banking and financial services portfolio, most are familiar with this financial titan. In the U.S., BAC currently operates via 4,300 retail financial centers, 17,000 ATMs, and digitally serves 41 million active users. Furthermore, the company is also present in 34 other countries across the globe.
After more than doubling since its pandemic-era low, let’s take a look at the factors that could boost BAC going forward. For one thing, the Fed has signaled two interest rate hikes as soon as late 2023, which should help BAC increase its interest income down the road. Zooming in a little closer, according to Globe Newswire, the global financial services market is expected to grow at a 9.9% CAGR to hit $22.5 trillion this year.
Furthermore, BAC’s shift in focus towards the digital space seems to be benefiting the company. Earlier this month, BAC reported that its Bank of America app facilitates 85% of deposit transactions on its network now. In the second quarter, this accounts for nearly 48 million checks that BAC customers deposited.
Jim Cramer recently cited Bank of America as one of the potential beneficiaries of rising rates. He thinks that BAC will, “make a killing if the Federal Reserve is forced to tighten.”
If you need another reason, consider BAC’s uninterrupted 21-year history of rewarding investors through dividends. The company recently raised its quarterly dividend to $0.21 per share, up 16.7% from the previous quarter.
Atmos Energy Corporation (ATO) is the nation’s largest fully regulated, natural gas-only distributor. The Dallas-headquartered firm serves more than 3 million distribution customers in more than 1,400 communities across eight states, with a large presence in Texas and Louisiana.
Analysts, who are mostly bullish on the name, point to ATO‘s strong fundamentals and increasing U.S. demand for natural gas. A robust balance sheet and potential for above-average earnings growth also recommend the stock. Of 12 analysts offering recommendations for the stock 5 rate the stock a Strong Buy and 4 rate it a Buy. There are also 2 Hold ratings and 1 Sell rating.
Indeed, Wall Street forecasts the company to generate average annual earnings growth of 6.6% over the next three to five years. For dividend stocks in the utility sector, that’s A-OK.
Atmos was added to the dividend aristocrats in January 2020 and clinched its 26th straight year of dividend growth in November 2020, when it announced an 8.7% increase to 62.5 cents a share per quarter. The stock currently sports an annual yield of 2.74%.
When a firm manages to raise its dividend year after year, through recession, war, market crashes and more, it’s making a powerful statement about both its financial resilience and its commitment to shareholders. That’s why Atmos is likely a reliable investment for the foreseeable future.
Horizon Kinetics’ first ETF launch, The Horizon Kinetics Inflation Beneficiaries ETF (INFL), was released in January of this year. It’s an actively managed fund seeking long-term capital growth in inflation-adjusted terms from companies expected to benefit, directly or indirectly, from inflation. Typically, the fund seeks out inflation beneficiaries that can increase revenue without a corresponding increase in expenses in an inflationary environment.
The fund has exposure to global companies expected to be inflation beneficiaries such as exploration and production companies, transportation companies, mining companies, infrastructure, and real estate companies with a focus on asset-light businesses with royalty, streaming, rental, brokerage management, and leasing exposure. The actively managed fund’s portfolio includes common stocks, ownership units of publicly traded MLPs, as well as royalty trusts.
As far as inflation solutions go, INFL is a decent choice because it offers the option to cast a wide net over a trough of hedges, which most likely makes it less subject to volatility than an investment in a singular hedge option. Since its January 12th inception, the fund has gained nearly 25%.
The Horizon Kinetics Inflation Beneficiaries ETF (INFL)
- Weighted Average Market Cap $23.24B
- Price / Earnings Ratio 24.31
- Price / Book Ratio 2.91
- Yield 1.68%
- Expense Ratio 0.85%
- Net Assets 631.17M
- Number of Holdings 39
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