Asset management, insurance and utility stocks can power through sticky inflation.
On Wednesday, Federal Reserve Chair Jerome Powell said that at “some point this year,” the interest rate will come down from the present 5.25 – 5.50% range. The Fed engaged in this hiking cycle to reduce the rampant inflation rate, which peaked at 9.1% in June 2022.
Although February’s annual inflation rate was 3.2%, Powell sees the danger of reacceleration, moving away from the targeted goal of 2%. Fed fund futures now price the first rate cut in July at 74% probability.
However, if the incoming data shows inflation to be more stubborn than anticipated, a high-interest rate regime may linger for longer. In that scenario, which stocks should investors hold?
1. The Charles Schwab Corporation
At its lowest 52-week point, Charles Schwab (NYSE:SCHW) stock was trading at $45.65 vs the current $71.45 per share. Year-to-date, the stock gained 3.42% value. As a financial institution covering banking, brokerage, asset management, and financial advice, Charles Schwab benefits from a high-interest rate regime.
Because higher yields on loans or mortgages would bring in more profits than deposit payments, the company’s net interest margin would remain elevated. The same dynamic applies to Schwab’s fixed-income securities or bonds. In its latest monthly activity from February, Charles Schwab reported a 20% increase in total client assets to $8.8 trillion.
Moreover, the company reported a 5% YoY increase in average margin balances. As the acquired part of the group, Ameritrade was recently ranked the highest in the J.D. Power 2024 U.S. Self-Directed Investor Satisfaction Study. When Schwab integrated TD Ameritrade in 2023, it added $306 billion in core net new assets.
Analysts pulled by Nasdaq are largely optimistic, forecasting the average SCHW price target of $75.31 vs current $71.45. The higher end is $87, while the lower end of expectations twelve months ahead is $65 per share.
2. MetLife
At its lowest 52-week point, MetLife (NYSE:MET) stock was trading at $48.95 vs the current $73 per share. Year-to-date, MET shares are up 8.3%. As one of the largest insurance companies, MetLife can quickly adjust its profitability by tweaking insurance premiums. Moreover, because insurance companies must have large reserves for potential claims, these reserves bring higher yields in a higher interest rate regime environment.
In January, MetLife was named one of Fortune’s World’s Most Admired Companies. The insurance giant delivered its full-year 2023 earnings, showing a net income of $1.4 billion, down 73% from $5 billion in 2022.
This change largely comes from market risk benefit remeasurements, as MetLife reassessed the worth of certain benefits/protections in the market. Nonetheless, MetLife increased earnings per share throughout the year’s quarters, starting with $1.52 in Q1, except in the last Q4 quarter at $1.93 compared to $1.97 in Q3.
Per Nasdaq’s aggregated inputs, the average MET price target stands at $82.6 vs the current 73 per share. The higher range is $88 while the lower estimate is above the present price level at $77 per share.
3. Duke Energy Corporation
When covered in March, Duke Energy traded at $95 per share, the same level at press time. At its lowest 52-week point, DUK stock was $83.06, down 2.4% year-to-date. However, the value of Duke Energy (NYSE:DUK) shares remains in dividend payouts, presently giving a 4.27% yield at an annual payout of $4.10 per share.
Moreover, Duke’s electricity and natural gas utility services are highly unlikely to ever go out of fashion. Duke can power through a higher interest rate environment like other utility companies by passing on increased borrowing costs to consumers.
For the full year of 2023, Duke delivered strong financial results. The company’s operating income increased by 16.6% YoY to $7 billion, with a total revenue of $29 billion. This left the net income, applicable to common shareholders, at $2.7 billion, a 12.5% increase from 2022.
Not to be left out of the decarbonization drive, the utility company plans to achieve net-zero methane emissions by 2030, while reducing interim carbon emissions by 50%. Nasdaq’s average DUK price target is $102.92 vs current $95. The higher estimate is $118 while the lowest is above the present price at $95 per share.
Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.
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