The Motley Fool

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

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.

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

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

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.