Battling rising interest rates is tough, but these three stocks are well-positioned to do so
- Rising interest rates provide a difficult setup for investors, but these three stocks have what it takes to battle this environment.
- General Motors (GM) — Has been a top performer in a rising rate environment and is well-placed for its next-generation business.
- United Rentals (URI) — Analysts say this stock has a minimum of two more years of solid growth ahead
- Marathon Petroleum (MPC) — U.S. refiners are likely about to enter another “golden age.”
We’re all looking for stocks that can take our portfolios to the next level. However, in this rising rate environment, it’s becoming a lot more difficult to pick top stocks with the ability to outperform.
As the economy moves through phases of growth and stagnation, the size of interest rate increases will be a vital driver of valuations moving forward. However, finding stocks that have the ability to raise prices, or provide stability, may outperform the broader market right now.
Federal Reserve Chairman Jerome Powell has made his thoughts clear on where he sees interest rates going. Accordingly, investors in growth stocks are looking for other top stocks to rotate into. In this cycle, there are a few companies I think have the ability to outperform. Here are three of my top picks right now.
|GM||General Motors Company||$37.10|
|URI||United Rentals, Inc.||$282.93|
|MPC||Marathon Petroleum Corporation||$96.47|
General Motors (GM)
General Motors Company (NYSE:GM) is most commonly thought of as one of the “big three” Detroit automakers. An American icon, this company has driven the North American vehicle market for some time. Recent estimates put this company’s contribution to the North American auto market at around 63% of sales.
However, other electric vehicle companies have outperformed GM stock by a very wide margin over the past decade. Investors aren’t looking for what’s worked in the past. Rather, investors want to skate to where the puck will be in the future. Thus, GM’s newfound EV business is what analysts and investors are paying a great deal of attention to.
I think GM is behind its peers in the EV space. The company has some aggressive targets in this regard. However, analysts appear to remain mixed on whether GM can hit its target of 400,000 EVs by 2024.
That said, the company’s existing business is solid, and GM has navigated the supply chain issues and chip shortage well. This is a cash flow producing business trading at a below-market multiple (especially compared to EV makers). Thus, from a defensive standpoint, GM stock is a growth stock that I think provides excellent upside right now.
United Rentals (URI)
United Rentals, Inc. (NYSE:URI) is the world’s largest equipment rental organization. This company’s business model is one that’s relatively simple to understand. They buy expensive equipment such as boom lifts and other construction-related equipment, and rent it out on a daily or weekly rate to clients. This sort of business is one investors have viewed as being highly defensive, with shares of URI stock holding up well throughout the pandemic.
Indeed, in this period of significant volatility in the markets, URI stock is one of the lower-beta options I think investors may want to own. That’s because this company’s growth profile aligns pretty closely to economic activity in North America.
For those betting on long-term growth of the economy, but want stability in difficult times, this is a stock to consider. (Construction activity may slow, but won’t grind to a complete halt, even in the worst of times).
I think United Rentals’ business model is one that deserves attention in good times and bad. Indeed, considering this stock trades at only 13 times earnings, there’s a lot to like about how URI stock is positioned.
Marathon Petroleum (MPC)
Marathon Petroleum Corporation (NYSE:MPC) is perhaps one of the best-positioned companies right now, relative to this inflationary environment. That’s because a significant portion of the inflation we’ve seen has come from higher gas prices.
Marathon Petroleum’s business is as a midstream energy company. In layman’s terms, this means Marathon Petroleum engages in the marketing, transportation and refining of petroleum products in the U.S. Interestingly, despite crude oil being an input cost for the company’s refining business, Marathon Petroleum has been able to maintain some impressive margins of late.
Additionally, this company’s performance relative to rising Treasury yields is impressive. This is one of the key attributes I think is going to be more important moving forward.
Some analysts have suggested that U.S.-based refiners could be entering another “golden age.” Whether this is true or not will be determined over time. However, I do think Marathon’s impressive margins relative to its global peers is one factor that will likely generate more interest in MPC stock in the future.
This post originally appeared at InvestorPlace.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.