Navigating the Rate Tide: 4 Companies Set to Outperform as Interest Rates Rise

Many stocks will underperform as interest rates rise but four companies are bucking the headwinds and navigating the rate tide magnificently.

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Are you looking for buying opportunities, especially stocks that outperform as interest rates rise? Below are four companies that are magnificently navigating the rate tide.

Safety net

Gold is traditionally a safety net, and investors could gravitate to gold stocks if rapidly rising interest rates lead to a market downturn. Dundee Precious Metals (TSX:DPM) is flying high in 2023 amid a challenging environment, and outpacing the TSX year to date, +39.63% versus +3.05%. At $9.04 per share, it pays a 2.34% dividend.

The $1.7 billion international mining company develops and processes precious metals properties in Namibia and Bulgaria. It’s also doing exploration work in Bulgaria and Serbia. Its President and CEO, David Rae, said Dundee represents a compelling value opportunity.

Besides a favourable three-year outlook for gold production, it generates significant cash flow and has exciting exploration projects. In the three months that ended March 31, 2023, revenue increased by only 1% to $155.8 million year over year, but net earnings and free cash flow rose 74% and 24% to $46.6 million and $65 million, respectively, versus Q1 2022.

Affordable product mix

Dollarama (TSX:DOL) benefits from the current inflationary pressure on consumers. The $24.9 billion value retailer has robust sales growth to start this year. In Q1 fiscal 2024, sales climbed 20.7% to $1.3 billion versus Q1 fiscal 2023.

Its President and CEO, Neil Rossy, said, “Canadians from all walks of life continue to respond positively to our compelling value proposition and affordable product mix.” In the same quarter, Dollarama opened its 1,500th store. The dollar store retail chain targets 2,000 stores across the country by 2031.

Dollarcity, the chain’s version in Latin America, opened eight new stores to raise the total count to 448 stores. At $87.15 per share, current investors enjoy a 10.2% year-to-date positive return on top of the modest but safe 0.33% dividend.

Brisk sales

The demand for and customer confidence in the world’s most trusted industrial equipment brand remains steady amid rising interest rates. Caterpillar’s largest dealer, Finning International (TSX:FTT), enjoys brisk sales as a result.

At $39.70 per share, the industrial stock beats the broader market with its 19.5% year-to-date gain. Investors also partake in the 2.52% dividend. In Q1 2023, revenue and net income increased 22% and 45% to $2.3 billion and $134 million, respectively, versus the same quarter last year.

Finning’s President and CEO, Kevin Parkes, said management expects the equipment backlog to increase, while it builds on the strong momentum.

Rising rental demand

Industry experts predict the affordability crisis in the housing market to deteriorate with more rate hikes. Meanwhile, residential real estate investment trusts (REITs) like Canadian Apartment Properties (TSX:CAR.UN), or CAPREIT, could benefit from higher rental rates as homebuyers stay on the sidelines.

The $8.3 billion REIT owns residential apartment suites, townhomes, and manufactured home community sites in Canada and the Netherlands. Its President and CEO, Mark Kenney, said CAPREIT commits to addressing the housing crisis by adding high-quality new build assets to its property portfolio.    

As of this writing, the real estate stock trades at $49.06 per share (+16.39% year to date) and pays a 2.96% dividend.

Stay the course

Dundee, Dollarama, Finning, and CAPREIT investors can stay the course and remain invested despite a potential downturn. The four companies would be in the red if rising interest rates impede business activities and growth.  

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 Christopher Liew has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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