High rates may not threaten stocks that produce cash and have low debt
Higher interest rates could add downward pressure to stocks on Wall Street. The benchmark 10-year Treasury yield reached another milestone on Thursday, climbing as high as 4.98%, its highest level since 2007. Yields have risen for four days in a row, and have added about 40 basis points in October alone. A basis point is 1/100th of a percentage point (0.01%). The latest uptick has traders eyeing a 10-year yield of 5% — which also has not been reached since 2007. The rise in the 10-year underpins investor concerns over the strength of the economy, persistent inflation that’s above the Fed’s 2% target and yawning fiscal deficits resulting from the gap between tax receipts and spending. The worry on Wall Street is that could spur the Federal Reserve to keep monetary policy where it is for longer, or even tighten further. Stocks, meanwhile, are swinging between gains and losses Thursday as investors study the latest remarks from Fed chair Jerome Powell, who told the Economic Club of New York that price pressures remain too high. Against this backdrop, CNBC screened for stocks that may be able to thrive in a high interest rate environment, using the CNBC stock screener tool and the following criteria: Companies with debt-to-equity ratios under 50% and debt-to-assets ratios below 30% Compound annual growth in three-year free operating cash flow above 10% Consensus analyst ratings of buy and price target upside of at least 10% Shares that are higher in 2023 Customer relations management software company Salesforce has one of the lowest debt-to-equity ratios on the list, at roughly 16%. Salesforce also boasts a free operating cash flow three-year CAGR of roughly 20% and a debt-to-asset ratio of about 10%. Consensus analyst forecasts imply about 24% upside from Wednesday’s close a touch below $205. Shares have soared more than 54% since the start of the year. CRM YTD mountain Salesforce stock. Salesforce reported a top and bottom line earnings beat in August, and issued higher-than-expected forward guidance, helped by growth in artificial intelligence applications. The country’s largest energy producer ExxonMobil also made the list, with free operating cash flow three-year CAGR of nearly 100%. ExxonMobil also maintains a nearly 21% debt-to-equity ratio. Average consensus analysts forecasts imply more than 13% further upside for ExxonMobil stock from Thursday’s $112.95 close. Shares have ticked up roughly 2.5% from the start of the year. XOM YTD mountain ExxonMobil stock. ExxonMobil last week agreed to buy Permian Basin driller Pioneer Natural Resources in an all-stock deal for $60 billion, the largest merger and acquisition of 2023. Chipmaker Advanced Micro Devices touts a 4.4% debt-to-equity ratio and a roughly 4% debt-to-asset ratio. Shares have soared 60% in 2023, while analysts’ average consensus forecasts imply about 34% upside from Wednesday’s $102.17 close. AMD YTD mountain AMD stock. AMD has benefited from growing investor enthusiasm over all things AI, and Microsoft’s chief technology officer has said AMD’s graphics cards will be a pivotal component in the future.
