12 Biggest Stocks that Benefit from Rising Interest Rates

In this article, we will take a look at the 12 biggest stocks that benefit from rising interest rates. If you want to see more stocks in this selection, go to the 5 Biggest Stocks that Benefit from Rising Interest Rates.

The US Federal Reserve has increased the benchmark interest rates to a range of 4.25% to 4.5% in December 2022. This is the highest benchmark interest rate since December 2007. The move has been made to combat raging inflation that reached a four-decade high of 9.1% in June 2022 and recorded an increase of 7.1% YoY in November 2022. The Federal Reserve has warned of further interest rate hikes in 2023 and has provided a median benchmark interest rate guidance of 5.1% for the next year. The increase in the benchmark interest rates is expected to tighten the economy and bring inflation back to the Federal Reserve’s long-term target of 2%.

The developments related to interest rate changes require close attention from investors. In circumstances where interest rates are on the rise and the economy is showing signs of improvement, numerous opportunities rise in the world of equities. According to a top adviser to the president, the White House is confident that the US economy can still achieve a “soft landing” as the significant public investments made by Joe Biden will provide support to the job market in the coming months. Despite the Fed Reserve’s monetary tightening in full force over the previous three months, the US labor market outperformed expectations and posted an average monthly job increase of 272,000.

Certain businesses, such as those belonging to the financial sector, are likely to experience a tailwind as an increase in interest rates results in higher profit margins. Meanwhile, brokerage institutions start to experience an increase in trading activity as the economy starts to recover and also experience higher interest income due to surging interest rates. However, this does not mean that investors should remain restricted to the financial sector only. Retailers and consumer companies also experience positive momentum as the economy starts to recover. Companies such as  JPMorgan Chase & Co. (NYSE:JPM), Bank of America Corporation (NYSE:BAC), and The Home Depot, Inc. (NYSE:HD) are amongst some of the biggest stocks that stand to benefit from rising interest rates.

Photo by Nicholas Cappello on Unsplash

Our Methodology

We have analyzed the business models of numerous companies to assess the impact of the rising interest rates on their financial strength and growth plans. According to experts, the majority of the companies that are expected to benefit from rising interest rates belong to the financial sector. The financial sector companies shortlisted have a strong global presence and offer expansive wealth management and investment banking services. Rising interest rates are expected to boost their profit margins in the coming quarters. Furthermore, we have also included some leading names from the consumer goods and home improvement retail sector. These stocks have been ranked according to the hedge fund sentiment as of Q3 2022.

12 Biggest Stocks that Benefit from Rising Interest Rates

12. Extra Space Storage Inc. (NYSE:EXR)

Number of Hedge Fund Holders: 27

Extra Space Storage Inc. (NYSE:EXR) is a Cottonwood Heights, Utah-based real estate investment trust (REIT) founded in 1977 that is focused on investing in self-storage units.

Extra Space Storage Inc. (NYSE:EXR) carries a significant amount of debt as it buys self-storage properties on mortgages. However, around 62% of the company’s total debt is on a fixed interest rate of 3.2% only as of Q3 2022. This will play in favor of Extra Space Storage Inc. (NYSE:EXR) during a period of rising interest rates, as the company will observe significant savings on financing costs. In a research report released on December 5, Ki Bin Kim at Truist assigned Extra Space Storage Inc. (NYSE:EXR) stock a target price of $175 and reiterated a Buy rating following the Q3 2022 results and the recent developments taking place in the self-storage REIT industry.

Baron Funds shared its stance on Extra Space Storage Inc. (NYSE:EXR) in its Q2 2022 investor letter. Here’s what the firm said:

“Following a sharp correction in its share price during the second quarter, we acquired shares in Extra Space Storage Inc. This REIT has assembled the second-largest self-storage portfolio in the country and has the largest portfolio of third-party managed self-storage facilities. In our opinion, Extra Space’s management team is excellent. Over the last decade, management has delivered strong occupancy gains, rent growth, and expense control that has led to a cost of capital advantage relative to its peers. Management has capitalized on its cost of capital advantage by tripling its owned self-storage count since 2010. We believe the long-term growth opportunity for the company remains strong.”

