Rising interest rates mean rising investor interest in short-duration stocks.
Short-duration equities are ones that generate a larger share of their cash flows in the near future, making them more competitive with risk-free assets, such as Treasury bonds when interest rates rise.
Long duration stocks produce a higher portion of their cash flow in the far future.
Distant cash flows are less valuable to investors when rates are rising, lifting payouts on fixed-income investments. So short-duration stocks tend to rise when interest rates climb. And rates are obviously increasing now.
“Mathematically, growth stocks that are expected to generate most of their cash flows in the distant future should experience more valuation contraction than their short duration peers for a given change in the discount rate,” Goldman Sachs strategists wrote in a report.
Goldman offered a list of top short duration stocks, including:
· General Motors (GM), the auto giant;
· Kraft Heinz (KHC), the foods group;
· Walgreens Boots Alliance (WBA), the pharmacy chain;
· Moderna (MRNA), the biotechnology company;
· Intel (INTC), the semiconductor company;
· First Solar (FSLR), the solar-panel maker;
· Paramount Global (PARA) , the media company;
· Hewlett-Packard Enterprise (HPE), the information technology company;
· Lennar (LEN), the homebuilder; and,
· Nielsen (NLSN), the media-ratings provider.
Morningstar analyst David Whiston is bullish on GM, putting fair value at $70, compared with a recent quote of $39.59.
"We see GM with a competitive lineup in all segments, combined with a reduced cost base, finally enabling the firm to have the scale to match its size," he wrote in a commentary last month.
"The head of Consumer Reports automotive testing even said Toyota (TM) and Honda (HMC) could learn from the Chevrolet Malibu."
Further, "We think GM's earnings potential is excellent because the company has a healthy North American unit and a nearly mature finance arm with GM Financial," Whiston said.
