With Rates Staying Low, These Stocks Will Rise

Tim is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Looks like the Fed meeting turned out about the way analysts and other prognosticators thought -- the Fed will keep rates at essentially nothing for another couple of years. So it’s time to consider the implications and how best to take advantage of the situation.

Growth

From a growth perspective earlier articles have discussed the upside that both Ford (NYSE: F) and Volkswagen (NASDAQOTH: VLKAY) have as sales increases continue into 2012, and nothing’s changed. Even with Ford’s recent mini run-up after a solid Q4 it’s still trading under 8 times earnings. Volkswagen’s even cheaper with a P/E of about 3.5, on strong earnings no less. Automakers benefit in a low interest environment because consumers are able to secure better financing, making the buying of cars that much more attractive. A couple years of low rates? Ford, GM, Volkswagen and the entire industry is salivating at the thought.

The low rates in conjunction with slowly improving housing numbers (boy, it’s been a long time since that sentence rang true) means companies involved in construction and materials should fare well. This is particularly true because there are investment alternatives out there that were beaten down pretty good during the recession. Though $69 billion Caterpillar (NYSE: CAT) is an obvious choice in a strengthening construction industry it’s already trading at over 16 times earnings. Even with a better than expected earnings announcement, there are more attractive deals out there, including Deere and Company (NYSE: DE). Even with the end of the year run-up DE still trades below 13 times earnings and boasts steadily improving financials.

Dividends

Perhaps the most obvious means of taking advantage of low interest rates are finding sound, dividend producing stocks. Both Lorillard (NYSE: LO) and Reynolds American (NYSE: RAI) provide nice yields, 4.64% and 5.64% respectively and are industry stalwarts. With extremely low betas either would make a sound basis for a portfolio. And if rates do indeed stay low investors will see some growth too.

Of course utilities are always en vogue when rates are low. They offer relative stability and usually crank out a solid yield. The list is endless, but an attractive option with some upside is Exelon Corporation (NYSE: EXC). At nearly $26 billion and a yield of 5.35% EXC is a leader in the industry. Year-over-year revenue growth was offset by flat earnings in 2011, but a couple of forays via acquisition into alternative energies (wind and solar) in the past year should prove to be positives as these are assimilated.

The objective here is to start thinking about what continued low interest rates will mean to the marketplace. Now take that one more step to determine which industries, sectors and companies will benefit the most. Though this list is just scratching the surface, it should get you started down the right path.


Motley Fool newsletter services recommend Exelon and Ford. The Motley Fool owns shares of Ford. timbrugger has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

blog comments powered by Disqus