Over the past few months, traders have grown concerned about the rising inflation, as well as the Federal Reserve’s plans to increase interest rates. Oftentimes, fed officials reduce rates when economic growth is slow and when inflation becomes a major concern, they raise rates to cool the economy.
In an environment that is characterized by increased interest rates, as well as positive signs of a growing economy. Investors can be presented with various opportunities. It is worth stressing that S&P 500 vs Nasdaq indices represent the measures of stock market performance on any given day.
For a start, it is important to examine the stocks that are sensitive to higher interest as inflation reaches its peak. This guide will provide an insight into this. So, keep on reading.
Two Stocks Sensitive To Inflation
As the Fed starts to tighten its policies, we will take a look into the two most sensitive stocks. Both stocks have relatively low price-to-earnings (P/E) ratios as interest rates start to rise. This ratio enables investors to estimate the market value of a stock with respect to the company’s earnings. A high P/E ratio translates to a high stock price relative to earnings and perhaps overvalued. Besides this, technology has made it easier to track the performance of the stock market.
With a Price-to-earning ratio of 15.3 and a market cap of $118.9 billion, ConocoPhillips is one of the biggest energy companies across the globe. It has a year-to-date performance return of +26.5% and its core operation involves the exploration and production of petroleum, natural gas, and other related products.
ConocoPhillips is expected to keep moving higher as inflation reaches its peak while investors seek high-quality companies that can keep their performance well in an economic recovery. Its stock has risen by 26.5% so far in 2022 and this has surpassed the returns of the S&P 500 over the same period. This is due to the rising prices of natural gas and crude oil. What’s more?
Its stock has a low profit-to-earning ratio of 15.3, which makes it a cheaper option than many top names in the booming energy sector. Besides, this E&P company provides a relatively high annualized dividend at a yield of 2.50%, which is better than the implied yield for the S&P 500
To showcase how well ConocoPhillips has performed amid the current high inflation rate, it has revealed its fourth-quarter returns and sales that surpassed past expectations. It has promised its shareholders an increase in returns of up to $8 billion, particularly through variable dividends and stock buybacks.
With a profit-to-earning ratio of 10.2 and a year-to-date performance return of +13.1%, Aflac is the biggest supplemental health and life insurance provider in the United States and it has started 2022 in a strong fashion. Its P/E ratio of 10.2 ensures that it is also a cost-effective option for investors that wish to hedge against the high level of inflation that only promises to increase in the coming months.
It has an annualized dividend of $1.60 per share at a yield of 2.42%. Providers of insurance are often regarded as strong inflation-hedge stocks as interest rates increase due to inflation. Aflac can even generate a higher net return from its long-term bond investments in the next few months.
Aflac has total assets of $157.541 billion, as well as total equity that stands at $33.253 billion. This insurance provider has revealed remarkable fourth-quarter results, which is due to its solid performance across its U.S and Japan segments.
As the inflation rate soars, the rate of interest rises. The response to this situation varies from one company to another. Adjusting your portfolio in accordance with the increasing rates is not enough. Now is the time to consider investing in companies that can benefit from the increasing rates of interest.