With inflation soaring, the Federal Reserve has begun raising interest rates and may have much further to go.
So investors may be wondering which stocks are most hurt as rates climb. Bank of America offers a list of S&P 500 stocks that fare the worst when rates rise.
It’s based on the stocks’ relative performance sensitivity to changes in the 10-year Treasury yield going back to 1972 where applicable.
Here are the 10 worst-performing stocks, according to that measure, with the worst first.
· American Water Works (AWK), a water utility. Bank of America rates the company underperform.
· Take-Two Interactive Software (TTWO), a videogame publisher. Bank of America rates the company buy.
· Digital Realty Trust (DLR), a data-center real estate investment trust. Bank of America rates the company buy.
· MarketAxess Holdings (MKTX), an electronic bond brokerage. Bank of America has no rating for the company.
· ResMed (RMD), a medical-device company. Bank of America rates the company neutral.
· Dollar General (DG), a discount retailer. Bank of America rates the company underperform.
· Realty Income (O), a retail REIT. Bank of America rates the company buy.
· Lennar (LEN), a homebuilder. Bank of America rates the company neutral.
· Chipotle Mexican Grill (CMG), a restaurant chain. Bank of America has no rating on the company.
· Ventas (VTR), a healthcare REIT. Bank of America rates the company buy.
Morningstar on American Water Works...
Morningstar analyst Andrew Bischof likes the Camden, N.J., company, giving it a narrow moat.
To be sure, he thinks it’s currently overvalued. He puts fair value at $131, compared with a recent quote of $148.33.
“American Water Works has consistently increased earnings at a low-double-digit pace, topping most regulated electric utilities, even though core retail water use has steadily fallen as a result of efficiency savings,” he wrote in a commentary.
“Like many utilities, American Water Works is replacing and upgrading infrastructure that is decades old across its system, resulting in organic growth.”
Further, “we expect the company to grow by acquiring small, typically municipal-owned water systems. In the U.S., more than 85% of the population is served by a municipal water utility, offering a long runway of acquisition growth opportunities.”
...and on Take-Two Interactive
Morningstar analyst Neil Macker assigns the New York company a narrow moat and puts fair value at $200, more than half again the recent quote of $123.61.
“Take-Two is one of the larger third-party videogame publishers and owns one of the largest most well-known videogame franchises in Grand Theft Auto,” he wrote in a commentary.
“We believe the firm is well positioned not only to capitalize on the success of GTA, but also to continue diversifying its revenue beyond its signature franchise.”
Further, “we expect Take-Two to continue to benefit from the high demand for consoles, the ongoing revitalization of PC gaming, and the growth of mobile gaming,” Macker said.
“Take-Two has capitalized on the shift within the industry toward a bifurcated market consisting of major AAA blockbuster titles on one side and smaller independent games on the other.
“Take-Two generally focuses on the higher end, using both its capital to fund the higher-budget blockbusters and its marketing advantage over independents in terms of both budget and established networks to support its titles.”
The author of this story owns shares of Realty Income and Ventas.
