2 stocks that could rise with U.S. interest rates

Here are two stocks to watch if U.S. interest rates rise.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

On Friday, the U.S. Labour Department revealed American employers added a seasonally adjusted 287,000 job in June, providing the strongest job growth figures in eight months. The official unemployment rate ticked up 0.2% to 4.9% on the prior month, primarily driven by an increase in the participation rate to 62.7%.

Wage growth also increased 2.6% from prior year, boding well for inflation. These better-than-expected jobs numbers sent Wall Street shares on a two-day rally to record highs overnight as investors reassess the underlying strength of the American economy.

The momentum of the American economy means a U.S. interest rate rise could be on the cards when the Federal Open Market Committee meets for its next rate decision at the end of July. Accordingly, here are two stocks to watch that could benefit from an increase to American interest rates.

QBE Insurance Group Ltd (ASX: QBE)

Recently, QBE advised that the impacts of the Brexit are likely to result in a revised approach to approximately GBP500 million of insurance and reinsurance premiums it uses to fund its European business.

Although management reiterated that it does not anticipate any material impact on day-to-day insurance operations, the Brexit sell-off resulted in the stock losing over 10% of its value.

What investors seem to be missing is that QBE derives almost 40% of revenues from North America. This means it benefits from a stronger U.S. economy as demand for its products grows.

Therefore, though uncertainties remain in its European business, QBE's core American arm should see higher growth if and when the Federal Reserve lifts U.S. interest rates (as this provides QBE with translational gains and better investment returns).

Accordingly, I believe QBE is a buy at current prices, given the rising U.S. economy.

Sirtex Medical Limited (ASX: SRX)

Shares in Sirtex jumped on Monday after the company provided an update to sales dose figures for its 2016 full year. The biotechnology company reported worldwide dose sales of its SIR spheres rose 16.4% over the prior corresponding period (pcp).

Sirtex's sales in the U.S. grew strongly in the second half of 2016, posting 19.4% growth on pcp. This growth is likely to continue with a stronger U.S. economy, meaning an interest rate rise (which is a sign of a stronger economy) augurs well for company sales.

An interest rate rise should also result in a stronger U.S. dollar, meaning Sirtex benefits from currency translations when reporting in Australian dollars, adding to its investment thesis.

The unaudited results came in at the higher end of guidance provided by management on 1 June 2016, seeing the shares rebound strongly on the update. Nevertheless, I believe the stock still remains a buy given its growth prospects in the U.S. and existing research and development pipeline.

Foolish takeaway

Whilst it is inevitable that the U.S. will lift interest rates at some point in the future, investors can be ahead of the curve by buying QBE and Sirtex before an official announcement occurs.

Even if the Federal Reserve delays lifting U.S. interest rates at its July meeting, QBE and Sirtex are two stocks trading near cyclical lows and appear cheap.

Motley Fool contributor Rachit Dudhwala owns shares of QBE Insurance Group Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »