It seems like the beginning of Q4 is becoming the big transitional quarter for the markets. Sometimes it’s a bullish trend, sometimes a bearish one. This time it’s about transition. And that’s why A-rated stocks to buy are key to navigating now and into 2022.
Supply chain issues are creating havoc in the global markets as the holiday season approaches. This sent energy markets as well as the cost of goods soaring. And it has also changed the trend of cheap goods — including crops and commodities — and healthy margins for many companies.
Remember the entire global economy at this point is built on just in time inventory, which has been cemented into the mindset of most consumers whether in Bruges, Shenzhen, Mumbai or Philadelphia.
That’s why this is a good time to revisit the kind of companies that will succeed with higher interest rates by either being in the right industry or have a strong brand that will be able to keep up demand regardless of rising prices. Also note that each of these stocks to buy has an A-rating in Portfolio Grader.
- Ares Capital (NASDAQ:ARCC)
- Fifth Third Bancorp (NASDAQ:FITB)
- Levi Strauss & Co (NYSE:LEVI)
- Ternium SA (NYSE:TX)
- Vedanta Ltd (NYSE:VEDL)
- Marathon Oil (NYSE:MRO)
- ING Groep (NYSE:ING)
Stocks to Buy: Ares Capital (ARCC)
In a market like this, one of the best places to be is lending money. In the case of ARCC, it lends money to mid-sized businesses. It’s structured as a business development company (BDC), which basically means that it provides a generous dividend as a form distributing its taxable income.
BDCs are similar to the ways real estate investment trusts (REITs) are structured. And they give investors a way to invest in a portfolio of private companies that are on the growth track.
Rising rates can be a risk, but a well-managed BDC can use rising rates to its advantage if it holds quality companies.
ARCC has a solid track record and remains an A-rated buy — it’s up 27% year-to-date and 52% in the past 12 months. Plus, it’s trading at a current price-to-earnings ratio of 5x. And it has a 7.8% dividend.
Fifth Third Bancorp (FITB)
While its roots go back to Ohio in 1909, FITB is one of the top regional banks in the country, now serving 10 states with more than 1,000 branches. It’s now one of the largest banks in the U.S., with $480 billion assets under management.
It may seem counterintuitive to think that banks are a good idea when rates are rising, but it’s true. With rising rates, there are higher margins possible between what rate banks can borrow and what rates they lend. Plus, as a big regional bank it also has a decent-sized trading desk to take advantage of the rebounding market.
Smaller banks are almost solely reliant on their loan portfolios whereas larger banks have more capital to deploy into the markets.
After rising almost 60% YTD, FITB is still trading at a current P/E of just under 13x and maintains an attractive 2.7% dividend. It’s an A-rated buy.
Stocks to Buy: Levi Strauss & Co (LEVI)
Granted, LEVI’s roots stretch back to 1853 as one of the top companies to focus on outfitting all the “49ers” that came West for the California gold rush. But the most impressive aspect of its heritage is the fact that LEVI has maintained its brand and core product for 168 years.
That’s a long time to be a leading company in the clothing industry where fashions usually shift on a seasonal basis. But LEVI has stuck to its knitting (pardon the pun) and is one of the leading denim and casual brands in the world.
Before globalization, people would fund overseas trips by packing a bunch of Levi’s jeans in their bags and selling them abroad for huge sums. Now, LEVI has filled most of those gaps on its own.
And it continues to innovate within its niche. It’s now starting to adopt AI to help hone its offers to existing customers and to attract new ones. It’s also ramping up it computer visualization efforts to redefine home shopping for consumers.
LEVI stock is up 25% YTD and is still reasonably priced. Its 1% dividend is a nice kicker.
Ternium SA (TX)
This Luxembourg-based company is the leading steel company in Latin America, and it also has operations in the U.S.
Steel is one of those industrial commodities that’s fundamental to economic growth. When economies expand, so does steel consumption. And in today’s market, especially with supply chain issues in China, Latin America is a good alternative resource for steel that can get shipped without the same issues.
As infrastructure spending in the U.S. rises so will steel demand and TX’s U.S. presence means it will be a direct beneficiary of that spending. Also EV and other vehicle sales will provide more growth for this A-rated buy.
TX stock has risen 52% YTD; however, it’s trading at a current P/E below 4x and delivers an impressive 4.7% dividend.
Stocks to Buy: Vedanta Ltd (VEDL)
There are very few ways to directly invest in Indian companies and most of them that are available are tech-focused companies or telecom services firms.
VEDL is a major mining company with operations across the second most populous nation in the world. But the play here isn’t just local demand. It’s the fact that its Southwest Asia base of operations makes it a great place to ship products around much of the world’s growth markets. And again, the supply chain in India isn’t as hamstrung as it is in other ports.
Copper, aluminum, iron ore, oil, natural gas and even a power station or two drive the company’s bottom line. And the stock has been getting a lot of attention. VEDL is up 95% YTD, has a massive 7.3% dividend and a meager current P/E of 8x.
Marathon Oil (MRO)
With oil prices sitting above $80 a barrel and heading higher, it’s more of a surprise that this is the only oil company in this A-rated buy list. But MRO is big enough that it can navigate the opportunities and risks at these levels without significant volatility because it has enough volume to hedge its production well.
Also, MRO is a big, international upstream (exploration and production, or E&P) player with properties all around the world, including the U.S. The E&P players are especially leveraged to rising prices since their extraction costs are fixed and any price above that is better for them. And energy prices aren’t going down anytime soon.
The stock is up 136% YTD so it’s continuing to see significant interest. But this is one of those sectors where you make hay when the sun shines and the sun is bright and high in the sky.
Stocks to Buy: ING Groep (ING)
This Netherlands-based bank has significant operations in Europe as well as North America. It has more than $1 trillion in assets under management, which makes it a significant international player.
As with all banks, rising rates are a good thing, especially from the negative rates that were prevalent in Europe. This is a shot in the arm for well managed European banks like ING. And its money management arm as well as its trading operations should also do well in this environment.
This isn’t a shot-to-the-moon pick, it’s a reliable steady grower with some good opportunities ahead. This is a long-term pick that will deliver year in and year out. ING stock has done well this year, rising 62% YTD. But don’t expect those outsized returns every year. Its 3.9% dividend is solid and is a nice inflation hedge.
On the date of publication, Louis Navellier has positions in LEVI, TX and VEDL in this article. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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