7 Steadfast Stocks That Are Unaffected by Interest Rate Changes
Investors have been preoccupied with interest rates over the past year.
The Federal Reserve raised interest rates at its fastest rate in many years. This caused steep selloffs in many sectors of the stock market. For companies with heavy debtloads or high capital intensity, higher interest rates could be an existential risk.
For other companies, however higher interest rates are no big deal. The following seven companies all have long-term debt to equity ratios of 0.1 or less, meaning that they have pristine balance sheets. For these seven steady stocks, the future looks bright regardless of the Federal Reserve’s next move.
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Alphabet (GOOGL)
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The big tech companies are in an interesting place when it comes to interest rates. Some analysts had suggested that the tech firms would sell off thanks to higher interest rates as investors would move money to other opportunities. By and large, however, this hasn’t happened, at least among large and highly profitable companies.
Alphabet (NASDAQ:GOOGL) is the perfect example. The search giant has $120 billion of cash and short-term investments compared to just $12 billion of long-term debt.
If anything, Alphabet benefits to a degree from higher interest rates, as its $120 billion cash and short-term investment pile can earn a decent rate of return. If Alphabet parks that money in treasury bonds yielding 4% a year, for example, that would generate about $5 billion in annual interest for the company.
It’s true that higher interest rates were a punishing blow to speculative unprofitable tech companies. But the tech titans with fortress balance sheets have little to worry about.
Franco-Nevada Corp. (FNV)
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Franco-Nevada (NYSE:FNV) is a leading precious metals streaming company. Streamers essentially work as specialty finance companies; they provide upfront money to mining companies and receive a portion of the gold or other metals that are ultimately produced from a mine going forward.
This has been highly successful. In fact, FNV stock has rallied more than 600% since 2007.
However, the company recently hit a bump in the road. That’s due to a dispute in Panama between First Quantum and the Panamanian government. Right now, the mine is shut down as a result. Franco-Nevada earns a significant chunk of its revenues from that mine, and it could be years before the mine is reopened and/or they receive compensation from international arbitration.
Regardless, FNV stock has now fallen by significantly more than the actual value of that royalty contract. In addition, the price of precious metals such as gold have been ticking up, which suggests that FNV shares should be trending higher as well. Franco-Nevada has no debt, and serves as a wonderful hedge to the current economic and geopolitical uncertainty.
Corteva (CTVA)
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Corteva (NYSE:CTVA) is a leading seed and crop protection company. It provides the cutting-edge seeds and associated fertilizers, herbicides and other such products to keep crops healthy. In addition, it offers software and digital solutions to help farmers enhance their crop yields.
CTVA stock surged in 2022 as crop prices soared in the wake of Russia’s invasion of Ukraine. That reversed course in 2023, however, and CTVA stock is down more than 25% over the past year.
Investors can take advantage of that dip. Shares are now going for around 17 times forward earnings, which is a fair price for this agricultural company that has virtually no net debt and a treasure trove of intellectual property around its key seed varieties and crop protection products.
Ambev (ABEV)
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Ambev (NYSE:ABEV) is Brazil’s largest beer brewing company. In addition to its home Brazilian market, it has dominant market share in Argentina and several other Latin American countries.
The company operates as a subsidiary of Anheuser-Busch Inbev (NYSE:BUD). Investors might instantly dismiss Ambev due to the parent company’s problems.
But the Brazilian operation has no debt, unlike its parent which is highly-levered. In addition, craft beer hasn’t made nearly the same dent in the South American market as it has in the United States. Furthermore, Ambev has avoided the sorts of cultural controversies that derailed Bud Light sales in the United States last year.
ABEV stock trades for just 15 times forward earnings. And shares offer a greater than 5% dividend yield today making it a leading steady stock in a defensive industry.
Old Dominion Freight Line (ODFL)
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Old Dominion Freight Line (NASDAQ:ODFL) might seem like an odd pick for a steadfast company not affected by interest rates. Trucking is a highly cyclical business, and the firms in this industry tend to be highly levered.
However, Old Dominion has built a different model. It avoids debt; in fact, it had just $60 million of long-term debt as of its last quarterly report. And on the asset side of its balance sheet, it owns and operates 11,274 tractors, 31,252 linehaul trailers, and 14,315 pickup and delivery trailers as of year-end 2022. That’s a tremendous amount of equipment to have with virtually no debt.
The company is also different because it focuses on less-than-truckload (LTL) services. This is more of a specialty than traditional trucking and can lead to higher profit margins. The business model has delivered tremendous results, with ODFL stock rising more than 900% over the past ten years.
EPAM Systems (EPAM)
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EPAM Systems (NYSE:EPAM) is a leading IT outsourcing company.
Specifically, the company came about thanks to a clever realization. EPAM could hire affordable IT professionals in countries such as Poland and Ukraine and have them fulfill contracts with Fortune 500 companies at high prices, earning an outsized spread on these deals.
This business model has worked tremendously; EPAM stock is up about 700% over the past 10 years. However, Russia’s invasion of Ukraine caused a disruption. At the time, EPAM had almost half of its staff in countries impacted by the war. It had to pause growth, relocate much of its staff, and hire additional workers from other markets such as Latin America.
Now, though, EPAM has adjusted to the new geopolitical reality and is back in growth mode. And with large companies looking to manage costs, EPAM’s affordable IT solutions look more enticing than ever. Additionally, EPAM has a large cash balance and no debt, making it resilient against higher interest rates.
Tradeweb Markets (TW)
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Finally, there is one other sort of business that can thrive regardless of where interest rates go. This would be the market makers and trading venues where people trade bonds and other interest rate products.
For example, Tradeweb Markets (NASDAQ:TW) offers software that allows traders to operate in fixed income and related markets digitally. For years, bonds were the last major asset class to stick primarily to phone-based trading as bonds tend to be more complex and differentiated securities than equities or currencies.
However, the pandemic forced much of the bond trading market to go online as well. And now, thanks to the rising volatility in interest rates, Tradeweb is enjoying record prosperity. The company posted 28% growth in average daily volume for 2023, including a stunning 43% rise in December 2023 trading volumes. This makes Tradeweb quite the steadfast stock to own regardless of interest rate gyrations.
On the date of publication, Ian Bezek held a long position in EPAM, ABEV, CTVA, and FNV stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.
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