These smaller buy-rated stocks have the most to gain from rising rates, Bank of America says

Published Mon, Mar 22 202112:12 PM EDT

Interest rates are rising, and Bank of America has a list of small and mid-cap names that stand to benefit as Treasury yields rise. The 10-year Treasury yield was around 1.68% on Monday, after touching a 14-month high last week. Bank of America sees rates rising throughout the year, and forecasts the 10-year standing at 2.15% by the end of the year. The firm said that amid this mid-cycle environment, small cap stocks — most notably value and risk names — typically outperform their large cap peers. Bank of America's analysis found that within the value factor, firms with strong free cash flow outperformed. Meanwhile, under the risk factor, companies with variable earnings fared best. The bank ran a screen of the top 25 buy-rated small and mid-cap stocks within the Russell 2500 that have the highest beta — or volatility compared to the overall market's move — to changes in the 10-year Treasury yield based on returns over a 10-year period. Louisiana-based H & E Equipment Services is one of the names that makes Bank of America's list. The company, which has a market cap of $1.2 billion, supplies heavy construction and industrial equipment. Shares are up around 15% for 2021, and have soared more than 200% over the last year. Bank of America pointed to Chart Industries and XPO Logistics as also standing to benefit from a rising rate environment. Chart Industries makes equipment for the industrial gas, energy and biomedical industries. The company has a market cap of $5.3 billion, and shares are up 23% this year. Over the last 12 months, the stock has surged more than 770%. XPO Logistics, meanwhile, focuses on supply chain solutions. The company has a market cap of $12.5 billion, and shares have gained nearly 200% over the last year. First Bancorp, Synovus Financial and Devon Energy are among the other names on the list. The Russell 2000 has significantly outperformed its large-cap peers this year, rising nearly 15% compared to the S & P 500's 4% gain. Last week, however, the small-cap index slid 3% while the S & P 500 declined just 1.4%. Higher yields can signal optimism over economic growth which is good for Russell 2000 companies since they tend to rely more heavily on a supportive macro backdrop. However, since smaller companies also rely on issuing debt to fuel growth, higher rates can also act as a headwind. Bank of America also looked at underperform-rated small and mid-cap stocks with the lowest sensitivity to changes in interest rates. Royal Gold , National Retail Properties , CoreSite Realty Corporation and Pinnacle West Capital Corporation are among the names on the list. - CNBC's Michael Bloom contributed reporting.

XPO Logistics

Source: XPO Logistics

Interest rates are rising, and Bank of America has a list of small and mid-cap names that stand to benefit as Treasury yields rise.

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These smaller buy-rated stocks have the most to gain from rising rates, Bank of America says

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