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What are we looking for?

U.S. rate-sensitive stocks that may benefit from a ceiling on and subsequent decrease in the target interest rate established by the U.S. Federal Reserve.

During a period of stable interest rates, certain stock sectors tend to perform well or demonstrate resilience. Financials, particularly banks and financial institutions, can benefit from stable interest rates by experiencing improved net interest margins. Defensive sectors such as utilities and real estate are likely to improve in a more stable and declining rate environment, which helps reduce financing costs. Consumer staples and health care, known for their defensive characteristics and steady demand, often deliver strong performance. Additionally, technology stocks may see positive effects from stable interest rates, supporting their growth initiatives and expansion strategies.

The screen

We used Trading Central Strategy Builder to search for U.S. stocks that may benefit from a pause and potential decline in interest rates.

We begin by setting a minimum market capitalization threshold of US$10-billion, concentrating on larger and established companies within rate-sensitive sectors such as financials, consumer defensive, utilities, health care and technology. These sectors typically reap benefits from the absence of further increases in interest rates.

Next we screened for companies with a P/E ratio capped at 24, below the recent 25 average P/E of the S&P 500 index.

Finally, we filtered for the top-rated stocks using Trading Central’s Quantamental rating method with a focus on value and quality factors with a minimum rating of 50 out of 100. The quality factor evaluates a company’s comprehensive financial health, taking into account factors such as profitability, the robustness of its balance sheet and the overall quality of its earnings. The value factor screens stocks based on an appealing earnings yield and a low price-to-book ratio, identifying undervalued companies characterized by strong financials and stability.

We have also included year-to-date, dividend yield and one-year price performance for your reference.

More about Trading Central

Trading Central is a global leader in financial market research and investment analytics for retail online brokers and institutions. Its product suite provides actionable trading ideas based on technical and fundamental research covering stocks, exchange-traded funds, indexes, forex, options and commodities. Strategy Builder, our stock screener, is available through leading retail brokers in Canada and worldwide.

What we found

Stocks that may perform well as monetary conditions ease

RANK COMPANYTICKERMKT.CAP. ($Bil) RECENT PRICE ($)P/ETC VAL.FCTR.RTNGTC QLT.FCTR.RTNGDIV.YLD (%)1Y PERF. (%)YTD PERF. (%)INDUSTRY
1Viatris IncVTRS-Q14.0811.567.7791694.09-1.58.4Drug Manufacturers
2First Citizens BancShares IncFCNCA-Q21.371484.031.8970650.4489.64.6Banks
3Manulife Financial CorpMFC-N40.722.444.3670664.8316.42.2Insurance
4Ares Capital CorpARCC-Q11.7619.897.5366529.511.20.7Asset Management
5Vistra CorpVST-N15.6543.2812.8769601.9591.413.6Utilities - Independent Power Producers
6Synchrony FinancialSYF-N15.6838.347.4266682.545.80.9Credit Services
7CNA Financial CorpCNA-N12.5845.7510.4960623.795.29.8Insurance
8Capital One Financial CorpCOF-N50.96133.6911.2164581.7914.32.2Credit Services
9Loews CorpL-N16.1571.911.5562680.3417.14.4Insurance
10Renaissancere Holdings LtdRNR-N12.36226.084.4963520.678.119.7Insurance
11Interactive Brokers Group IncIBKR-Q10.1194.6716.6669660.429.313.9Capital Markets
12The Cigna GroupCI-N96.69331.618.6468521.6913.910.4Healthcare Plans
13Cognizant Technology Solutions CorpCTSH-Q38.8477.7618.5365651.5417.63.3Software
14Universal Health Services IncUHS-N11.09162.3217.0666630.4911.96.6Healthcare Providers & Services
15The Goldman Sachs Group IncGS-N126.09384.4216.9167542.843.10.2Capital Markets
16Raymond James Financial IncRJF-N23.17110.4813.960631.62-2-0.4Capital Markets
17Laboratory Corp of America HoldingsLH-N18.99220.9423.0464581.295.9-1.6Medical Diagnostics & Research

Source: Trading Central

Topping our list is Viatris Inc. VTRS-Q, a global health care company involved in the development, manufacturing and marketing of a broad range of pharmaceutical products, including generic drugs, biosimilars and over-the-counter medicines. The stock has the highest TC value and quality factor ratings on our list at 91 and 69, respectively, out of 100, topping all peers in the health-care sector.

RenaissanceRe Holdings Ltd. RNR-N, a global provider of reinsurance and insurance, has the best year-to-date performance on our list at 19.7 per cent after posting a record high on Wednesday.

Manulife Financial Corp. MFC-N, a Canadian-based international financial services company, has the second-highest TC value factor rating on our list, tied with U.S.-based First-Citizens BancShares Inc. at 70 out of 100, which is above average for the financial services sector. The stock also posted a record high on Wednesday amid a strong uptrend.

Trading Central Strategy Builder provides a back-testing capability to evaluate how well an investing strategy would have worked in the past. Using a five-year historical period with quarterly rebalancing, the screen described had a 15 per cent annualized return compared with 13 per cent for the S&P 500 Index.

The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.

Gary Christie is head of North American research at Trading Central in Ottawa.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 12/04/24 4:00pm EDT.

SymbolName% changeLast
VTRS-Q
Viatris Inc
-2.07%11.33
FCNCA-Q
First Citizens Bancs
-1.99%1569.17
MFC-N
Manulife Financial Corp
-2.19%23.19
ARCC-Q
Ares Capital Corp
-1.17%20.28
VST-N
Vistra Energy Corp
-3.14%69.74
SYF-N
Synchrony Financial
-2.13%40.41
CNA-N
CNA Financial Corp
+0.09%43.34
COF-N
Capital One Financial Corp
-0.51%139.62
L-N
Loews Corp
+0.12%73.9
RNR-N
Renaissancere Holdings Ltd
-0.86%215.78
CI-N
The Cigna Group
-0.92%349.84
CTSH-Q
Cognizant Tech Sol
-1.86%69.26
UHS-N
Universal Health Services
-0.96%166.79
GS-N
Goldman Sachs Group
-2.01%389.49
LH-N
Laboratory Corp of America Holdings
-0.37%205.73
RJF-N
Raymond James Financial
-1.57%122.55

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