3 Companies That Should Be Expected to Outperform as Interest Rates Increase

The recent interest rate hike could have knock-on effects for the broader market. Imperial Oil Ltd. (TSX:IMO)(NYSE:IMO) and two other companies may be wise places to park your money while the market sorts itself out.

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Now that the Bank of Canada is embarking on a path of higher interest rates, there are numerous implications for Canadian investors.

The number one by-product of higher rates will be higher mortgage payments for Canadian homeowners, but this should in turn have a trickle-down effect, leading to reduced consumer spending and lower economic growth overall.

Yet you needn’t worry as investing Foolishly can help you navigate these dangerous waters.

The three stocks making this list are all blue-chip names, meaning they should fare better than most should there be a knock-on effect on the broader stock market.

In addition to being high-quality names, these three companies all employ relatively modest leverage, meaning that they’ll be less impacted by higher interest rates charged on the debt on their balance sheets.

Imperial Oil Ltd. (TSX:IMO)(NYSE:IMO)

Imperial Oil has $4.5 billion of debt on its books, which may sound like a lot but, when compared to $25 billion of shareholders’ equity, is actually very conservative for a company of its size.

The company is in an excellent position to service its debt with operating profits covering interest expenses by more than six times last year.

Imperial Oil shares are off 25% so far this year following two bad earnings misses.

While that may be enough to scare off some investors, those willing to ante up may find that recent weakness has presented a solid buying opportunity.

Macdonald Dettwiler & Associates Ltd. (TSX:MDA)

MDA is a communication and information company with interests in satellite communications and surveillance.

The company is the midst of an aggressive push into the U.S. in order to be able to compete for U.S defence contracts.

Recent moves include the acquisition of DigitalGlobe, which is expected to be accretive to EPS by 2018.

As well, SSL MDA Holdings, the company’s U.S. headquartered operating company, recently signed a security control agreement with the U.S. Department of Defense.

The potential for U.S. defence contracts could have massive implications for the company’s future, which is largely the reason why eight of 11 analysts have “buy” recommendations on MDA shares.

Suncor Energy Inc. (TSX:SU)(NYSE:SU)

Suncor is one of the biggest names on the TSX Composite, so investors buying shares should be able to sleep easy at night knowing the company isn’t going anywhere anytime soon.

Despite the company’s $65 billion market cap, it only has $16 billion of debt on the books, not to mention $2.9 billion of cash balances.

Suncor shares today pay a 3.1% dividend, which is unusually high for this blue-chip name. Long-term investors may want to use the opportunity to snap shares up for their RRSP.


While rocky roads may be ahead for the Canadian markets, these three stocks should outperform relative to peers, whose performance should be negatively impacted by higher rates.

Just remember: there’s always money to be made provided your willing to think Foolishly.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Jason Phillips has no position in any stocks mentioned. Macdonald Detwiller is a recommendation of Stock Advisor Canada.

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