Which Are The Best Stocks To Buy In A Rate Hike Environment

  • Look for banks that are lending money rather than just trading.
  • The big bucks may be found in credit card and business lenders.
  • Lending Club may be a speculation here.

Assuming the Federal Reserve does raise short-term interest rates in the very near future, all bank stocks are likely to get a boost.

But some banks will get bigger boosts than others. So which are the best stocks to buy in the current environment of rate hike expectations?

Those which get the biggest boost are likely to be those that can push the increased cost of money onto their customers quickly. These are mostly those that are engaged in commercial banking, as opposed to investment banking, banks with large branch networks, that are big in credit card lending, that do extensive commercial and consumer lending.

For the banks with the largest number of checking accounts, the news is especially welcome. They have been forced to end the practice of giving “free” checking accounts because the “spread” between customers’ free money and what they can lend it for is just too narrow. That transition is nearly over, and the only people now not paying to have money in the bank are getting only electronic services – debit cards and online banking – for their money.

The largest branch networks are held by Wells Fargo (NYSE:WFC), Bank of America (NYSE:BAC), and JP Morgan Chase (NYSE:JPM), but there are also strong networks among regional names such as SunTrust Banks (NYSE:STI), Fifth Third Bancorp (NASDAQ:FITB), and U.S. Bancorp (NYSE:USB).

Another place to look for profits are credit cards, as well as debit cards. This has been a mega-trend throughout the decade, with Visa (NYSE:V)Mastercard (NYSE:MA), and their third-party processors like Heartland Payment (NYSE:HPY) showing dramatic gains. But while the merchant side has gotten the most attention, there is also a consumer side, the name of the bank on your credit or debit card.

So, in addition to the companies already mentioned, look to American Express (NYSE:AXP), Citigroup (NYSE:C), Capital One Financial (NYSE:COF) and Discover Financial (NYSE:DFS) on the credit card side, and PNC Financial Services (NYSE:PNC) and Regions Financial (NYSE:RF) on the debit side. In the area of business loans, additional names include BB&T (NYSE:BBT), First Citizens BancShares (NASDAQ:FCNCA), and Ally Financial (NYSE:ALLY), the last of which was spun out of General Motors (NYSE:GM) in the 2009 bailout.

Another name, a bank that’s not a bank, deserves special mention here. That’s LendingClub (NYSE:LC). While it calls itself a “peer to peer” lender, taking money from individual investors and lending it to individuals and small businesses, it has evolved into a loan packager, with most loans made by banks.

The stock is down by more than one-third since its Initial Public Offering last December, but higher-cost money is going to help it, both by bringing bargain-hungry borrowers to its site and enabling quick adoption of wider spreads between the cost and price of money. The company reached break-even in the September quarter and could be poised to break-out.

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  • I am not an investment advisor, and my opinion should not be treated as investment advice.
  • I am not being compensated for this post (except possibly by Amigobulls).
  • I do not have any business relationship with the companies mentioned in this post.
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