Introduction

As yields jump to their highest levels in more than 16 years, investors may want to seek out stocks that receive a tailwind from climbing interest rates. The yield on the 2-year Treasury jumped to above 5.07% on Thursday, a level it hasn’t seen since June 2007.

Rising Rates and Stock Performance

The catalyst for this increase in rates was a much stronger ADP jobs report than expected, which raised fears that Friday’s official jobs report will come in hotter and give the Federal Reserve reason to restart its rate-hiking campaign. Stocks stumbled big time on Thursday due to the rate spike, as most shares don’t react well to a surge in the cost of money.

Finding Stocks That Thrive in Rising Rates

AsumeTech PRO sought to find stocks that go higher during periods of rising short-term rates. Specifically, they looked at the prior 5 months with the biggest jump in rates over the last five years and analyzed which shares performed the best during those months. They also considered stocks where analysts have a positive outlook and anticipate a gain over the next 12 months.

Criteria for Selection

To determine the top stocks, AsumeTech PRO used data from FactSet and applied the following criteria:

• Wins when yields rise: Median gain of at least 2% during months where the 2-year yield surged
• Consistent winner: Never lost more than 5% during months when rates surged
• Analysts like today: Consensus analyst target calls for a 5%+ gain in the next 12 months

Top Stocks in Rising Rates Environment

Marathon Petroleum, a refinery stock paying a 2.7% dividend, tops the list. The second choice is PG & E, a defensive play as investors look to utilities for shelter in what is typically a tough environment for stocks. Several insurers also make the list as they stand to benefit from higher rates on their large fixed income portfolios, and they can charge more for their services.

Conclusion

If we are headed for another breakout month for yields, the overall market could struggle. However, the aforementioned stocks could provide a solid return for investors.