Interest rates are set to go parabolic in the coming months as the Federal Reserve moves to lower inflation. In a statement on Tuesday, Fed’s Lael Brainard said that the bank will also likely start quantitative tightening (QT), as it seeks to reduce its balance sheet. So, here are some of the best stocks to buy in a high-interest rates environment.
Regional banks will perform better than national giants like Morgan Stanley and JP Morgan. That’s because most of these banks make money from lending. They don’t have vast investment banking and wealth management services. Also, large banks will likely struggle as the number and value of deals declines.
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BancFirst (NYSE: BANF) is a small regional bank valued at about $3 billion. It offers retail and commercial banking services through its 110 branches in Oklahoma.
BancFirst will do well as interest rates start rising because of the large net interest income (NII) on its portfolio. This means that the firm can easily deploy some of these funds to earn better interest as rates keep rising.
What’s notable is that BancFirst business has been doing well even before rates start rising. Its annual revenue rose from $312 million in 2020 to $316 million while its net income almost doubled to over $167 million.
Discover (NYSE: DFS) is one of the biggest financial services company in the US with a market cap of over $30 billion. The company offers credit cards and is a smaller competitor to juggernauts like Visa and Mastercard.
Discover stock price has struggled in the past few months as investors worry about its slow growth. As a result, its stock hss tumbled by about 18% from its highest level in 2020. Its interest revenue of $9.517 billion in 2021 was slightly above the $9.2 billion it made in 2020.
Therefore, as the Fed dramatically increases its rates, Discover will be able to shift some of its outstanding balances on credit card loans to generate income.
Texas Capital Bancshares (NASDAQ: TCBI) is another small bank with about $35 billion in total assets and about 1,600 employees. It has a market cap of $2.8 billion.
The company generates more than $937 million in total revenue and profits of $253 million. It is a highly diversified bank that operates in commercial banking, wealth management, and investment banking.
Texas Capital is a good bank in a high interest rate environment because of the large amount of money in its balance sheet that ir can easily put to work.
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