The spring of 2022 brought major changes to Canadian monetary policy. Inflation rates soared to levels not seen in decades, spurring an aggressive policy shift from the Bank of Canada (BoC) and its central bank peers in the developed world. Indeed, the BoC raised its benchmark interest rate seven times in 2022. However, the BoC elected to hold on interest rates in April 12. The benchmark rate currently sits at 4.5% — its highest rate in 15 years. Today, I want to zero in on three stocks that could benefit in this high interest rate environment. Let’s dive in.
This exciting financial stock could win big from high interest rates
Canada’s top bank stocks encountered turbulence after the BoC enacted its monetary policy shift. However, recent earnings have demonstrated that banks are benefiting from improved profit margins.
goeasy (TSX: GSY) is another financial institution that can take advantage in this climate. The Mississauga-based company that provides non-prime leasing and lending services under the easyhome, easyfinancial, and LendCare brands to Canadian consumers. Its shares have dropped 9.7% in 2023. The stock has plunged 28% year over year.
This company released its fourth-quarter (Q4) and full-year fiscal 2022 earnings on February 15, 2023. Investors can expect to see goeasy’s first batch of fiscal 2023 earnings in the first half of May. In Q4 2022, it posted quarterly loan growth of 54% to $206 million. Meanwhile, it delivered annual adjusted diluted earnings-per-share (EPS) growth of 11% to $11.55 for the full year.
Shares of goeasy possess a favourable price-to-earnings (P/E) ratio of 11. The stock last increased its quarterly dividend to $0.96 per share. That represents a solid 4% yield. goeasy has delivered nine straight years of dividend growth, putting it in good company as a Canadian Dividend Aristocrat.
Here’s another stock that could thrive in this environment
The stabilization of the Canadian economy and general improvement in its health is historically good news for companies that operate in the hardware space. Indeed, consumers with cash to spend in a positive economic climate are able to splurge on high-quality items like those offered by Richelieu Hardware (TSX: RCH). This Montreal-based company manufactures, imports, and distributes specialty hardware and complementary products in North America. Its shares have increased 4.2% in the year-to-date period as of close on April 18.
Richelieu Hardware unveiled its Q1 2023 earnings earlier this month on April 6. The company reported total sales of $403 million — up 4.8% compared to Q1 2022. However, net earnings dropped 25% year over year to $22.6 million. Meanwhile, earnings before interest, taxes, depreciation, and amortization (EBITDA) fell 8.6% to $49.1 million.
This stock possesses a favourable P/E ratio of 13 at the time of this writing. Meanwhile, Richelieu offers a quarterly dividend of $0.15 per share, which represents a modest 1.5% yield.
One more stock to buy with interest rates holding steady
Aritzia (TSX: ATZ) is the third and final stock I’d look to snatch up in this environment. This Vancouver-based company designs and sells apparels and accessories for women in North America. Clothing companies also historically benefit if rising rates coincide with a period of improved economic strength. Shares of Aritzia have dropped 10% so far in 2023.
Investors can expect to see its final batch of fiscal 2023 results in the first week of May. In Q3 FY2023, Aritzia delivered net revenue growth of 37% to $624 million. Meanwhile, net income increased 8.9% to $70.7 million. This stock possesses a solid P/E ratio of 26. Aritzia boasts an immaculate balance sheet and its geared up for strong earnings growth going forward.