11. Kohl’s Corporation (NYSE:KSS)

Number of Hedge Fund Holders: 31

Kohl’s Corporation (NYSE:KSS) is a Menomonee Falls, Wisconsin-based operator of departmental store chains across the US. The company, founded in 1962, is present in every US state except Hawaii through its 1,165 locations network.

Like other departmental store operators, Kohl’s Corporation (NYSE:KSS) is also in the business of issuing its own branded retail store card that can be used only at Kohl’s stores and Kohls.com. During periods of rising interest rates, the company is expected to generate more income through its store credit cards as the annual percentage rate (APR) would rise in line with the increasing benchmark interest rates. In addition to having a positive brand reputation within its target market, Kohl’s Corporation (NYSE:KSS) also offers excellent cash flow generation capabilities in a more stable market, unexplored options for capital allocation, and the possibility of agreements with new brand partners in the coming quarters.

As of Q3 2022, Kohl’s Corporation (NYSE:KSS) was held by 31 hedge funds.

10. The Travelers Companies, Inc. (NYSE:TRV)

Number of Hedge Fund Holders: 37

The Travelers Companies, Inc. (NYSE:TRV) is a New York-based insurance company that has the distinction of being the second biggest underwriter of US commercial property and casualty insurance.

The company, founded in 1853, is the sixth-biggest underwriter in the field of personal insurance through its vast network of independent agents. The relationship between rising benchmark interest rates and the growth of insurance companies is positive as portfolio yields increase in tandem with appropriate rate increases. Insurance companies also make significant investments in bonds as they keep funds parked to back the insurance policies issued by them. Despite the significant weakness in the performance of the broader market, The Travelers Companies, Inc. (NYSE:TRV) stock has observed an increase of over 21% since the start of 2022.

Millennium Management increased its stake in The Travelers Companies, Inc. (NYSE:TRV) by 100% during Q3 2022.

9. Discover Financial Services (NYSE:DFS)

Number of Hedge Fund Holders: 40

Discover Financial Services (NYSE:DFS) is a financial services firm founded in 1985 that operates Discover Bank and provides payment services solutions globally.

At the conclusion of the third quarter, Discover Financial Services (NYSE:DFS) credit card loans totaled $83.6 billion, up 19% from the previous quarter. Furthermore, private student loans climbed by $165 million and personal loans by $784 million, respectively, year over year. Excluding acquired loans, the organic student loan portfolio also saw a rise of 4% from the same time last year. These were positive developments for Discover Financial Services (NYSE:DFS), considering the rising interest rates. An expansion of the net interest margin and higher average receivables were the primary drivers of the quarter’s 18% growth in net interest income.

As of Q3 2022, Discover Financial Services (NYSE:DFS) was held by 40 hedge funds.

8. Marathon Petroleum Corporation (NYSE:MPC)

Number of Hedge Fund Holders: 50

Marathon Petroleum Corporation (NYSE:MPC) is a Findlay, Ohio-based refining, marketing, and transportation provider of petroleum products.

The company is expected to save significantly during the rising interest rate environment due to its low debt levels. Marathon Petroleum Corporation (NYSE:MPC) has been lowering its debt-to-equity (D/E) ratio since March 2020. Experts anticipate Marathon Petroleum Corporation (NYSE:MPC) to have a strong 2023 as the refining market is expected to remain under pressure due to supply-related limitations that would support a high-margin environment like 2022. For the recently ended quarter, Marathon Petroleum Corporation (NYSE:MPC) increased its dividend by about 30%. Marathon Petroleum Corporation (NYSE:MPC) strives to have each of its assets produce free cash flow for the company and increase returns to shareholders.

As of Q3 2022, Paul Singer’s Elliot Management was the biggest hedge fund holder of Marathon Petroleum Corporation (NYSE:MPC) stock, with a stake of over $1 billion.

Here’s what Clark Street Value said about Marathon Petroleum Corporation (NYSE:MPC) in its Q4 2021 investor letter:

“During the worst of covid, I bought some LEAPs on Marathon Petroleum (MPC) as a proxy for Par Pacific (PARR) since long dated options weren’t available on the later.  Those MPC calls expire next month and I’ll take profits, with PARR I’ve reduced my position throughout the year and might sell the rest early next year, I’ve owned it for 6-7 years and it has gone nowhere, they haven’t touched the NOLs, just a difficult business that I probably don’t understand as well as I should.”

