3 stocks to buy to fight rapidly rising interest rates

  • AllianceBernstein (A B): M&A should further improve its offerings in this rising rate environment.
  • Ares Capital (CRAC): can generate higher returns from loans offered to medium-sized businesses.
  • Wholesale Costco (COST): could benefit from housing and employment booms.

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The Federal Reserve raised benchmark interest rates in March to curb rising inflation. Moreover, it has been predicted that even higher interest rates may soon arrive. So investors have become skeptical about which stocks are best to buy in a rising interest rate environment.

Amid these tailwinds, investors are already pulling their money out of overvalued stocks. As a result, many have shifted their investments to companies that offer short-term shareholder value.

To be honest, rates are still relatively low even after this hike. For example, the federal funds rate is currently at 0.5%. This is significantly higher than the previously recorded 0.08% we saw. But it’s microscopic by historical standards.

That said, rising rates should not be seen as a dead end for the economy. The economy will likely change, perhaps negatively, due to this tightening of monetary policy. However, instead of exiting the market altogether, investors can do better by sticking with companies that have the potential to grow in any environment.

With that in mind, here are three great stocks to buy that I think are worth considering.

A B AllianceBernstein $46.15
CRAC Ares Capital $21.58
COST Wholesale Costco $589.70

AllianceBernstein (AB)

The AllianceBernstein (AB) logo inside a corporate office in New York.

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AllianceBernstein is a public investment manager. However, this is not your average small family office. The company currently has approximately $780 billion in assets under management. With an excellent management team in place, investors can view this company as a great way to navigate this higher yielding environment.

This company happens to be among the best fixed income managers in its category. Therefore, with rising rates, it is expected that investors will once again seek out less risky fixed income investments. This growing demand could provide a tailwind for AB stocks.

In addition, a rising interest rate environment could lead to greater volatility in capital markets. This is generally a good thing for companies like AllianceBernstein. Indeed, this allows the savvy leaders of the company to take advantage of the situation and cash in.

Over time, investors looking for ways to play in this market may find that investing in companies that specialize in this sector is the way to go. It’s a simplistic thesis, but easy to understand for those looking for a place to park some cash right now.

Ares Capital (ARCC)

Ares Capital (ARCC) logo on its webpage

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Ares Capital Corporation is a business development company (BDC). More specifically, ARCC engages in recapitalizations, acquisitions and restructurings of medium-sized companies. Typically, these companies have a market value of $20 million and $200 million. Simply put, these Goldilocks companies are neither too small nor too big.

Interestingly, ARCC stock is the first and only lender to offer “unitranche” constructed investments. These products are a powerful tool that businesses can use to repay their loans in the event of default.

In a rising interest rate environment, Ares is likely to earn higher returns on the credit it provides. Like other financial stocks, the ARCC share should, on the whole, benefit from this environment. As a result, it’s no surprise to see this stock outperforming the broader market over the past few weeks.

Additionally, ARCC stock is unique in that it provides a significant dividend. Currently, the yield on ARCC shares is just below 8%. So, for investors looking for passive income, this could be a great way to manage the current rising rate environment right now.

Costco Wholesaler (COST)

A Costco Wholesale (COST) warehouse in Auburn Hills, Michigan.

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Last, but not least, we have the legendary Costco. This warehouse-style retail store operator is truly a long-term gem. The company’s business model is as simple as it is elegant. By sourcing directly from manufacturers, Costco passes the savings on to consumers who often buy in bulk. In addition, its distribution model is impressive, allowing substantial savings on transport and handling costs.

Overall, Costco is a company worth owning in a retirement account. However, for those looking for a place to park some short-term brokerage money, COST action also fits the bill.

This is because this retailer has impressive pricing power compared to its peers. Customers buy at Costco knowing they’re getting great prices, even as those prices go up. In addition, the company’s product line is centered around consumer needs. This both builds customer loyalty and secures volume, factors that the company can use to leverage its suppliers.

When it comes to a defensive option, there are few stocks better than Costco to hold for the long term.

As of the date of publication, Chris MacDonald had (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.

Chris MacDonald’s love of investing has 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 investment outlook.

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