As interest rates soar, buy stocks like this homebuilder, Wall Street analysts say

Published Sat, Sep 30 20238:57 AM EDT

Interest rates keep climbing, but that's not stopping Wall Street analysts from finding a slew of stocks to buy. Analysts said this week that there are several well positioned companies poised to take advantage of rate hikes. CNBC Pro combed through top Wall Street research to find stocks that are beneficiaries of high interest rates. They include: Bank of America, Toll Brothers , Bunge, HealthEquity and Costco. HealthEquity "We view HQY as an attractive investment in a higher interest rate environment that can function as a portfolio diversifier," according to Baird analyst Mark Marcon. The firm recently upgraded the health savings fintech company to outperform from neutral in part because a "higher for longer" interest rate environment, favors the company, he wrote. The company's health savings account cash portfolio has suffered in recent years as yields trended lower but Marcon said as rates rise it becomes a tailwind for HealthEquity. Marcon also cited other factors for his upgrade including robust earnings, acquisitions, and strong execution by management. The HSA market is growing and Marcon sees share gains from HealthEquity as it continues to be a player in the space. "Due to these factors, HQY's stock performance has been more muted over the past few years despite underlying strong results within the core HSA business, creating what we believe is an attractive buying opportunity for a multi-year compounder," he went on to say. Shares are up over 18% this year. Bunge The agricultural commodities company is also an interest rate beneficiary, Goldman Sachs said recently. The firm said as middle market businesses face rising interest rates, Bunge can take advantage. "This provides ample room to support additional bolt-on M & A, opportunistic working capital investment with BG's cost of capital advantage versus smaller & local peers expanding in a rising interest rate environment," analyst Adam Samuelson said. Further, the company's execution is strong and the demand for vegetable oil is trending higher, he added. In addition, to these "cyclical tailwinds," the stock remains particularly compelling, he wrote. Shares are up 10.5% this year, but Samuelson said the stock still has plenty of room to run. "Against this backdrop, balance sheet optionality and company-specific growth opportunities remain significant," he said. Toll Brothers High interest rates are no problem for the homebuilder, Raymond James analyst Buck Horne said in a recent note. The firm said Toll remains a top pick following the company's robust earnings report in late August. "Despite a steady increase in mortgage rates past the 7% threshold, new home demand has remained resilient as the lock-in effect from the existing home market grows even stronger, " he wrote. Meanwhile, Horne says homebuilders are seeing no slowdown in affluent buyers purchasing homes. "We think this dynamic is playing squarely into TOL's wheelhouse given its best-in-class land locations, distinctive modern home designs, and a successful operating pivot towards more quick-delivery spec home production," he said. Those higher rates along with a still very limited inventory, leaves homebuilders and Toll in particular, very well positioned, the firm said. "Catering to an extraordinarily resilient demographic of buyers we view TOL as the strongest risk/reward play in the homebuilding sector in this rising rate environment," Horne wrote. Toll shares are up 48% this year. Costco - Evercore ISI, outperform rating "Our Base Case of $600 uses 37x our CY24 EPS of $16.35, reflecting solid share gain, positive traffic, trends, and the dual-catalyst opportunity afforded by COST's loyalty driven model. ... COST's share gain, traffic, potential fee hike, impenetrable balance sheet & net cash position in a rising rate world keeps it in our Top 5 portfolio. We find COST's defensive growth appealing with a potential dual catalyst path of a special dividend & fee increase providing co. specific catalysts for late '23 or '24." HealthEquity - Baird, outperform rating "We view HQY as an attractive investment in a higher interest rate environment that can function as a portfolio diversifier, particularly in a 'higher for longer' interest rate environment. ... Due to these factors, HQY's stock performance has been more muted over the past few years despite underlying strong results within the core HSA business (key long-term growth driver), creating what we believe is an attractive buying opportunity for a multi-year compounder." Bunge - Goldman Sachs, buy rating "Strong execution bolsters cyclical tailwinds & capital deployment. ... This provides ample room to support additional bolt-on M & A, opportunistic working capital investment with BG's cost of capital advantage versus smaller & local peers expanding in a rising interest rate environment. ... Against this backdrop, balance sheet optionality and company-specific growth opportunities remain significant." Bank of America - Morgan Stanley, overweight rating "Commentary from [the] FOMC meeting suggests that the Fed might need to keep rates higher for longer to bring inflation down to its 2% target. BAC, which sees the highest benefit from free funding and the least exposure to short-dated CDs benefits the most in a higher for longer environment. ... BAC stands out as the biggest beneficiary of higher for longer rates, with the benefit of free funds making up 44% of NIM [net interest margin], stickier NIB deposits than CMA, and CDs maturing in < 1 year making up 4.6% of total deposits as of 2Q23." Toll Brothers - Raymond James, strong buy rating "Despite a steady increase in mortgage rates past the 7% threshold, new home demand remained resilient as the lock-in effect from existing home market grows even stronger. ... We think this dynamic is playing squarely into TOL's wheelhouse given its best-in-class land locations, distinctive modern home designs, & a successful operating pivot towards more quick-delivery spec home production. ... Catering to an extraordinarily resilient demographic of buyers we view TOL as the strongest risk/reward play in the homebuilding sector in rising rate environment."