Following last week’s screen for companies not well equipped to face a “higher for longer” policy stance from the Fed, we present readers with the other side of the coin. As we wrote in last Friday’s commentary:
“Albert Edwards of Societe Generale wrote a thought-provoking piece based on the graph below. He asks, “What on earth is going on?” In other words, why are corporate interest expenses as a percentage of profits falling as interest rates soar? Albert surmises that many companies borrowed heavily in 2020-2021 at very low-interest rates, and the proceeds remain in deposit accounts earning more than the interest on the debt. Consequently, net interest is reduced.”
Given the current level of short-term interest rates, not all companies are negatively impacted by the Fed keeping rates higher for longer. Specifically, we look for companies holding a significant portion of cash and equivalents that earn a higher rate of return than that paid on the company’s debt.
This week we screened 600 large-cap companies to identify five that will benefit from a higher for longer Fed regime. Two of the five have no debt and significant cash, while the remaining three have low debt levels and cash well in excess of debt.
Screening Criteria
We considered the following factors when screening:
- Market Cap > $10B
- Not in the Financial sector
- (Cash & Eq. – Total Debt) / Total Assets > 25%
- Cash Flow from Operations > $0
Company Summaries (all descriptions courtesy Zacks)
Palantir Technologies (PLTR)
CoStar Group (CSGP)
Airbnb, Inc. (ABNB)
Shopify (SHOP)
Intuitive Surgical (ISRG)
Five for Friday
Five for Friday uses stock screens to produce five stocks that we expect will outperform if a particular investment theme plays out in the future. Investment themes may be relevant to the current or expected market, industry and/or economic trends. Investment themes may not always represent our current forecast.
Disclosure
This report is not a recommendation to buy or sell the named securities. We intend to elicit ideas about stocks meeting specific criteria and investment themes. Please read our disclosures carefully and do your own research before investing.
Michael Lebowitz, CFA is an Investment Analyst and Portfolio Manager for RIA Advisors. specializing in macroeconomic research, valuations, asset allocation, and risk management. RIA Contributing Editor and Research Director. CFA is an Investment Analyst and Portfolio Manager; Co-founder of 720 Global Research.
Follow Michael on Twitter or go to 720global.com for more research and analysis.
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