7. Costco Wholesale Corporation (NASDAQ:COST)

Number of Hedge Fund Holders: 69

Costco Wholesale Corporation (NASDAQ:COST) is an Issaquah, Washington-based operator of membership-only big-box retail stores.

The strong membership model operated by the company is insulated from the volatility in the discretionary retail sector due to rising interest rates and inflation. There are strong expectations that increasing interest rates and high inflation will increase membership rates as consumers look to benefit from discounts. Furthermore, numerous members are now becoming executive members, who must pay a double membership fee in exchange for an extra 2% discount while shopping at Costco Wholesale Corporation (NASDAQ:COST).

On December 21, Ivan Feinseth at Tigress Financial gave Costco Wholesale Corporation (NASDAQ:COST) stock a target price of $635, along with a Buy rating. The analyst highlighted the recent dip in the stock price as an attractive buying opportunity for investors.

Here’s what Cooper Investors said about Costco Wholesale Corporation (NASDAQ:COST) in its Q3 2022 investor letter:

“The US economy continues to run hot – the labour market is extremely tight and a number of executives we spoke to described their challenges in retaining staff and preventing competitors from poaching talent. Industrial companies in particular continue to see record backlogs, with the easing of logistics and supply chain constraints only just starting to have an impact on deliveries and lead times.

In terms of inflationary pressures, the vast majority of our holdings have been able to leverage strong market positions and stakeholder relationships to push pricing through in 2022 such that minimal impact to earnings has occurred. Clearly this is not a lever than can be pulled indefinitely but the more experienced management teams have kept some of their powder dry. Our meeting with management at Costco in Seattle was memorable for several reasons but one was their latent ability to increase member pricing which they have not done in over 5 years (and thus likely to do in 2023)…

…To conclude we’ll return to our meeting with Costco mentioned earlier. The business quality is no secret after decades of incredible execution, but the meeting gave us renewed conviction around Value Latencies in terms of the runway for growth, the focus on enhancing customer value, Costco’s vast buying power (it purchases 30% of the world’s jumbo cashews as one example) and management’s feral focus on the business model and cost discipline.”

6. The Goldman Sachs Group, Inc. (NYSE:GS)

Number of Hedge Fund Holders: 69

The Goldman Sachs Group, Inc. (NYSE:GS) is a New York-based investment bank and a diversified financial services company.

The company is preparing itself to benefit from a rising interest rate environment by broadening its partnership with Apple Inc. (NASDAQ:AAPL). Unlike other banks, Goldman Sachs has agreed to provide customers the option to view their deposit account balances on their digital wallets. Furthermore, The Goldman Sachs Group, Inc. (NYSE:GS) is working with Apple Inc. (NASDAQ:AAPL) to develop high-yielding savings account along with a buy now pay later (BNPL) plan that would be exclusively available to customers of Apple. This reflects The Goldman Sachs Group, Inc.’s (NYSE:GS) intention to provide consumer banking services through the digital medium without opting for full-fledged physical operations.

ClearBridge Investments discussed its stance on The Goldman Sachs Group, Inc. (NYSE:GS) in its Q3 2022 investor letter. Here’s what the firm said:

“We also initiated a new position in The Goldman Sachs Group, Inc. (NYSE:GS), which is trading far below what we would expect of a well-capitalized financials stock capable of generating an attractive return on equity over a market cycle. The company’s prospects are further enhanced by strong market share gains and further buildout of its fintech consumer finance initiatives.

Additionally, its earnings appear to have stabilized from the peak deal activity and inflated asset valuations of the last market cycle. While we acknowledge that a full-blown recession would put pressure on these earnings, Goldman Sachs has a history of capitalizing on downcycles to solidify its leading investment and trading businesses.”

In addition to The Goldman Sachs Group, Inc. (NYSE:GS), JPMorgan Chase & Co. (NYSE:JPM), Bank of America Corporation (NYSE:BAC), and The Home Depot, Inc. (NYSE:HD) are also on our list of the biggest stocks that benefit from rising interest rates.