These are the stocks to buy and avoid as rates rise, Jefferies says

Published Thu, Jan 27 202211:20 AM ESTUpdated Thu, Jan 27 202212:36 PM EST

The Federal Reserve just set the stage for the start of rate hikes as soon as March, and Jefferies is recommending some stocks to own, and names to stay away from, in a rising interest rate environment. The central bank indicated Wednesday, at the conclusion of its two-day policy meeting, that it could soon raise interest rates for the first time in more than three years as part of a broader tightening of historically easy monetary policy. The committee's statement came in response to inflation running at its hottest level in nearly 40 years. "I think there's quite a bit of room to raise interest rates without threatening the labor market," Fed Chair Jerome Powell said at his post-meeting news conference. To prepare for the monetary tightening, Jefferies told clients to own stocks that perform well when interest rates rise. The Wall Street firm screened for nonfinancial companies with a market capitalization greater than $10 billion that have had a strong positive correlation with the U.S. 10-year bond yield and real yield since 2010. Take a look at the stocks to own when rates rise, according to Jefferies. Jefferies list is full of cyclical stocks, those tied to economic health, since the Fed typically begins to hikes rates only when it believes the economy is strong enough to handle it. Examples of cyclical stocks are materials, energy and industrials. The energy stocks that appear on Jefferies list include Marathon Petroleum , Pioneer Natural Resources and Conocophillips . Industrials like Caterpillar , Honeywell International , Deere & Co. and General Electric also perform well when rates rise, according to the firm. General Motors , FedEx and American Airlines also made Jefferies' list of "stocks to own when rates rise." For stocks to stay away from, Jefferies screened for nonfinancial companies with a market capitalization greater than $10 billion that have had a strong negative correlation with the U.S. 10-year bond yield and real yield since 2010. Take a look at the stocks to avoid when rates rise, according to Jefferies. Defensive names like Colgate—Palmolive , PepsiCo , General Mills and Clorox typically underperform in rising rate environments. Other defensive names like Eli Lilly and Amgen made Jefferies' list. Plus, technology stocks like Zscaler also fair poorly because their future earnings look less attractive when interest rates rise. Hershey , American Tower and Chipotle also earned spots on Jefferies' "stocks to avoid when rates rise" list. — with reporting from CNBC's Michael Bloom.

Caterpillar Inc. excavators are displayed for sale at the Whayne Supply Co. dealership in Louisville, Kentucky.

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